So That’s the End for Air Italy. And More Airline Money-Pits

Throwing good money after bad as a business model.

By MC01, a frequent commenter on WOLF STREET:

On February 10, one of the largest Italian newspapers, Il Corriere della Sera, announced airline Air Italy, Italy’s second largest airline after Alitalia, was facing a liquidity crisis and may not survive long. Less than 24 hours later, Air Italy announced it would immediately enter voluntary liquidation. It said that until 25 February, flights would be carried out by other airlines, such as Wamos Air. Tickets for flights beyond that date would be refunded. And employees would receive their severance packages “as written in their contracts.” So that’s the end.

Air Italy, a joint venture between AKFED, the holding company for the Aga Khan’s for-profit ventures, and Qatar Airways, had ambitious plans to grow into a major player in the ultra-competitive European commercial aviation market.

However, it proved to be a financial nightmare: The airline lost €164 million in 2018 and €198 million in 2019, huge losses for a company whose fleet was down to just 12 aircraft. At the time the company ceased operations, its entire long-range fleet had been reduced to four Airbus A330, leased from parent Qatar Airways at very favorable terms.

Bankruptcy and turnaround advisory firm AlixPartners had put together a tentative recovery plan for Air Italy, but it would have required capital outlays of at least €500 million over the next two years, far more than AKFED was ready to stomach.

While Qatar Airways is blaming its partners for pulling the plug on the joint venture, over the past three months it approved cutting several unprofitable long-range routes, chiefly to South Asia, and quietly took back the A330 which had operated them.

Qatar Airways now wants RwandAir

Qatar Airways, having learned apparently nothing from this experience, is now negotiating with the Rwandan government to buy a large stake in the country’s flag carrier RwandAir. The airline has operated at a loss during its entire 11-year existence, and financial details for fiscal years after 2013 are difficult to access.

In addition to bad financials and poor accounting practices, RwandAir is beset by other issues: The airline suffers from the typical “bloat” of African airlines, meaning it has far more employees than it needs, and the most profitable international routes from Kigali are already served by a host of aggressive airlines, from Air France to Turkish Airlines. This is going to be quite a challenge.

South African Airways gets another bailout.

Perpetually ailing South African Airways (SAA) has just been bailed out by the government, again. This latest bailout is worth ZAR 3.5 billion (about $240 million) and will be carried out by the Development Bank of South Africa, which is owned by the South African government. This is just the latest in a long series of bailouts that started in 2011 and has cost the South African taxpayer over $4 billion so far.

SAA is promising to axe routes and sell aircraft to bring some financial discipline to its books, but these are the same promises its executives have been making for almost a decade, while absolutely nothing has been done to restore the appeal of SAA on profitable long range routes against the likes of Emirates, KLM and Lufthansa.

And even less has been done about the aforementioned employee bloat. Excluding subsidiaries like low-cost airline Mango and the maintenance and catering divisions, SAA has about 11,000 employees, the same number it had back in 2011, and a fleet of 39 aircraft. A company that size would function perfectly well with 30-40% fewer employees.

The Kenya Airways boondoggle.

Kenya Airways, the state-owned flag carrier of Kenya and part of the same corporate alliance as SAA and RwandAir, is in the same spot: It has lost money every single year since 2013, and the latest financial statement puts losses at over Ksh 10 billion, or about $10 million.

While this doesn’t sound like much, it must be remembered that according to Kenyan law, as a state-owned company, Kenya Airways benefits from different accounting rules than private corporations. The airline has “just” 3,500 employees, which doesn’t seem like much until one looks at how few destinations are served by the airline and how few passengers are carried.

Kenya Airways has proven largely unable to compete with foreign airlines on profitable long-range routes. These competitors include not only big established companies like KLM and cash-laden Middle Eastern upstarts like Qatar Airways, but also Ethiopian Airlines.

Ethiopian Airlines has taken advantage of its African competitors’ perpetual structural weaknesses and has aggressively expanded its network all over the Continent. To add insult to injury, state-owned Ethiopian Airlines has long been profitable; in the latest fiscal year made a profit of $260 million after taxes.

Brazilian bus company wants to become an airline.

Back to Gulf investment companies throwing good money after bad: According to Brazilian newspaper Folha do São Paulo, an unnamed “Abu Dhabi wealth fund” is about to invest $500 million in Itapemirin Group, Brazil’s, and by extension Latin America’s, largest bus company. It has been in rough financial shape at least since 2015, following an ill-advised decision to sell 40% of its fleet and its federal licenses to operate several interstate routes and then “outsource” them to direct competitors such as Viaçao Garcia.

According to Sidnei Piva, Itapemirin’s main shareholder, this investment by the Abu Dhabi wealth fund would not merely be used to renew the company’s bus fleet and revamp its crumbling IT infrastructure, but also to start a new airline, called “Ita.”

Ita is supposed to have already ordered 35 unspecified Embraer regional airliners, though it’s not clear if directly or through leasing companies such as Guggenheim Partners and GECAS. The airline is supposed to start operations in “late 2021/early 2022.”

The funny thing is that Itapemirin already ventured in the airline sector during the economic boom of the 1990s with a freighter service called “Itapemirin Cargo” which operated a fleet of Cessna 208 Caravan and Boeing 727F, only to quickly shut it down in 1999 when said boom came to an end and the Brazilian real went through a massive devaluation.

That $500 million investment may sound like a lot of money, but it won’t get you very far in the aviation business, especially if you have little or no experience in the sector and plan to start out with a fleet as large as Ita. And that money surely will not last long if it also needs to be used to keep a failing bus company afloat. By MC01, a frequent commenter on WOLF STREET

The year has barely started, and it’s already the year of zombie airlines. Read… 2020, Already the Year of Zombie Airlines

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  77 comments for “So That’s the End for Air Italy. And More Airline Money-Pits

  1. 2banana says:

    So you are saying.

    When a government actually runs something (like a airline) the end result, everytime, even in different cultures and without fail is…

    Bloat, waste, inefficiencies, nepotism, making it a jobs center, poor service and endless bailouts.

    • Wolf Richter says:

      2banana,

      No, that’s not what the author is saying. That’s your twisted interpretation what he is saying. NOTE: Air Italy was not owned by the Italian government. And Ethiopian Airlines, which is government owned, is a well-run profitable airline. Both are topics in the article.

      • 2banana says:

        Air Italy is going bankrupt and will be liquidated. Precisely because it is not government run.

        Ethiopian Airlines – we shall see as this airline is privatizing (at least partially but who knows). Will the state/government-protected monopoly on domestic flights, which are ridiculously expensive for tourists and fairly expensive for locals be kept?

        Easy to be a “well-run profitable airline” when you are the only game in town.

      • Jessy S says:

        But he is partially right. Some governments are running money losing airlines with taxpayer dollars, some of them with untold number of bailouts.

        • nhz says:

          Anyway, most airlines these days are zombies that depend on countless subsidies, political manipulation (“think of all the jobs”) and free money from central banks. It’s ridiculous how this extremely polluting activity gets subsidized from all sides (e.g. in Europe it’s the only type of transport that is exempt from huge fuel taxes etc.), with ever increasing demand and lower ticket prices as a result.

          I hope lots of these companies will bite the dust, cease to exist and leave the market to those who can survive on their own in a real market where they compete in a fair way with e.g. public transport. Bring it on :)

      • wkevinw says:

        I am always suspicious of government financial statements. There is probably some truth to what is being stated, but you never know how much.

        Ethiopia Air isn’t among these, but a few of the Arab/Gulf airlines are accused of illegal subsidies by US carriers, as an example of this abuse.

        Note that air travel is nearly a commoditized utility now. Many know how to handle the technology of flying commercially. Financial success depends on a bunch of regulatory and similar considerations- landing fees, space, schedules, etc.

        • MC01 says:

          The relationship between US and Gulf carriers could be called a classic example of pot calling kettle black.

          US airlines, especially the Three Sisters (American, Delta and United), live in a protected environment allowing them to deal with only a small fraction of the competition they’d get in a market as juicy as the US. Just think about this: Brazil has announced a limited (very limited actually) liberalization of their aviation sector and you already have a queue of hopefuls a mile long, from local wide-eyed dreamers to well funded and highly professional outfits such as Indigo Partners.
          Think what would happen to the US market, which is so much richer than the Brazilian one, in case of such a limited liberalization.

          Gulf carriers on the other side don’t even know what honest accounting is, except perhaps for Emirates, and it’s a big perhaps. Etihad’s funny accounting (selling their own cargo division back to themselves to show a profit to say one) and enormous budget holes are just the tip of the iceberg.
          If the price of LNG keeps on sinking the way it has been sinking over the past couple of years due to oversupply, I fully expect Qatar Airways to run into serious troubles: Qatar as a whole completely depends on high LNG prices to finance a ton of money-losing and vanity projects, including the airline.

        • Gerrard White says:

          “Note that air travel is nearly a commoditized utility now”
          The Max crashes say different – the financial wizzardry that can set up an airline and impose LCC style management systems is looking to be bankrupt long term
          Climate change inspired dis investment and/or taxes will further disrupt this model, globally, even in the US, especially in Africa

    • doug says:

      state-owned Ethiopian Airlines has long been profitable;

      NO. that is not way he said. Read and try to comprehend. I think you could be successful with effort.

    • roddy6667 says:

      In China it is the opposite of everything you claim. The US domestic airline experience seems to be like flying on cattle cars full of Yahoos.

  2. MCH says:

    You forgot to mention the mess that was HNA group. I’ve actually flown them a couple of times, and they were pretty good in my opinion. But the weight of the fiscal mismanagement killed them. All of that investment in US properties, and foreign financial institutions. I guess we knew who ended up holding the bag on that one.

    This year is going to be miserable for the airlines. The coronavirus has taken a huge chunk of capacity (mostly to and from China) out of circulation for at least 15% of the year. The ramp up is going to be slow. Basically, this whole thing is going to sting, I wonder how much losses these majors are going to sustain from it. Forget the small fries, they are just going to die.

    This year will weed out some more of the losers. I look forward to more ancillary revenue.

    • MC01 says:

      HNA Group will most likely be covered in the near future, for no other reason the Chinese government has finally thrown off the mask and announced the group will be nationalized de jure after having been nationalized de facto for two years now.
      The Chinese government has also announced all aviation-related activities and investments will be “disposed of”. These activites include anything from Hainan Airlines to a 20% stake in Dufry, the airport duty free specialist. This is going to be the father of all fire sales and most likely the first phase of the group’s complete demise.

      As an aside all HNA-related airlines have already started to cancel orders placed with both Airbus and Boeing and at least a dozen aircraft painted in Hainan Airlines livery were stored at airfields around China just before the ultra-busy Lunar New Year vacations, including two brand new A350 which had been flown from Toulouse directly to storage in China.

      As I predicted a while back Asian airlines will have to come to terms with reality over the present decade and while we may not see many bankruptcies (Asian governments don’t like them because they go against the image of 5-10% yearly GDP growth they want to give) we are going to see a whole lot of forced mergers and takeovers, bailouts and cancelled orders. Stay tuned.

      • MCH says:

        And what will that surplus of aircraft do to the duopoly when those eventually hit the market, the knock on effects will be horrific at some point. Remember, Air Asia that has ordered hundreds of neos and a whole lot of A330s. One wonders if delivery will ever occur now that bribes have exchanged hands.

        Cancellation and death of the A380 was bad enough, the Max fiasco is going to take years to truly recover from. As these airlines start to go down, the combo of cancelled orders and surplus aircraft is going to slam the aviation industry.

        • Thomas Roberts says:

          The Airbus A380 worked fine, there was just a lack of demand. Boeing is trying to outsource everything and product quality has plummeted; Airbus will inherit alot of plane orders from that.

          Planes require alot of constant part replacements. Airbus might shrink in the future, but they will survive. Boeing is in a much worse position.

        • Frederick says:

          Boeing sure seems to be doing a bang up job of destroying themselves lately That’s for sure and it was one of America’s biggest success stories in manufacturing Sad

        • Thomas Roberts says:

          Definitely, because of the outsourcing, Boeing will lose alot of money on all those repairs. Repairing existing planes might be a much bigger chunk of airplane spending in the future. As well as more competition with trains and other forms of transportation. There is also the other airplane manufacturers coming in. The Russian Irkut MC-21 could actually revive Russian airplane manufacturing, and you don’t have to worry about sanctions, buying the Russian planes.

        • Albert Dallas says:

          Even the Russians don’t want to fly on Russian built aircraft.

        • Pilgrim says:

          So sad about the Max mess: Design problems, Software problems, FOD in the fuel tanks, Suppliers not meeting contract stipulations, etc.
          The experiences I had with certain aerospace companies, in the day, they had a Quality Control dept. As time progressed, managers decided that Quality was an unnecessary overhead and roadblock. The designers were empowered to check each others work. QC was cut to the bone or out the door.

        • Thomas Roberts says:

          Albert Dallas,

          The superjet isn’t currently up to modern standards, at least currently; it might be possible to replace some parts to bring it up to modern standards. The Irkut MC-21 is a much better design; until it enters service, we won’t know, but I would fly on it over a 737 max any day.

        • MCH says:

          Both the A380 and the Max are gutted because of poor management. In the Airbus case, it was because they completely misread the market.

          Boeing’s case is because their crappy management starting in the McNerny era prioritized shareholder value over everything else. McNerny, who was one of Welch’s star pupil did great in terms of financial engineering, but when it came to things that mattered like marketing, engineering, and manufacturing he was clueless. He sat on the accomplishment of the 787 and panic reacted with the Max.

          The A380 is a good plane, no doubt, but wrong for the markets as they evolved. The Max is one that should’ve never been launched because the management at Boeing was clueless about what to do… they could’ve been patient and developed the NSA if they hadn’t gutted Boeing’s engineering capabilities. But they couldn’t. Now Boeing is going to be dead for the next two to three years, the NMA will not happen for another few years… if ever. It’s going to take them a hard decade to dig themselves out of the mess they are in now. They better start soon, or Airbus is going to be in a duopoly with someone else… likely someone in Asia.

      • Iamafan says:

        If you remember during 911 all US airlines got money from the government including Fedex.

        I guess that makes them favored.

    • Wolf Richter says:

      MCH,

      Here is my take on HNA, and its various airlines, including Hong Kong Airlines, from December last year:

      https://wolfstreet.com/2019/12/03/chinese-conglomerate-hna-unravels-its-airlines-get-bailed-out-except-perhaps-its-hong-kong-airlines/

    • Sammy Iyer says:

      HongKong Airlines is owned by HNA group. They fired quite a lot airhostess/stewards today & discontinued all inflight service. They closed their airport lounges also.(HK-china services already cut by 30-50%). HNA group may not survive this COVID bust. But chinese govt may bail out HNA.

  3. CreditGB says:

    I rode in a DeLorean once, it was a pretty cool and desirable car. Odd, that I can’t find DeLorean Motors listed anywhere.

    A structurally failing company can produce the finest products or services, until it runs out of cash.

    Its life depends on greater fools investing cash, be they banks, Governments, or private investors.

    Yes, some will make a killing, but the rest will simply be killed. Apparently, Air Italy’s financial casualty list has now been identified. But go ahead, invest in these zero profit cash burners with great products if you will, I would feel just awful if I had influenced anyone with my one opinion.

  4. nick kelly says:

    Let’s hope South Africa, the only industrial power on the continent, does not turn out to be a much bigger Zimbabwe.

    • Thomas Roberts says:

      Racial tensions will almost definitely, cause, South Africa to become the newer bigger Zimbabwe.

      • VarAway says:

        One generation ( max ) more/later and, once beautiful and prosperous Suid Africa, WILL be simply another failed state like Zimbabwe and the rest of the entire continent of Africa….
        Horrible thought, but that’s what the Africans want….
        ” Kill the Boers “

        • Frederick says:

          Don’t they have a virus for that ?

        • nhz says:

          @Frederick:
          now that you are asking, besides the US and its little friend in the Middle East there is one other country that was heavily involved in genetic bioweapons research in the past: South Africa. Don’t know if they are still a player, my guess is that the researchers have moved to one of the other players and the genetic target would have to be reversed for the current government ;(

        • char says:

          East Africa is booming. Would not call it a failed state. And it is land that the blacks want back. I doubt they care about the boers

        • Frederick says:

          Speaking of bioengineered viruses I could see the water tower on Plum Island from my kitchen window in Sag Harbor NY and I tested positive for Lyme in 2011 Many think it was created there and escaped somehow Hence the name Lyme first seen across the LI sound in Lyme, Ct It’s epidemic on eastern Long Island partially because of all the deer

        • nhz says:

          @Frederick:
          I know all about LD also from personal experience; I have been scientific adviser for the patient side for several years and communicate with some of the good scientists in the field. I don’t think Lyme disease was engineered on Plum Island, but it’s obvious that reckless experimenting with pathogens and vectors there contributed to the spread in the US. Which is probably the reason for all the secrecy and manipulation on the subject, especially in the US. But ticks and Borrelia existed long before that, it’s obvious especially from European records – it just caused very little disease longer ago. My area is a Lyme hotspot too but there are just a couple dozen deer in a very large area; for sure they are not “the cause” as is often suggested. Something has changed in the last 1-2 generations that is causing the disease; and the same may be true for many recent pandemics because many of them can be traced back to modern development. It’s telling that many former Eastern Block countries are 2-3 decades behind in the spread of Lyme disease. Many questions and few solid answers …

    • Argus says:

      Mismanagement and corruption at government and semi-state corporation levels (e.g. Escom) will send it down the tubes eventually. Too many snouts in the trough of tax-payers’ money.

      • fajensen says:

        There is no such thing as ‘the tax-payers money’: All money in circulation is obviously the Governments money, it carries the government’s names and logos on it, advertising that fact!

        People are forced to collect ‘government tokens’ in order to pay taxes to the government – Or Else (That is why the money is worth anything).

        Jesus figured this out only 2000 years ago. Nobody listens.

    • nicko2 says:

      Forget South Africa, Egypt and Nigeria are the new powers on the continent. And since I’m Egypt, I’d give the edge to them, the reforms the country is currently undertaking are massive.

      • char says:

        Egypt is more a Mediterranean than a African country and East Africa is more the booming place to be. Egypt has to many riches so rulers don’t need to make the country itself work

  5. Stephen says:

    Could this be the long awaited corporate enema that we have been waiting for? Mother nature has a way of purging when necessary. Lots of that going on in the world today. We are living in an era of maximum disclosure where lies and misrepresentation get exposed fairly quickly. But it takes time for the medicine to work……be patient Grasshopper.

  6. David Hall says:

    WSJ reported global airlines are on the brink.

    Maersk reported a downturn in ocean going shipping.

    Global travel is disrupted.

    • MC01 says:

      No, they are just waiting for this stuff to blow over so they boast about “double digit growth” and people can look at them in amazement. And I am only half joking.

      But airlines in China have cancelled internal flights worth something like 10.5 million seats in the 20 January-20 February month. And this stuff is not going to stop anytime soon.
      The Civil Aviation Authority of China (CAAC) is already readying an emergency plan: State-owned airlines like Air China and China Southern are not an issue but the myriad of companies owned by private groups and local governments are. Companies like Donghai Airlines and Joy Air are taking the mother of all financial beatings.

      The problem is the Chinese economy has already been at the receiving end of a veritable flood of yuan for the past couple of years: it’s literally drowning in cash and cheap debt. That’s how the aforementioned Joy Air can afford an order book worth a massive 104 aircraft, including 40 Xian MA60, a Chinese derivative of the venerable Antonov An-24.
      I am not holding my breath for any remotely sensible idea given how the Chinese government has handled the Covid-19 health crisis though.

    • Frederick says:

      But, but, but Jetfuel price is dirt cheap Evidently fuel cost is of secondary importance nowadays

  7. Joe says:

    The airline industry in general has almost daily accidents or parts problems that make flying a kiss the ground moment every time you get off the plane.
    Add to that sharing of germs as they cram more people together…
    A disaster in the happening.
    Noticed too how poorly quality has become with these companies.

  8. DR DOOM says:

    This is the way our zombies need to be treated. A nice quite mercy killing .

    • Wolf Richter says:

      DR DOOM,

      Send me your phone number and your name so I can ship the mug to you. FedEx requires the recipient’s phone number and will not accept a shipment without the recipient’s phone number.

      My email: howlatwolfstreet@gmail.com

      I contacted you via your login email on Feb 21, but no response so far. I have left this type of message on several of your most recent comments.

    • Wolf Richter says:

      I just received your phone number. Thank you! Mug will go out via FedEx Monday morning. Cheers!!

  9. raxadian says:

    Hey MC01, any good books to read about “How to ruin an Airline”?

    • Mike G says:

      Not focused on the business side, but Aerodynamic by Kevin Michaels is very detailed on the technology of the airline industry.

    • MC01 says:

      Howard Hughes’ Airline: An Informal History of TWA by Robert Serling. Just be mindful it is a bit dated.

      • nick kelly says:

        I read the main bio of Hughes that covered his airline stuff. As I recall he ordered 60? planes from Convair, with no plan to pay for them. A new type, with Hughes the lead and only customer, they were dubbed the Constellation 888, as one wit put it to reflect the number of (telephone) conferences with Hughes.

        The order sent a wave of terror through the mother ship, Hughes Machine and Tool. With a legal monopoly on the oil drill bit invented by Hughes’ father, it could finance his movies etc. but was too much. It forced a truce on the feudal barons within the empire and they focused on getting Hughes to focus on financing. At one point it was all arranged, and Hughes told the banker ‘send me the papers’.
        ‘Mr. Hughes I don’t do business that way. I like to meet my customer.’

        So that ended that.

        At one point to delay things, Hughes seized the only plane near completion. Just hooked on to it and towed over to his hanger. This especially annoyed Convair because the plane had the only prototype for a new seat. You put up with a lot from the only customer for a new plane.

        I’m writing this from memory so may not be perfect. The common ideas about Hughes personal eccentricities understate the reality.

        A good read and to identify I think it was co-authored.

      • raxadian says:

        And yet the guy had a net worth equal to $11 billion at the time of his death ($2.5 billion in 1976).

        People tends to forget that’s way harder to polish a turd when it comes to airlines. Cars? No problem! Just look at Tesla and GM. GM has survived over a decade being an undead car company. And Tesla has so many losers that if you switched the minus to a plus you could buy a small country.

  10. Unamused says:

    Why all the corporate interest in establishing more airlines? From here it looks like a mature industry with serious barriers to entry.

    And why do investors feel the need to look for bigger and better ways to lose money when the old ways work so well?

    • MC01 says:

      First, scramble for yield. There’s truly a lot of money in the world looking for any yield at any price. Countries strangled by NIRP for too long are especially susceptible to this phenomenon: see how startup Scandinavian airlines can easily raise a lot of capital including that curious experiment in corporate organization, BRA.

      Second, the growth in passenger numbers over the last decade has been parabolic all over the world. However it’s impossible to tell how much of this growth stems from people and companies having more cash to spend and how much from cheaper fares. In countries like Indonesia airline fares have collapsed over 40% in the past decade, and that’s before taking into account CPI. Where there’s growth, there’s capital.

      • Cynic says:

        Very true.

        Yield, yield , ever more yield.

        I know some very wealthy people , and they seem tortured if they are not making more, getting yield.

        It’s their Holy Grail and their world seems out of joint if they can’t see the shining chalice in a halo of light.

        I pity them,and try not to despise them.

      • raxadian says:

        In other words, very low to negative interest rates estimulate the economy by forcing people to invest their money or to expend it… in theory.

        In reality investors are crazy, look at Tesla!

    • char says:

      Serious barriers to entry? A few million and you too can own an airline.

      Investors also start airlines not to make money with the airline but some other play they own. For example Trump’s airline flying to his casino.

      • MC01 says:

        To start an airline (or a flight school, or even a company offering helicopter sightseeing tours ) the most valuable thing is an Air operator’s certificate (AOC).
        Among the various thing you need to get an AOC: sufficient personnel with the needed operational qualifications, liability insurance, proof you have sufficient finances (cash, line of credit etc) to fun operations for at least six months, accountable staff etc.
        On top of this many countries (among them the US, Brazil and India) seriously restrict the number of AOC available for airlines, meaning you also need to purchase an existing one from somebody else or get in line when new ones are released.

        Also when you run out of cash, or your investors get cold feet, your AOC will be suspended indefinetely: this happened recently to Small Planet and Ernest. It’s up to you to demonstrate to the AOC issuer you have improved your finances to get it back.
        That’s also the reason why Norwegian Air Shuttle (NAS) was so keen to close a deal with creditors last year to postpone principal payment on two bond issues.
        Creditors had to either take what NAS was offering or ready themselves to see the AOC suspended and hence the airline not generating any revenue and facing bankruptcy or even liquidation.

        Trump Shuttle wasn’t a completely rotten idea to begin with, but arrived at the worst possible moment, when the New England economy hit the brakes around 1989. Next year the First Gulf War caused fuel bills to nearly double.
        The helicopter branch (Trump Air) suffered from the usual problem: large Western helicopters, often of military origins, are just not profitable to fly because they cost a fortune to buy and another to run. Flying a fleet of civilian Boeing Chinook and Sikorsky Sea King was just asking for troubles.

        • char says:

          I have a Euro-centric point of view.

          If i win 20 million in the lottery i can start char airline with a possibility of success and a few million people will know my name. I don’t think there is another business where this combination of possible success and being semi-famous is true.

  11. Tyson Bryan says:

    Suppose net human air miles traveled drop by 70% 6 months from now.
    The velocity of people and their circulating dollars (and euros etc.) will both slow dramatically. 1st domino?

    • Frederick says:

      And the velocity of money M2 is already at decades low level Without this “ beer virus” adding to it

  12. Max says:

    Air Italy has strange owners but an airline with great potential.
    Italian government should ask current owners to cover the debt and disappear..
    After that company has to be sold on an auction and there is a lot of interest..
    Italian media have to push such an option as it save jobs and improve national transport system..
    Society has to defend itself vs. stupid oligarchs
    And of course all Maxes and 737’s has to be removed from the fleet.
    Should be replaced by old A320 or brand new Russian-Italian Superjets ..

    • MC01 says:

      I don’t normally do this but this time I really have to say this: this stuff is completely nuts.

      Air Italy has entered voluntary liquidation because the owners are tired of throwing good money after bad. It’s normal and sensible practice in business, or at least it used to be.
      But Italian politicians and their lapdogs in the media are freaking out. Why? Very simple: it’s too close to Alitalia for comfort.

      Alitalia has been in bankruptcy protection for close to three years now. That’s unheard of: usual practice is to liquidate after one year at most if a buyer cannot be found or a recovery plan agreed on. And why should people be interested in buying a company on which they would have only nominal control?
      Perhaps we should nationalize, since the word is all the rage these days. Alitalia closed FY2019 with a loss of over €600 million: who is going to throw all that money at it? The Italian government, which lacks the money and especially the will to keep bridges from collapsing?

      Air Italy is too much of a reminder for politicians who keep on throwing money and resources at a failed company instead of fixing those aforementioned bridges. If Air Italy is liquidated without a fuss, the already thin support on the ground to keep Alitalia afloat would evaporate like a drop of water on the ground around here in July.

      • GotCollateral says:

        I kept thinking during every line of action in @Max post, “with what money? certainly not from some theoretical the sale of the debt riddled ‘assets’ on these ‘oligarchs’ balance sheets at assumed mark-to-fantasy valuations to other ‘oligarchs’ in simmilar postions”

        Dont feel bad, sometimes the insanity has to be taken out back and shot in the head. Then for good measure, cremated in one of wuhans finest with the rest of the biohazardous trash

    • char says:

      Air Italy is a long distance airline with a hub in Milan. So for most Italians that means they have to fly to Milan. But if you already have to make a stop-over than Madrid and Istanbul make more sense as total flying time will probably be shorter (and for Greta use less fuel).
      In reality i don’t see how Italy can have a big long distance airline. The market is to small and fragmented for that. Maybe the321 XLR will change that

      • MC01 says:

        Germany has two main passenger hubs (FRA and MUC), and is considerably larger than Italy. There are plenty of very busy local airports (STR, HAM, DUS etc) where you can board a flight to Turin, Antalya or Palma de Mallorca. So using your logic Lufthansa, whose most profitable flights are long-range flights to Mexico City, Buenos Aires, Johannesburg etc from the two main hubs, should not exist. ;-)

        The big problem here is chiefly that nobody has found a way to build a low cost long range airline. Norwegian Air Shuttle had everybody thinking a company had cracked that recipe until it was discovered how much investors’ cash they were burning through. Shades of Netflix/Blue Apron/Delivery Hero. The only thing that’s keeping that airline afloat is the level of desperation among Scandinavian pension funds and other dumb money outfits, but even those folks are starting to lose patience. Ryanair, EasyJet, SAS, Icelandair etc look like the great European powers eyeing the Spanish Empire while “El Hechizado”, Carlos II of Hapsburg, was lying on his deathbed. And it’s taking just as long for both to shuffle the mortal coil.

        Air Italy run through the two shareholders’ money to fly people to Miami and Dakar on a so called “Big Mac budget”. Turns out on long routes volume is simply not enough to make up for cheap airfares, even when fuel and handling fees are cheap and the ACMI lease is particularly favorable.
        On top of this Air Italy slammed against the extremely difficult Indian market: with such a large number of Indian expats everywhere the routes to Bangalore and Mumbai were expected to make a nice bundle, especially after Jet Airways broke under the weight of debts. They didn’t, and Qatar Airways quietly but speedily took back the aircraft that had operated those routes.

        • char says:

          The population within a three hour drive from FRA and MUC is so much larger than MXP and the land SouthWest and SouthEast of it is land not sea like it is with Milan.

          ps. For a stop-over to a destination in North America it makes more sense to do the stop-over in Amsterdam, London or Paris than milan

        • MC01 says:

          It’s useless to try and explain anything to people who already have all the answers.

        • Missouri Jon says:

          It may be useless to explain to people who have all the answers, but by trying to do so, you ended up explaining a great deal to people like me.

          I truly appreciate your effort to calmly and consistently provide feedback in your articles – it’s always worth reading. In fact, I personally find it to be the best on this site, if not the whole Internet, for nuts-and-bolts information and perspective on global commerce.

          Out of curiosity, how does Alitalia continue to defy gravity in bankruptcy court? I understand that the government wants to keep it afloat, but doesn’t bankruptcy protection put the matter in the hands of the judiciary? Are the arbiters involved politically appointed?

  13. unit472 says:

    Korea bans Chinese, Israel bans Koreans. How long before the Schengen agreement in Europe lasts due to Italy and whomever is next to suffer a virus outbreak. Cruise ships kaput so that is not good for airlines either.

    Given the current state of the travel and tourism industry I wouldn’t loan a nickel to an airline.

  14. nhz says:

    If the current coronavirus pandemic gets this sector of the economy grounded for a long time all the better. The huge growth in airline travel “just because we can” thanks to NIRP/ZIRP and endless government subsidies and tax exemptions is a disaster for the planet. Not just because of emissions (which in many countries are “above the law”) but also because the hordes of cheap tourists are destroying everything. Mass consumption on a planetary scale, it’s a pandemic on its own and it needs to stop. Maybe a serious scare can do some good here.

  15. Unamused says:

    The fact that investors are so “desperate for yield” that they’ll put their money into losing operations is an indication that the Real Economy has become increasingly unable to offer genuinely profitable opportunities.

    The money from all those tax cuts for rich, tax evasion, tax avoidance, union busting, wage suppression, labor arbitrage, and so forth, can’t just sit in bank accounts losing value due to inflation and NIRPZIRP policies. At the least it has to be put into assets of some kind, even if it’s new brick-‘n-mortar stores while shopping malls are closing, or into upscale home developments while huge numbers of houses are empty and kept off the market to keep prices up.

    Or put into airlines that crash and burn.

    Meanwhile, consumers struggle to keep up with housing costs, medical costs, transportation costs, and education costs, even with purportedly ‘low inflation’, due to long-stagnant wages that can’t keep up with the greed. They can’t afford to feed the desperate need for investment yield. Worse, the wealthy have managed to grab all the yield well in advance of generated profits, a great deal of which are never going to materialise.

    ‘Supply-side economics’ designed to enrich the wealthy at the expense of the Real Economy have resulted in national economies with such serious imbalances between supply and demand that they’re bound to fall over. So it becomes clear why Central Bank interest rate policies aren’t going to help. All it does is make the situation worse. The problem isn’t that interest rates are too high. The problem is economic policies which pursue huge structural imbalances.

    “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence.”

    – Paul Volcker

    • nhz says:

      yes, it is evidence of how destructive the current financial/economic policies are.

      A bit like the policy in the Netherlands (which has a terrible housing shortage and sky-high prices) of handing out huge amounts of money to housing corporations for demolishing whole neighborhoods of social housing, and sometimes even buying up all the private properties in the area to be razed down as well, only for everything to be replaced by expensive investor properties (the social sector renters often get a spanking new home instead, just in another area, and there too the bill is for the taxpayers).

      Just because we can thanks to cheaper-than-free money for EU governments (and to make sure asset prices for the 0.1% never go down …).

  16. Realist says:

    SAS, the Swedish/Danish/Norwegian airline did recently air a new advert where they did their best ( read worst ) to smear Scandinavian culture, something that people did not like and the advertisement campaign did experience a crash in flames in a few hours after airing.

    It will be interesting to see the result for SAS for Q1, both the coronavirus and their advertising being in play.

    Gilette is not alone …

    • fajensen says:

      At some point, advertossers are going to learn that ‘Social Media’ is only loaded up with Gammons, Crackpots and Bots, making it useless (if they are lucky) and generally self-defeating to advertise anything on any of the current ‘digital platforms’, because:

      There is always someone, somewhere, at any time, that will take the most grievous offence over anything at all and then go off over it!

      Those few, but loud, initial ranters and bots will feed the algorithms that boosts ‘page views’ and ‘page interactions’, which then splurges the shite all over ‘The Interverse’, until it hits ‘Twitter’, from where it is eventually picked up by ‘real media’ and then re-quoted.

      Thus the opinions of perhaps 2000 people, globally, becomes “The Howls of The Masses”*.

      SAS will be OK. ‘The offended populace’ are not the ones deciding about flying SAS or not. It’s pretty much like Muslims complaining about bacon!

      *) This will be fixed when the ‘digital platforms’ lose enough revenue!

      • MC01 says:

        In marketing there’s a thing called “shock marketing” which is supposed to grab potential customers’ attention using “any means necessary” and then pull it towards the product.
        That’s what SAS tried here, and like it always happens it failed: turns out insulting your potential customers or passing them for fools is not the best way to sell anything, from tickets to canned soup.

  17. Gerrard White says:

    “Note that air travel is nearly a commoditized utility now”
    The Max crashes say different – the financial wizzardry that can set up an airline and impose LCC style management systems is looking to be bankrupt long term
    Climate change inspired dis investment and/or taxes will further disrupt this model, globally, even in the US, especially in Africa

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