Introduction
Globalisation has provided unlimited expansion opportunities for established international businesses, merging of markets as well as mushrooming of small local enterprises due to the efficiency and capacity of information and communication technologies. However, the recent tide of financial crisis has also adversely affected a lot of business organisations especially those with international operations. Even big and competent ones started adopting ways to stay afloat by establishing ties with smaller ones if only to maximize their competencies in most aspects of the international business: maintain global recognition, establish presence in remote areas otherwise un-served, diversify products and services, amongst others.
The airlines industry which business organisations easily qualifies as international businesses is amongst those which continue to adopt changes as well as development in their strategies, alliances, operations and marketing to sustain competence. This, however, does not mean that airlines have less to contend with. So much like any other enterprise, they, too is impaired with challenges that need to be addressed.
This paper will try to point out the challenges faced by Alitalia in its international operations with the recent changes it has adopted including merger with Air France-KLM. Alitalia or Compagnia Aerea Italiana S.p.A. is an Italian airline with headquarters in Rome and the 19th largest passenger airline with its fleet size. Its hub is Leonardo da Vinci Fiumicino Airport. It services 24 domestic and 66 international destinations.
This paper will try to focus on the following topics with regards to Alitalia:
- International airline industry challenges
- Work and environment culture problems
- Merger expectations.
The above problems and challenges need to be identified as Alitalia previously known as Linee Aeree Italiane S.p.A. went bankrupt in August 2008. Its revival through Compagnia Aerea Italiana (CAI) does not guarantee continued operations and its merger with other airlines could add up to the challenges it is already facing.
Air France KLM- is the largest airline company in the world that transported about 74 million passengers in 2008. It has been incorporated under French law and its headquarters is at Paris-Charles de Gaulle Airport. KLM Royal Dutch Airlines is the flag carrier of Netherlands. Its hub is the Amsterdam Schipol Airport in with headquarters in Amstelveen, Netherlands. It is considered the oldest airline in the world with 30,118 employees. It merged with Air France in May 2004 but both airlines fly and operate under their brand names. This practice has also been applicable with Alitalia.
With KLM, Alitalia is expected to carry code sharing, an aviation business name of sharing capacity on flights using one carrier’s equipment and crew with a flight number using two or more airlines adopted by major airlines as part of their alliances. This eliminates unfriendly competition between airlines. In addition, participating airlines can present a common flight number for connecting flights, flight for airlines that fly a given route, and exposure of airlines to un-served markets (Flight International, 2007).
The study will be limited to discussing Alitalia’s challenges and problems. While these may be pointed out and recommendations may be presented, it does not guarantee solution of Alitalia’s problems.
Problematization
January 13, 2009 marked the launching of the merged Alitalia and Air One expected as a better organization with 74 Italian and global destinations. It has an estimated 2,500 flights per week based on six airports: Rome Fiumicino, Milan, Turin, Venice, Naples and Catania with 49 destinations in Europe and elsewhere, smooth domestic flight connections. Alitalia is committed to provide top quality ground and onboard services with distinct Italian touch (Alitalia, 2009).
Alitalia came from Alitalia – Italian Air Lines, the former Italian flag carrier based in Rome prior to its 2008 bankruptcy. It was bought by CIA. In its bid to corner bigger international market, significant moves have been undertaken by Alitalia including partnership with Air France-KLM. Air France-KLM took 25% minority stake that strengthened the combination of North and Southern Europe hubs. The management expects a turn-around of 720 million euros for Alitalia.
The lock-up period is four years until January 2013. Alitalia’s Chairman Roberto Colaninno and Rocco Sabelli, CEO declared that, “We are delighted with the agreement reached between Alitalia and Air France-KLM. This is a highly innovative and ambitious alliance with important industrial implications. It has been built around Alitalia’s strong potential for growth over the coming years and on the quality of the Italian shareholders’ entrepreneurial project.
The agreement represents an important milestone in the history of Italy’s flag carrier offering, as it does, three great opportunities: growth for Alitalia, increased competitiveness for Italy and an effective service for all Italian air travellers,” (Alitalia, 2009). Alitalia’s destinations include domestic and international, focusing on major Italian cities.
Alitalia has been in the past and until today remain as affordable for many travellers. Its operations in about 66 international destinations make it a major player in the international business scene. Maintaining its operations, however, has remained a challenge. The main problem of this research is to establish the reasons why Alitalia has fared below the expectations of its investors and how they staff and management can address this.
Alitalia has seen many financial crises since its 1946 foundation. The Italian Government has supported Alitalia with 51% in shares. It continued to recapitalize and provide it with loans until the 1992 deregulation of European airline industry forbid State aid leading Alitalia’s privatization. With CAI taking over in January 2009, it has called for cutting aircraft, routes, workers, infusion of about €1 billion and search for a major airline group partners.
Research Question
As maybe glimpsed on the general perception of the industry, the company is riddled with challenges and problems. This paper will find out in detail the answer to the following question:
What are the major problems encountered by Alitalia in its operations from its bankruptcy to its merger with Air France-KLM?
Purpose
The continuing financial crisis that has afflicted all countries recently has evolved into a major economic crisis that left many countries and businesses vigilant and on lookout for ways to either stay afloat or remain competitive. As an Italian, I have always wondered how Alitalia maintain its operations as demand for value in the international business has become imperative. The purpose of this study then is to examine the problems of Alitalia in an internal as well as external manner in order to establish a clear understanding of its challenges.
Methodology
This research will use qualitative research to gather a deeper understanding about the problems and challenges in Alitalia’s international operations. Qualitative research “uses a naturalistic approach that seeks to understand phenomena in context-specific settings […] seek instead illumination, understanding, and extrapolation to similar situations,” according to Sanders (1997, ¶ 2 & 4). This process will give light to the question about the problem where little is known or established. It will also provide new perspectives about things that are already known and established as well as in-depth information otherwise difficult to identify.
This researcher will collect data through interview involving Alitalia staff and management to find out actual internal problems and challenges about its operations. Qualitative research will be conducted for the purpose of establishing not only the problems about the international operations of Alitalia but also to find out how these problems came about. This is why I will limit the participants in this study to some staff and management.
It will use both structured and unstructured interview to establish collective perception of staff and management as well as individual work or culture problems in Alitalia. It will try to gather data from the last three years of operations as this cover pre-bankruptcy period, change of management, as well as the merger period.
In using structured interview, a set of questionnaire will be given to targeted staff and management. The questionnaire will involve enumeration of the perceived problems by the management and staff in their international operations. It will also touch on their possible local or distinct work attitude and culture that are either perceived as negative or positive in their international environment. This is necessary to establish actual perception of the people involved in the international operations of the airline.
From the information gathered, the research will proceed to use unstructured interview. It will serve as a follow-up from the initial questionnaire sent to the management and staff. In this process, an actual personal interview will be requested from the participants. The data from the structured interview will serve as guideline and jumping point to probe deeper in to the challenges and problems within the Alitalia working organisation.
There is a perceived limitation in this study as there is a high probability that the participants may refuse, decline or limit their answer the questions. Likewise, there is a need to establish the following qualification for the participants:
- Working with Alitalia at least for the last 3 years
- Willing to provide information with regards to the topic
- Has a general understanding about the external perception of stakeholders about the company.
It is therefore necessary that the researcher will win the confidence of the participants through an actual disclosure of maintaining identity and privacy of the participants. This will be achieved by providing the privacy information on the cover letter provided to target participants. The participants shall be given the option to maintain their privacy by keeping their identity unknown in their answers to questionnaire.
Theoretical Framework
There has been several studies undertaken about airlines operations that include comparison of operational performances between European airlines (Barros and Peypoch, 2009), European against US airlines’ spatial structure and network behaviour (Huber, 2009), as well as Alitalia (Barbot et al, 2008; Bergamini, Gitto, and Mancuso, 2009). These studies have pointed out success through figures such as incomes, market share, evolution, costs, amongst others.
Through the available literature, this study will proceed to identify the perceived failures or inefficiency in the international airline industry competence, human resources, operational and marketing challenges, as well as other related topics that would aid in understanding international business operations of an airline as whole. This information will be useful in the proposed study.
Diagram below illustrates my understanding for this study:
Empirical Data Expected
The data to be gathered will point out the possible problems and challenges within the international operations of Alitalia. This data will be linked to related literature about airline operations as well as published performance of Alitalia. The data will mostly come from Alitalia’s corporate information, the staff and management, as well as published literature about Alitalia and the airline industry.
Analysis
Upon the collection of data, it is expected that the data will be examined, collated and segregated according to the requirement for qualitative research approach. The data gathered will be indicative of the possible problems and challenges, cause of problems as well as possible challenges that are not yet experienced but have the possibility to occur. The data will be analysed to find out if it is sufficient to supply possible solution to the present problem, otherwise, this research should gather more data until it is strong enough to support a solution.
Results
This proposed study would like to indicate a clear picture about the problems and challenges of international operations of an airline industry using Alitalia as subject. While it may not present an exact solution to Alitalia’s problems, it will serve as a guide among students like me in international business courses to further probe on possible solutions to problems such as theirs. This understanding may also lead to interest in probable emerging problems in the airline industry and aligned industries. There is an expected limit of this study due to lack of time, resources and expertise in the research field, but the information to be gathered may point out possible information that people involved in the airline industry as well as related international businesses may feel as relevant in their everyday operations.
Reference
Alitalia 2009. “Alitalia and Air France-KLM Launch Strategic partnership.” Web.
Bergamini, Elisabetta, Simone Gitto, Paolo Mancuso. 2009. “Restructuring the Alitalia business model.” Journal of Air Transport Management, In Press, Corrected Proof. Web.
Huber, Hans. 2009. “Spatial structure and network behaviour of strategic airline groups: A comparison between Europe and the United States.” Transport Policy, 2009. Web.
Barros, Carlos and Nicolas Peypoch. 2009. International Journal Production Economics. In Press. Web.
Barbot, C., Costa, A. & Sochira, E. 2008. “Airlines performance in the new market context: a comparative productivity and efficiency analysis.” Journal of Air Transport Management 14, 270-274.
Sander, Mark (ed). 1997. “Choosing Qualitative Research: A Primer for Technology Education Researchers.” Journal of Technology Education, 9, 1. Web.
Flight International.”Directory: World Airlines” 2007, pp. 101-102.