March 16, 2009 issue
There is an air war brewing that is changing the way European airlines operate. Driven by a sputtering economy, airlines in Europe are gradually departing from the one government/one airline model. They are increasingly looking to cross-country mergers, sometimes involving private investors, as a means of survival.
Alitalia is a case in point. The Italian government-owned airline filed for bankruptcy last August, and a group of private Italian investors stepped in. Then, in January 2009, Air France-KLM (itself a merged airline) bought a stake in Alitalia. That action precipitated the creation of another airline’s new brand: German carrier Lufthansa quickly launched a separate operation, christening it Lufthansa Italia.
Lufthansa had an interest in buying a stake in Alitalia but lost out to Air France-KLM. Rather than cede the lucrative Italian routes, Lufthansa took a calculated risk and created its own new brand. It’s the first time Lufthansa has established a carrier outside its home market of Germany.
Granted, Lufthansa is an established worldwide brand. Known for its German punctuality and efficiency, Lufthansa has fared better than most European airlines. Still, the question is, will Lufthansa be able to bring the same magic to Lufthansa Italia?
Lufthansa Italia may have taken off suddenly, but Lufthansa has already shown commitment to the integrity of the new brand. Lufthansa has set up the airline as a separate subsidiary based in Milan, Italy. The airline adorned two Airbus jets with the new airline’s name and designated the planes “Milano” and “Varese” after two Italian cities. Previously, Lufthansa had named its planes only after German cities. Lufthansa Italia started operations in early February 2009, flying out of Malpensa (Milan) Airport to Paris, France, and Barcelona, Spain. More aircraft were scheduled to be added in March, and routes to Brussels, Bucharest, Budapest, Lisbon, London and Madrid were scheduled to be online by the end of March.
Lufthansa says it will imbue the new Lufthansa Italia with “reliability and high quality blended with Italian flair.” The airline says it has developed “special Italian-style in-flight services” for Lufthansa Italia (although it doesn’t specify what they are). The planes are configured to seat 138 passengers in business and economy class. Lufthansa’s operations at Malpensa Airport will be upgraded to include dedicated check-in counters, more quick check-in terminals, refurbished gate and baggage reclaim areas, and a new and improved Lufthansa lounge.
Also in February, Lufthansa Cargo announced the launch of freighter services between Milan and New York and Chicago, taking advantage of Alitalia’s failed cargo operations. Lufthansa said it will use the freight capacity of its Lufthansa Italia jets to increase the company’s Italian cargo business.
There was another motivation to starting Lufthansa Italia. Lufthansa Executive Vice President Karl Ulrich Garnadt told ATWOnline.com that the airline will seek an Italian Air Operators Certificate so that it can gain the right to fly to Eastern Europe and other non–European Union destinations.
For the present, at least, Lufthansa Italia will need to operate primarily as a budget airline. That’s because there is heavy competition for the Malpensa routes. But according to Der Spiegel, competition could also benefit Lufthansa Italia: “… there's a good chance Lufthansa will obtain flight rights on the lucrative route between Milan and Rome for the first time. Until now, the lucrative route has been largely reserved for Alitalia and Air One, but after their merger there is significant probability that the European Commission will require that the route be opened up to other competitors” (January 13, 2009).
Upstart airline brands have succeeded in Europe before. Richard Branson’s Virgin Atlantic famously came on the scene in 1984 to challenge British Airways’ monopoly. The two airlines have been fierce rivals ever since. Ryanair, arguably Europe’s most successful low-fare airline, began flying between Ireland and London in 1985. By 2006, Ryanair had carried a record 42.5 million passengers, and became the world’s first airline to carry more than four million international passengers in one month. Today Ryanair owns 30 percent of Aer Lingus, Ireland’s national airline and Ryanair’s former archrival.
Lufthansa Italia may have a different kind of challenge ahead, however. Alitalia is still a formidable brand. It has been in existence since 1946, and it has carried the colors of the Italian flag in its logo, a stylized capital A, since 1969. Italian air travelers could well remain committed to a brand that has been closely tied to their homeland for more than sixty years.
On the other hand, Alitalia has endured union strikes, poor service, management problems and a recent bankruptcy. With private investors and Air France as part owner, Alitalia is moving further away from, not closer to, its Italian roots. That presents a market opportunity for Lufthansa’s new venture. If Lufthansa Italia can show it is well run, competitive and respectful of Italian culture, this upstart airline could quickly make gains with Italian travelers. They will likely pick superior economical service over loyalty to a former national airline that is in serious need of a makeover. This is the new global economy, after all.
Barry Silverstein is a freelance writer/marketing consultant and co-author of the McGraw-Hill book, The Breakaway Brand.
Lufthansa had an interest in buying a stake in Alitalia but lost out to Air France-KLM. Rather than cede the lucrative Italian routes, Lufthansa took a calculated risk and created its own new brand. It’s the first time Lufthansa has established a carrier outside its home market of Germany.
Granted, Lufthansa is an established worldwide brand. Known for its German punctuality and efficiency, Lufthansa has fared better than most European airlines. Still, the question is, will Lufthansa be able to bring the same magic to Lufthansa Italia?
Lufthansa Italia may have taken off suddenly, but Lufthansa has already shown commitment to the integrity of the new brand. Lufthansa has set up the airline as a separate subsidiary based in Milan, Italy. The airline adorned two Airbus jets with the new airline’s name and designated the planes “Milano” and “Varese” after two Italian cities. Previously, Lufthansa had named its planes only after German cities. Lufthansa Italia started operations in early February 2009, flying out of Malpensa (Milan) Airport to Paris, France, and Barcelona, Spain. More aircraft were scheduled to be added in March, and routes to Brussels, Bucharest, Budapest, Lisbon, London and Madrid were scheduled to be online by the end of March.
Lufthansa says it will imbue the new Lufthansa Italia with “reliability and high quality blended with Italian flair.” The airline says it has developed “special Italian-style in-flight services” for Lufthansa Italia (although it doesn’t specify what they are). The planes are configured to seat 138 passengers in business and economy class. Lufthansa’s operations at Malpensa Airport will be upgraded to include dedicated check-in counters, more quick check-in terminals, refurbished gate and baggage reclaim areas, and a new and improved Lufthansa lounge.
Also in February, Lufthansa Cargo announced the launch of freighter services between Milan and New York and Chicago, taking advantage of Alitalia’s failed cargo operations. Lufthansa said it will use the freight capacity of its Lufthansa Italia jets to increase the company’s Italian cargo business.
There was another motivation to starting Lufthansa Italia. Lufthansa Executive Vice President Karl Ulrich Garnadt told ATWOnline.com that the airline will seek an Italian Air Operators Certificate so that it can gain the right to fly to Eastern Europe and other non–European Union destinations.
For the present, at least, Lufthansa Italia will need to operate primarily as a budget airline. That’s because there is heavy competition for the Malpensa routes. But according to Der Spiegel, competition could also benefit Lufthansa Italia: “… there's a good chance Lufthansa will obtain flight rights on the lucrative route between Milan and Rome for the first time. Until now, the lucrative route has been largely reserved for Alitalia and Air One, but after their merger there is significant probability that the European Commission will require that the route be opened up to other competitors” (January 13, 2009).
Upstart airline brands have succeeded in Europe before. Richard Branson’s Virgin Atlantic famously came on the scene in 1984 to challenge British Airways’ monopoly. The two airlines have been fierce rivals ever since. Ryanair, arguably Europe’s most successful low-fare airline, began flying between Ireland and London in 1985. By 2006, Ryanair had carried a record 42.5 million passengers, and became the world’s first airline to carry more than four million international passengers in one month. Today Ryanair owns 30 percent of Aer Lingus, Ireland’s national airline and Ryanair’s former archrival.Lufthansa Italia may have a different kind of challenge ahead, however. Alitalia is still a formidable brand. It has been in existence since 1946, and it has carried the colors of the Italian flag in its logo, a stylized capital A, since 1969. Italian air travelers could well remain committed to a brand that has been closely tied to their homeland for more than sixty years.
On the other hand, Alitalia has endured union strikes, poor service, management problems and a recent bankruptcy. With private investors and Air France as part owner, Alitalia is moving further away from, not closer to, its Italian roots. That presents a market opportunity for Lufthansa’s new venture. If Lufthansa Italia can show it is well run, competitive and respectful of Italian culture, this upstart airline could quickly make gains with Italian travelers. They will likely pick superior economical service over loyalty to a former national airline that is in serious need of a makeover. This is the new global economy, after all.
Barry Silverstein is a freelance writer/marketing consultant and co-author of the McGraw-Hill book, The Breakaway Brand.
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