Chapter 1607 The Importance of the Atlantic Route

"And you will also gain the goodwill of the Italian government. If you have the idea of ​​increasing investment in Italy in the future, this is very important!"

Yang Cheng can understand that no matter where you invest, if you can get the kindness of the government, your road will be much easier.

But whether Alitalia is worth acquiring is the crux of the matter.

It stands to reason that Delta Air Lines already has a piece of Norwegian Air in Europe, and Alitalia has become dispensable.

However, Alitalia, which is based in Rome, has a location advantage that Norwegian Air cannot replace. The most important thing is that Alitalia has become a sinkhole since it entered the 21st century, and it is the kind that cannot be filled no matter how hard it is.

Yang Cheng found a piece of public information about Alitalia on the Internet. Between 1999 and 2008, Alitalia had a cumulative net profit loss of 3.7 billion euros, which is almost three times its current market value.

Since 2004, the company has announced that due to financial difficulties, it intends to divide Alitalia into two branches, airlines and ground services, but this plan was shelved because Alitalia received capital injection from ZF in the same year.

But a few years later, Italy was restricted by the European Union and could no longer support Alitalia. In desperation, the Italian government could only sell its shares to help Alitalia obtain financial support.

At that time, a total of three parties bid for shares in Alitalia, namely Air France-KLM Group, a number of banks led by AirOne, the Italian regional airline, and an investment group represented by a lawyer.

After a year of fierce battle, Air France-KLM acquired 49.9% of Alitalia’s shares at a total price of 608 million euros, using cash and equity replacement. Although the restructuring terms were approved by Alitalia’s directors and ZF, they were rejected There has been strong opposition from airline unions, with pilots in particular opposed to the proposal that Air France-KLM would stop cargo services.

In the end, the negotiations broke down, and Alitalia declared bankruptcy immediately. Afterwards, the Italian ZF came forward and found a company to come forward to host. Alitalia and the local airline AirOne completed the merger, and Air France-KLM purchased 25% of the new Alitalia for 323 million euros. shares.

However, the restructured Alitalia still failed to recognize the fact that the European aviation market has changed. With the rise of low-cost airlines, many established airlines have undergone painful changes to provide more favorable fares and diverse services. Adjust the price in a timely manner as the market changes, and keep your own market share even if you lose money.

In this highly competitive European market, Alitalia will not advance or retreat. Although as the flag carrier, Alitalia retains the priority of many domestic routes, such as short-haul direct flights from Rome to Venice, Genoa and Trieste, Alitalia It has an absolute advantage in the number of flight slots, but the price of Alitalia is far lower than that of Ryanair and other low-cost airlines.

Although it is a non-direct flight, Ryanair can lower the price to a low price of 77 pounds for a round trip, and the cheapest price of Alitalia in the whole year is only 70 pounds for a one-way trip. It's too expensive for the route.

With the in-depth reading of materials, Yang Cheng found that although the business model and philosophy have been criticized, the rich resources of Alitalia are still coveted.

This is not in 2014. Etihad Airways announced that it has become the major shareholder of Alitalia, injecting a huge sum of 1.7 billion euros in exchange for 49% of the shares. It is intended to further expand its share in the European market. Turned Alitalia into profit in 2010.

However, the 70-year-old Alitalia's desire to change cannot be accomplished overnight, and Etihad also underestimated the arrogance of the Italians.

In a media interview attached to the file, an Alitalia executive, who asked not to be named, commented that Etihad Airways failed to understand how to do business in Italy, while others blamed the Italian government for not strictly restricting Ryanair's business. expansion.

In short, even with the capital injection of local tyrants, Alitalia still failed to resist the pace of low-cost airlines, and was further eroded market share. The most important thing is that the management of Alitalia seems to have never realized the problem. The arrogant nature of the Italians , which eventually led to Alitalia once again on the verge of bankruptcy.

After reading the information, Yang Cheng put down his phone, picked up his wine glass again, and shook his head to Beatrice, "Alitalia needs a far-reaching and thorough reform before it can change the status quo. The first thing to do is to deal with the arrogant management. Great cleaning.

Even so, it still faces the squeeze of competitors. Today, the Italian domestic market has been occupied by Ryanair and EasyJet. The passenger volume of these low-cost Italian domestic routes far exceeds that of Alitalia, and the profits are quite good.

According to last year, Ryanair's net profit reached 1 billion euros, and its passenger volume was 100 million.

In the next two years, I am afraid that it will continue to maintain a growth rate of 20%-30% month-on-month. According to this trend, the passenger volume will reach a previous peak, which also means that the ticket price may drop further. How can Alitalia compete?

Losing its local advantage and opening up medium- and long-distance routes, Delta Air Lines can rely on Norwegian Air to check and balance. It is unwise to buy Alitalia, and I will not make such an unwise investment. "

But Beatrice obviously has a different opinion, "No, maybe I agree with you on the purge of Alitalia's management, but the local market is not hopeless, and your time to understand it is too short, let me tell you a group data bar.

From the perspective of aviation market supply share, Alitalia still maintains a market supply share of about 36% on intracontinental routes from Rome to various parts of Europe, while its market share on domestic routes can reach nearly 80%.

The biggest competitor, Ryanair, has only around 20% of the same market. "

Yang Cheng shook his head, "Whether this set of data is true or not, I don't need to look at it to be sure. Ryanair, including several other low-cost airlines, such as EasyJet, Vueling and Wizz Air, are gradually encroaching on Italy. remaining aviation market.

Once they have completed the encirclement, the next step is to snatch Alitalia's traditional routes, which is beyond doubt.

From the perspective of the overall trend, if Alitalia wants to break through, it must strive to expand transatlantic routes and the European market on the premise of maintaining the domestic market.

And if you want to keep the domestic market, you have to find a way to outperform these low-cost airlines.

But you know, it's an endless loop!

It is impossible for you to win low-cost airlines in price competition. If you want to provide better services in exchange for a disadvantage in ticket prices, it will inevitably cause a straight rise in operating costs and further reduce the profit that is not much left. space.

Without profits, how can we support the development of medium and long-distance routes? Especially the Atlantic routes that require the purchase of large aircraft.

Even if it puts its energy on the European domestic market for the time being, it will face countless opponents including British Airways, Lufthansa, Virgin, Swiss Air Lines, etc. Does Alitalia have the ability to face ambushes from all sides at home and abroad? "

Beatrice said lightly, "But you can't deny that Alitalia's dominance on the existing routes is irreplaceable in a short period of time. If Delta Air Lines wins Alitalia, it will be equivalent to directly in the Apennines. The peninsula flies the Delta flag!

That's been a huge boost to Delta's stock price.

You also know that ordinary shareholders only look at the positive impact in the short term. As for the future, I believe that Delta Air Lines has enough ability to solve it. "

Yang Cheng was speechless, "You are changing the concept secretly. If I want to make quick money, why bother?"

"No, I didn't change the concept secretly. As one of the most profitable airlines, Delta Air Lines has nearly 11% market share in the transatlantic route market. Your other two rival airlines, United Airlines and American Airlines is not far behind.

In Europe, British Airways and Lufthansa also have a place in the market, and Alitalia currently has a market share of 1.28% on transatlantic routes. Help Delta Air Lines significantly widen the gap with competitors. "

Of course Yang Cheng knew the importance of being the leader in the Atlantic route!

The transatlantic route has always been one of the busiest and most profitable in the world, and airlines compete fiercely in this market, with the three major alliances accounting for the vast majority of the market.

Of course, low-cost airlines have also taken a serious bite out of Atlantic routes in recent years.

In 2015, the seats of low-cost airlines were nearly 5 million, accounting for about 5% of the market share, but the year-on-year growth was obvious. With the expansion of low-cost airlines in this market, long-range low-cost flights are more widely accepted. The competition of cost airlines in the Atlantic routes will intensify.

At such a time, to further expand market share, the most obvious change will undoubtedly be reflected in the stock price.

Of course, it is not a matter of one day to challenge traditional airlines. The 5% share has taken low-cost airlines for nearly 10 years. Traditional airlines in North America and Europe are still the main carriers in the transatlantic route market. Among them, Delta Air Lines is the one with the most seats, as high as 11 million.

Norwegian Air, the main competitor in low-cost airlines, is now expanding its territory for Delta Air Lines. Norwegian Air accounts for nearly half of the market share in transatlantic low-cost routes, followed by WOW Air, Western Airlines, etc. Jet Airways and Eurowings accounted for 1.6%, 0.6%, and 0.3% of the market, respectively.

However, as more and more low-cost airlines enter the market, this share will further expand, but there is always a piece of cake from Norwegian Air, and this move by Yang Cheng has also achieved good response in the stock market.

Delta Air Lines announced its annual report for the first half of 2016 last month. The most obvious performance growth is undoubtedly the Atlantic route, of which Norwegian Air contributed the most. This directly affected the stock price of Delta Air Lines. 53 US dollars per share, you must know that the average share price of Yuanshan's acquisition of Delta Airlines is less than 20 US dollars!

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