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Alitalia faces turbulence
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February 8, 2000: 7:00 a.m. ET
Alitalia's shares slump while cost-cutting measures are promised
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LONDON (CNNfn) - Shares of Alitalia, Italy's national airline, plummeted more than five percent Tuesday after 1999 profits plunged to near zero and it announced drastic cost-cutting measures following unexpected delays to the airline's move to its new hub at Malpensa, Milan.
The "drastic measures" approved at Alitalia's board meeting on Monday include: freezing plans to hire 2,400 employees; reducing frequency or canceling non-profitable routes; delaying non-essential projects and investments; and the containment of general expenses. Alitalia would not provide a figure for the cuts.
Profits fell to breakeven for 1999, compared with the previous year's profits of 408 billion lire ($208 million).
Alitalia's shares were down 5.1 percent at midmorning at 1.91 euros.
The Italian airline's fortunes have been blighted by soaring fuel prices in 1998 and delays in shifting some 450 flights from the overcrowded, old Milan city airport, Linate, to its new international hub at Malpensa, 50 km outside Milan. Alitalia had planned to move in December and January but other airlines have complained to the European Commission that the shift would favor Alitalia, thereby stalling the move.
A move to Malpensa is vital for Alitalia - the airline's alliance with key partner, KLM Royal Dutch Airlines, centers on the new hub.
"What's critical now is KLM's reaction regarding Malpensa. The KLM-Alitalia arrangement is the value of the company and we have to see what happens there first. After all, there is an uncoupling clause in the alliance regarding Malpensa. The airlines are meeting this week," said Frank Wade, airline consultant at SH&E.
The outlook remains bleak for Alitalia in 2000, as the airline faces toughening domestic competition. Indeed, if the Malpensa difficulties aren't resolved, the troubled carrier's privatization may well not take place as planned this year. Alitalia is majority-owned by state holding company, IRI, which is due to wind up its operations in June.
"Alitalia's privatization should go ahead, after all it's a necessity, but with the current share price, it could be a slow process," said Wade.
Alitalia said it would prepare a new business plan when the problems with Malpensa are worked out. 
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