Captain To Alitalia: `We Have No Choice'

When Roberto Schisano, the head of Texas Instruments Europe, became Alitalia's new chief early this year, he had to adjust quickly. The bureaucratic working environment at the money-losing airline was light years away from that of TI's nimble, result-oriented culture. But now, just two months later, "it's Alitalia that's having culture shock more than I am," says the 50-year-old Schisano.

You might say shock therapy. Figuring he had no time to lose in rescuing Europe's No. 4 airline, Schisano put together a tough plan to stem losses that hit $232 million last year on sales of $3.7 billion (chart). Schisano proposes cutting around 20% of the airline's 21,000 employees, reducing take-home pay, and vastly improving service. Many wonder if these measures will provoke the kind of labor violence that last fall undid Air France's initial rescue plan and humiliated the French government. Schisano sees the risk, but adds: "We have no choice. The competition has been changing faster than we were."

The competition has certainly gotten tougher. Among the top European carriers, British Airways PLC (BA) is leagues ahead of Alitalia, with costs in some areas as much as 50% below those of the Italian carrier. KLM Royal Dutch Airlines has been shaping up, and even Lufthansa, once overstaffed has shed thousands of workers. And with deregulated skies opening up in Europe in April, 1997, "things are just going to get worse," warns Bertrand d'Yvoir, president of Paris-based consultants Consultair.

NOT "BLOODLESS." Complicating matters is the fact that Schisano's plan is the first big test for Italy's new center-right government, led by media magnate Silvio Berlusconi. Although Berlusconi and his no-nonsense Treasury Minister, Lamberto Dini, promise a Thatcher-style program of speedy privatizations and deregulation, Italy's new Prime Minister has also vowed to create 1 million new jobs in the next few years. "That's why 4,000 job losses at Alitalia could look bad," says one consultant.

The government hopes it can avoid the kind of debacle that hit Air France. "But," says one Alitalia director, "it won't be bloodless." The government's worry: Big left-wing union federations might try to use Alitalia to humble Berlusconi.

The unions are holding their fire as they wait to see if Berlusconi will approve Schisano's plan. Yet the workers have already snarled at Schisano for proposing a cost-saving merger between Alitalia, which flies international routes, and its sister domestic carrier ATI. Trouble is, ATI is based in Naples, where unemployment tops 20%. In early May, local unions protested the merger by briefly shutting down Naples' airport. Schisano has to keep that unrest from spreading by convincing Alitalia employees that the airline really is desperately uncompetitive. Thanks to cushy contracts approved by previous managers in an effort to curb strike action, some Alitalia flight attendants take home $7,500 a month. That can't go on. "[Employees] have to realize that the plan is worth some percentage of their pay," says Schisano. "It's either that or they don't have a job at all."

Schisano also needs a strategy for prospering in a deregulated industry. Although Alitalia "has lost the chance to be a BA or an American," he says, the carrier sits on a rich market. Italy is a top tourist destination, and Italians themselves spend heavily on travel. Large ethnic Italian populations in Argentina, the U.S., Canada, and Australia also give Alitalia a lucrative market of travelers that other airlines cannot match. And the strategic alliance Schisano inked in April with Continental Airlines Inc. means Alitalia can pick up Italy-bound passengers from Continental's entire U.S. system.

Some industry specialists say Alitalia is fated to be a minor-league feeder for a global player like BA. Schisano doesn't buy that: "If we had a lower cost structure we could be out there competing, and I hasten to add I don't see anything shameful about being a profitable regional carrier like Southwest Airlines." If Alitalia can ever match the 13% operating margins of Southwest, there will be nothing shameful about Schisano's ambitions.

    Before it's here, it's on the Bloomberg Terminal.