Chapter 1607： The importance of the Atlantic route

"And you will also get the goodwill of ZF Italy. 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, you will have a much easier way to get ZF's goodwill.

But the value of Alitalia is not worth the acquisition, which is the key to the problem.

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 geographical advantage that Norwegian Air cannot replace. The most important thing is that Alitalia has turned into a sinkhole since it entered the 21st century, and it can't fill it up.

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

Since 2004, the company announced that it was due to financial difficulties and was planning to split Alitalia into two branches, airlines and ground services, but the plan was stranded because of the funding of ZF in the same year.

But a few years later, Italy received EU restrictions and could no longer support Alitalia. In desperation, Italy ZF could only sell its shares to help Alitalia obtain financial support.

At that time, there were three parties bidding for Alitalia shares, namely, Air France-KLM Group, a number of banks led by AirOne, 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 swaps. Although the terms of the reorganization were approved by Alitalia’s directors and ZF, it was met with The airline union strongly opposed, and the union representing the rights and interests of pilots was particularly opposed to Air France-KLM’s proposal to stop cargo services.

In the end, the negotiations broke down and Alitalia declared bankruptcy. After that, ZF of Italy came forward and found a company to come forward to take care of it. Alitalia and the local airline AirOne completed the merger. Air France-KLM purchased 25% of the new Alitalia at a price of 323 million euros. Shares.

However, the reorganized 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 a painful transformation, offering more favorable fares and diverse services. The market changes timely to adjust the price, even if you lose money, you must keep your market share.

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

Although it is a non-direct flight, Ryanair can push the price to a low price of 77 pounds for a round trip, while Alitalia’s cheapest price in the whole year can only be 70 pounds one way, which is about 250 miles in other European countries. It's too expensive for the route.

With the deepening of reading materials, Yang Cheng found that despite the criticism of its business model and philosophy, Alitalia's abundant resources are still coveted.

This is not in 2014. Etihad Airways announced that it has become a major shareholder of Alitalia. It has invested a huge sum of 1.7 billion euros in exchange for 49% of the equity. It is intended to further expand its share in the European market, and it also plans to make a good plan in 2017. Alitalia turned losses into profits in the year.

However, the 70-year-old Alitalia wants to change that cannot be accomplished overnight, and Etihad has also underestimated the arrogance of Italians.

A media interview is attached to the information. An Italian Airways executive who did not want to be named once commented that Etihad Airways failed to understand how to do business in Italy. At the same time, there were also comments and reports blaming the Italian government for not restricting Ryanair’s restrictions. expansion.

In short, even with the injection of local tyrants, Alitalia still failed to resist the pace of low-cost airlines and was further eroded by market share. The most important thing is that Alitalia’s management never seemed to realize the problem, the arrogant nature of Italians. , Which eventually led Alitalia to the edge of bankruptcy again.

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

Even so, it will still be squeezed by competitors. Today's domestic Italian market has been occupied by Ryanair and EasyJet. These low-cost passenger routes on Italy's domestic routes far exceed Alitalia, and their profits are quite good.

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

In the next two years, I am afraid that it will continue to maintain a growth rate of 20%-30% from the previous month. According to this trend, passenger traffic will reach the previous peak, which also means that fares may fall further. What competition does Alitalia compete for?

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

But Beatrice obviously has a different view, "No, maybe I agree with your approach to the cleaning of Alitalia’s management, but the local market is not hopeless. The time you understand is too short, I will tell you a group Data.

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

Ryanair, the biggest competitor, only has a share of about 20% in the same market. "

Yang Orange shook his head, "Regardless of whether this set of data is true or not, I dare to pack a ticket without looking at it. Ryanair, including several other low-cost airlines, such as EasyJet, Vueling Airlines and Wizz Air, are gradually encroaching on Italy. The remaining aviation market.

After they have completed the encirclement, the next step is to seize the traditional route of Alitalia, which is beyond doubt.

Looking at the overall trend, if Alitalia wants to break through, it must work hard to expand transatlantic routes and the European market while maintaining the domestic market.

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

But you know, this is an endless loop!

You can't win low-cost airlines in price competition, and if you want to provide better services in exchange for a disadvantage in fares, it will inevitably cause a straight rise in operating costs and further reduce the amount of profit left. space.

How to support the development of medium and long distance routes without profit? Especially the Atlantic routes that require the purchase of large aircraft.

Even if it puts its energy on the European state market temporarily, it will face the strangulation of countless opponents including British Airways, Lufthansa, Virgin and Swiss Airlines. Does Alitalia have the ability to face the ambushes at home and abroad? "

Beatrice evades the importance, "But you can’t deny that Alitalia’s dominance on existing routes is irreplaceable in a short period of time. If Delta Air Lines wins Alitalia, it’s equivalent to directly in Apennines. The peninsula is planted with the Delta Airlines flag!

This greatly promotes Delta's share price.

As you know, ordinary investors only look at the positive impact in the short term. As for the future, I believe Delta Air Lines is capable of solving it. "

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

"No, I didn’t change the concept. As one of the most profitable airlines, Delta has a market share of nearly 11% in the transatlantic route market. Your other two rival airlines, United Airlines and American Airlines followed closely behind.

In Europe, British Airways and Lufthansa also have a place in the market, while Alitalia currently has a market share of 1.28% on transatlantic routes. If acquired, this cooperation will not only open the door to the North American market for Alitalia, but also Help Delta to significantly widen the gap with its competitors. "

Yang Cheng certainly knows the importance of the leading position of Atlantic routes!

The transatlantic route has always been one of the busiest and most profitable routes in the world. The competition among airlines in this market is quite fierce, with the three major alliances occupying most of the market share.

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

In 2015, low-cost airlines invested nearly 5 million seats, occupying a market share of about 5%, but the year-on-year growth was significant. With the expansion of low-cost airlines in this market, long-distance low-cost flights are more widely accepted. The competition of cost aviation in various routes on the Atlantic will intensify.

At such times, the most obvious change in the further expansion of market share will undoubtedly be reflected in the stock price.

Of course, wanting to challenge traditional aviation is by no means a matter of overnight. This 5% share has taken nearly 10 years of low-cost aviation. North American and European traditional aviation are still the main carriers in the transatlantic route market. Among them, Delta Air Lines has the largest number of seats, up to 11 million.

As the main competitor of low-cost airlines, Norwegian Airways, is now expanding its territory for Delta Air Lines. Norwegian Airways accounts for nearly half of the market share of transatlantic low-cost routes, followed by WOW Airlines and Western Airlines. Czech Airlines 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 be further expanded, but there is always a piece of Norwegian Air’s cake. Yang Orange’s move has also achieved a good response in the stock market.

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

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