What’s next for the Velocity-Alitalia tie-up as ITA bids for Alitalia’s brand?

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This article originally appeared on AirlineGeeks. Further edits by Daniel Sciberras.

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The change of the guard between the historic Alitalia and the newly-created ITA as Italian flag carrier is just over a week away, but the situation is far from defined. Alitalia is going through its bankruptcy procedure and will stop flying on 15 October. The new state-owned carrier Italia Trasporto Aereo (ITA) will take over some of Alitalia’s routes on the same date. ITA will begin its adventure with 52 aircraft and 2,800 employees, putting it at roughly half the size of its predecessor.

Alitalia brand up for auction

The latest phase of Alitalia’s bankruptcy is quite delicate as the Alitalia brand has been put up for auction, and it will be awarded to the highest bidder. The European Commission did not allow ITA and Alitalia to include the brand in the transfer of the assets that built ITA’s skeleton. This is because one of the guiding principles of this operation was the need for a clear break between the old company and the new one.

However, ITA could really use Alitalia’s brand. It would save the new carrier a lot of time and money exploiting the awareness that the green, white and red ‘A’ logo already has around the world.

Despite being evaluated at approximately 150 million Euros (AUD$175.9 million) on Alitalia’s books, the brand is being put up for auction at a starting price of 290 million Euros, plus 22% V.A.T. and related fees. Parties interested had until 30 September to request access to the data room and until 4 October to place a binding offer with a 40 million Euros advance. As there were no offers during this period, there will be a second auction with no minimum starting price.

Multiple bidders are possible

Of course, ITA continues to be the most obvious bidder for the Alitalia brand. It certainly has more value to them than to anyone else, but there could be other bidders that may take part in the second auction. The objective would be to deprive ITA of a useful tool in an already established brand. This would force ITA to start from scratch or to push the price higher in order to compel ITA to burn a higher percentage of the 1.3 billion Euros they have available to start operations, from the total of 3 billion Euros earmarked for ITA by the Italian Government.

The most obvious culprit for the predatory operation could be Irish low-cost airline Ryanair, which has already complained many times about the multiple state handouts Alitalia has benefited from in the past.

But the auction of the Alitalia brand is not the only problem ITA has to face just weeks before its inaugural flight. Negotiations between the company and trade unions for the work contract of the 2,800 employees broke down in late September, and a strike occurred on 25 September. The Unions are trying to preserve as many jobs as possible for the almost 6,000 existing Alitalia employees who may or may not be called to join the new ITA. And they are also requesting the same conditions granted at Alitalia to remain in the new company.

Industrial strife still at play at Alitalia

A new industrial action, however, is only going to weaken further a carrier whose operations are winding down and that is already in a very dire financial situation. Italian financial newspaper “Il Sole 24 Ore” reported that Alitalia’s debts towards Italian airports have already surpassed 100 million Euros and have reached “unsustainable levels.” Furthermore, public support for protesting Alitalia’s employees is at an all-time low, as those who will not be able to join ITA will benefit from a very generous arrangement granted by the Italian law. This will see them continue to receive 80% of their salaries for up to 7 years, with full pension contributions paid by the Italian taxpayers.

What about the Velocity-Alitalia partnership?

The future of Alitalia’s MilleMiglia frequent flyer program remains up in the air. The EU Commission ruled that ITA can’t purchase MilleMiglia in an effort to create a clear break between the old and new Alitalia (especially if ITA successfully bid for the Alitalia brand).

The above will likely have implications for Australian-based frequent flyers. Virgin Australia’s Velocity Frequent Flyer program is a partner of Alitalia. To date, it’s uncertain what frequent flyer program will be in operation once ITA starts operations on 15 October. What we know for certain is that MilleMiglia will be no more from this date.

ITA has announced that they look to create a new loyalty program. Whether this will mirror the MilleMiglia program, and will offer existing members the same level of benefits they currently hold isn’t clear. Nor is their membership in the SkyTeam alliance, and their continued partnership with Velocity.

Should Velocity lose Alitalia, they would lose their only short-haul European-based airline. However, any new partnership with ITA would be beneficial, given the new airline will become more ‘long-haul’ focused than its predecessor. ITA could offer Velocity members additional ways to reach Europe from Australia.

We’ll just have to wait and see.

* Featured image of an Alitalia A321 courtesy of William Derrickson.