Troubled Alitalia suspends trading

THE European airline sector had a difficult day yesterday as trading in Italian flag carrier Alitalia was suspended and its Swiss equivalent issued a profit warning that shaved 6% off the share price.

Alitalia, in which the Italian government owns a 62% stake, asked the Milan stock exchange to suspend trading in its shares pending an announcement over the company's future.

The company is scheduled to hold its annual general meeting on Friday.

Alitalia's future was understood to be under discussion at an Italian cabinet meeting yesterday. The government was expected to approve a short-term loan of approximately €400 million in a bid to ease the pressure on the company's financial situation.

The company warned last month that it faced liquidation if it failed to raise funds in the near future. Auditors Deloitte have already refused to sign off on the company's accounts.

In a separate development, Swiss International, which was formed after the collapse of Swiss national airline Swissair in 2001, said it would fail to break even in the current year. The company blamed higher fuel costs caused by a sharp increase in world oil prices.

Swiss is understood to be more exposed than other airlines to changes in fuel prices, due to a poorly-implemented hedging policy. It has also been unsuccessful in attempts to renegotiate deals with maintenance companies and reduce maintenance costs, which form a significant part of the airline's cost base.

NCB analyst Shane Matthews said yesterday's developments were company-specific. He said Alitalia's management needed to take tough decisions but that there appeared to be little evidence that management, unions or the Government had sufficient appetite to implement the necessary restructuring moves.

Alitalia would continue to suffer from competition for long-haul traffic from better-run competitors such as Air France and Germany's Lufthansa, he said.

Mr Matthews also said Ryanair was well placed to benefit from Alitalia's woes, being the second-largest operator into Italy from Britain and was in healthy shape to pick up business from Alitalia.

The coming months would see further evidence of a shake-up in the European airline industry, according to Mr Matthews, who predicted further difficulties for Alitalia, Swiss, and Greek flag carrier Olympic.

The latest airline difficulties follow the collapse of a number of smaller airlines in recent months.

Cork-based Jetmagic ceased trading in January, while JetGreen shut down last month, one week after flights began between Dublin and Malaga.

Skynet, which operated flights out of Shannon, shed 85 of its 100 staff earlier this month.