Alitalia – the political economy of a failing national carrier

The paper analyses the case of Alitalia, the former Italian flag-carrier, recently purchased by KLM-Air France, as an example of a state-managed air carrier which failed due to the behavior of the State. The history of Alitalia is characterized by a continuous decline of its competitive position over the last ten years or more, dating from the progressive opening of the European aviation market. However, this decline is caused at its roots by using Alitalia as a political tool rather than let it be operated as a commercial firm. This, in a liberalized market, doomed the firm to a natural decline, but such deterioration was artificially delayed by numerous state interventions, both financial and regulatory. The paper starts with a historical review of the most important events in recent Alitalia history. Thereafter it analyses the main causes of Alitalia’s weak competitive position relative to other European carriers. Using concepts of Public Choice, we search for the underlying causes of the decline: the continuous political protection, the lack of strategic views in favor of short term objectives and, in some cases, simply wrong decisions taken in the past.