Alitalia: Drastic Measures To Reduce Costs

During the course of today`s meeting, the Board of Directors of Alitalia S.p.A. took note of the Transport Minister`s statements during a recent hearing in the Senate. He confirmed that the development of the Malpensa project was of strategic importance and highlighted the fact that the Government was committed to find a rapid solution to the traffic arrangement between Milan`s airports.

However the Board has confirmed that the current situation that has emerged requires the preparation of a new Business Plan, though this will only be possible once decisions have been taken about the distribution of traffic between Milan`s airports. However the approach of the Transport Minister seems to support the view that the plan should aim to achieve a global dimension as part of the Alliance with KLM.

Furthermore the Board has reviewed the last quarter results. Although there has been an overall increase in sales revenues - up to 5% compared with the same period in 1998 and up 3% to the previous quarter - the economic trend has been similar to that of previous periods as the higher level of income has been offset by a distinct rise in the cost of fuel.

This result ends up a year of unfavourable operating results, though there has also been extraordinary income of around 250 billion.

Together, this is likely to mean that the net result for the whole of 1999 will be close to breakeven - excluding KLM`s payment of 100 million euros as this depends on the Alliance continuing according to plan - compared with a profit of 408 billion in 1998.

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This result is around 200 billion lower than the profit forecast in the 1999 business plan, though it was based on the assumption that Malpensa would be fully operative by November 1999 and that the increase in fuel costs would have been less than it has been.

This difficult situation does not bode well for 2000, an uncertain year that is unlikely to improve on 1999, bearing in mind the following:

* the high level of competition;

* the inevitable effects of an unstable scenario;
* an increase in costs due to the high level reached by the price of fuel and the exchange rates.

With the aim at minimazing, as much as possible, the short-term effects of the present situation, Alitalia is preparing to take drastic measures of a contingent nature, though they are not out of line with the development plan; namely:

* optimisation of the network, reducing capacity increases on less productive routes;

* the freezing of the plan to create 1,000 job opportunities as foreseen by the end of December 2000;

* put-off of various projects (including the call center) and investments that are not essential for the short-term results;

* the containment of the general expenses.

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