In brief: Alitalia's loan, Air France fuel surcharges

Posted on April 23, 2008 by Matthieu Desiderio

Alitalia obtains a government-backed loan for €300 million

Even though the Italian Government was not supposed to do so under the European Union rules, it just granted an emergency loan worth €300 million to Alitalia on April 22, refundable by the end of the year. This €300-million loan will allow the airline to maintain itself while waiting for an eventual new buyer since Air France-KLM Group withdrew its offer.

Nevertheless, this financial help from the Italian Government to its national airline may be considered as illegal by the European Commission since it already advised Alitalia not to accept such a “subsidy”. The European Union justified its choice saying that Alitalia received subsidies in 2001 and now has to wait until 2011 to benefit from another Government-backed financial program. It however did not worry the Italian Minister of the Economy, Tommaso Padoa-Schioppa, who said he is “wait[ing] to see” the reaction of the European Union.

Air France increases its fuel surcharges

Air France announced on April 22, 2008, that it will increase the fuel surcharge paid with ticket fares. On average, the increase will amount €10 for long-haul flights, €4 for medium-haul flights, and €2 for domestic flights.

This surcharge will allow Air France to cover extra costs due to recent sharp increases in oil prices. It will be reduced by 50% when oil prices will go back durably under $100 per barrel, and Air France guaranteed it will remove the surcharge totally when oil prices will stabilize below $95 a barrel.

Air France will benefit until mid-2008 of fuel costs particularly attractive, because the company took some options on large quantities of fuel when prices were still low. It has been one of the main reasons Air France-KLM Group made spectacular profits during the last couple years.

However, Air France-KLM now has to buy and order fuel at higher/actual prices, and thus needs to apply this higher fuel surcharge to ensure continuous revenue and sufficient margins. Nevertheless, Air France-KLM Group and other European airlines still have a significant advantage against their American competitors: because of a weak dollar against euro, European airlines are quite “protected” from oil price increases… How long will it last?

References

Article: Alitalia : l’Etat italien accorde une aide d’urgence, Le Figaro, Apr. 23, 2008: here
Article: Air France augmente à nouveau sa surcharge carburant, Les Echos, Apr. 22, 2008: here
Article: Air France augmente sa surcharge carburant de 10 euros en long-courrier, AP for Yahoo!, Apr. 22, 2008: here

JP, MD

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