VZCZCXRO2148
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMIL #0273/01 2671241
ZNR UUUUU ZZH
P 241241Z SEP 07
FM AMCONSUL MILAN
TO RUEHC/SECSTATE WASHDC PRIORITY 1335
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHRO/AMEMBASSY ROME 8170
RUEHFL/AMCONSUL FLORENCE 0141
RUEHNP/AMCONSUL NAPLES 0138
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAZKA/FAA TECH CENTER EGG HARBOR TWP NJ
RHEHNSC/NSC WASHDC
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 03 MILAN 000273 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/WE, EB/TRA/OTP, EB/TRA/AN, EB/TRA DAS BYERLY 
 
E.O. 12958: N/A 
TAGS: EAIR ECON ELAB ETRD IT KPRV
SUBJECT: SAVING MALPENSA - THE AIRPORT AFTER ALITALIA 
 
REF: 06 ROME 3330 
 
MILAN 00000273  001.4 OF 003 
 
 
------- 
Summary 
------- 
 
¶1.  (SBU) Alitalia's cost-cutting rescue plan includes deep 
cuts in service to and from Milan's Malpensa airport, 
primarily decreasing intercontinental flights.  The 
Lombardy Region (home to Malpensa airport) fears these cuts 
will change Malpensa from a European hub to regional 
airport, dooming area businessmen to an extra connection 
through London, Paris or Frankfurt for long haul flights. 
Despite pleas from the Regional President, Alitalia will go 
ahead with the cuts.  The Region is looking past 
substantial offers from short-trip, low-cost carriers to 
try to recruit a carrier to provide long-haul, 
intercontinental service.  The Region is keenly interested 
in increased service from U.S. airlines and U.S. investment 
in a new Italian carrier.  With major players waiting to 
see the fate of Alitalia, the Region is unlikely to find a 
quick replacement for Alitalia's abandoned routes at 
Malpensa.  End summary. 
 
--------------------------------------- 
The Problem - Disappearing Destinations 
--------------------------------------- 
 
¶2.  (SBU) After the recent disintegration of privatization 
talks, Alitalia proposed a rescue plan to cut its 450 
million euro annual operating loss.  By cutting more than 
150 flights from Malpensa and refocusing on Rome's 
Fiumicino as its sole hub, Alitalia would save 
approximately 200 million euro.  Alitalia proposes 
recovering the other 250 million euro through increased 
efficiency and reductions in baggage handling and personnel 
costs. (Note:  Previous attempts to reduce personnel costs 
were stymied by the unions.  End note.)  Alitalia has not 
announced which specific flights will be cut.  According to 
the Lombardy Region, Alitalia will primarily cut 
intercontinental routes, eliminating 14 out of 17 of 
Alitalia's intercontinental (international, non-European) 
destinations.  The Region fears that Alitalia will pass its 
vacated slots to Alitalia-controlled low-cost carrier 
VolareGroup (VolareWeb and Air Europe) for national 
flights, effectively replacing Milan-Tokyo flights with 
Milan-Palermo flights.  The Region speculates that this 
rescue plan is geared towards the eventual purchase of 
Alitalia by a European carrier, such as Air France.  By 
reducing the intercontinental flights from Malpensa, Milan 
traffic could be rerouted to another European hub such as 
Paris for intercontinental flights.  The Region sees 
Malpensa as a major intercontinental hub for Europe, 
ranking behind only London, Paris and Frankfurt in number 
of intercontinental destinations.  The loss of Alitalia's 
intercontinental service would reduce Malpensa to regional 
airport status. 
 
------------------- 
The Region Steps In 
------------------- 
 
¶3.  (SBU) On September 18, the Lombardy Regional Council 
overwhelmingly approved a proposal to empower the Regional 
President Formigoni to engage the central government on the 
status of Malpensa.  The proposal asked the GOI to 
reconsider the Alitalia rescue plan.  It also called for 
Formigoni to participate in GOI Cabinet meetings related to 
Alitalia, to have a say in the distribution of 
Alitalia-vacated slots at Malpensa, and to actively engage 
other carriers in negotiations to increase service at 
Malpensa.  Both center-right and center-left delegates 
joined to pass the proposal with the exception of the 
Northern League (Northern Italy-based, far-right 
secessionist party) members.  (Comment:  This rare show of 
bipartisan support between the center-right and center-left 
delegates illustrates the pragmatic character of Northern 
Italy politicians.  Where there is an overriding community 
concern, local politicians in Northern Italy can come 
together to "get it done" despite acrimony between the 
parties at the national level.  End comment.) 
 
 
MILAN 00000273  002.4 OF 003 
 
 
¶4.  (SBU) Lombardy Region President Formigoni and Regional 
Transportation Commissioner Cattaneo met with Alitalia 
Managing Director Prato on September 19.  Lombardy 
officials asked Alitalia to maintain the intercontinental 
flights at Malpensa until other airlines can be found to 
fill slots that would be vacated by Alitalia or until 
Alitalia is sold. Formigoni argued that the cuts at 
Malpensa would save money in the short-term, but would 
ultimately be lost revenue in any sale of Alitalia as slots 
at Malpensa are valuable to prospective buyers.  Alitalia 
replied that they would move forward with the cuts, 
announcing specific flight cancellations within two weeks. 
Formigoni cited press reports indicating that Alitalia 
would hold its slots even though the flights were canceled 
and asked Alitalia to pull out decisively so Malpensa could 
seek new service.  Prato agreed not to resist the 
reassignment of its slots to other airlines but noted that 
the slots would be taken by whichever airlines request them 
(i.e. slots will not be held for similar services; slots 
vacated by intercontinental service cancellations would be 
available for domestic or intra-European flights and vice 
versa).  The Region is reviewing Italian and EU law to find 
grounds to sue to keep slots open for intercontinental 
service. 
 
------------------------- 
Prospects for New Service 
------------------------- 
 
¶5.  (U) RyanAir and EasyJet both offered to drastically 
increase their service into and out of Malpensa.  RyanAir 
would invest almost USD one billion to add eighty flights. 
EasyJet would likewise increase service worth 600 million 
euro and add more than 200 jobs.  Still, both carriers work 
on the low-cost business model, generally limiting service 
to flights of two hours or less.  Other private Italian 
airlines such as Air One and Blue Panorama are reportedly 
interested, but these are small and service primarily 
tourist destinations.  None would replace the full range of 
intercontinental service for business travelers provided by 
Alitalia. 
 
-------------------------------- 
Keen Interest in U.S. Investment 
-------------------------------- 
 
¶6.  (SBU) The Lombardy Region is keenly interested in U.S. 
investment in Malpensa.  Regional Transportation 
Commissioner Cattaneo asked the Consulate to help identify 
U.S. airlines interested in increased service from Malpensa 
and U.S. investors interested in a partnership with Italian 
investors to form a new Italian airline to operate 
intercontinental service.  The Region would be pleased if 
U.S. carriers took over dropped Alitalia service to the 
U.S., but emphasized that the most critical loss would be 
service to intercontinental destinations only operated 
currently by Alitalia.  Hence, the Region is looking to 
replace direct service to destinations such as China, India 
and Brazil.  While the Region understands these routes 
could not be directly operated by U.S. carriers, they hope 
U.S. investors might be interested in funding an Italian 
airline that could reach those destinations. 
 
---------------------------- 
Background - Malpensa Market 
---------------------------- 
 
¶7.  (U) To bolster its efforts to preserve Malpensa as an 
international hub, the Region solicited economic analyses 
on Malpensa's market from Bocconi University and other 
economic research institutes.  In 2006, Malpensa served 
21.67 million passengers, 86 percent heading to 
international destinations.  70 percent of business 
travelers on Alitalia flights originated from Malpensa. 
One study likened Malpensa's service area to London's, 
citing major cities such as Turin and Genoa within easy 
transit distance to the airport.  Further, infrastructure 
upgrades from now to 2015 will increase public 
transportation access, including a high-speed rail 
connection with Turin.  The Milan Chamber of Commerce 
calculated that the withdrawal of Alitalia from Malpensa 
would result in 800,000 fewer tourists (or 540 million 
 
MILAN 00000273  003.4 OF 003 
 
 
euros of lost tourism revenue).  A report by the Ambrosetti 
group calculated that the withdrawal would cost area 
businesses 1.3 billion euro, calculating that on average 3 
million business travelers would each have five hours of 
additional travel time (flight connections and layovers) 
for intercontinental destinations at an average of 85 euros 
per hour. 
 
-------------------------------- 
Comment - The Future of Malpensa 
-------------------------------- 
 
¶8.  (SBU) The future of Malpensa will ultimately depend on 
whoever takes over Alitalia.  If Air France or Lufthansa 
(the two favorites in press speculation) buys Alitalia, 
Malpensa is likely to become a feeder for Paris or 
Frankfurt with increased service from low-cost carriers to 
other European destinations.  If an institutional investor 
(such as the Texas Pacific Group - a bidder in the previous 
round of Alitalia privatization negotiations) takes over, a 
revamped Alitalia could possibly restart intercontinental 
service from Milan to capture the business travel market. 
In either case, major airlines will likely wait to see what 
happens to Alitalia before significantly increasing service 
at Malpensa.  The Region is unlikely to find a quick fix to 
replace the lost Alitalia intercontinental service.  End 
comment. 
 
WEYGANDT