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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMIL #0031/01 0411032
ZNR UUUUU ZZH
R 101032Z FEB 09
FM AMCONSUL MILAN
TO RUEHC/SECSTATE WASHDC 1678
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHRO/AMEMBASSY ROME 8716
RUEHFL/AMCONSUL FLORENCE 0187
RUEHNP/AMCONSUL NAPLES 0183
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC

UNCLAS SECTION 01 OF 03 MILAN 000031 
 
SENSITIVE 
SIPDIS 
 
STATE FOR DOT 
 
E.O. 12958: N/A 
TAGS: EAIR ECON PGOV IT
SUBJECT: IS THERE A FUTURE FOR MALPENSA? 
 
REF: 08 MILAN 15 
 
MILAN 00000031  001.2 OF 003 
 
 
¶1. (SBU) Summary: Doomsday scenarios abound in Milan 
following the decision by Alitalia to partner with Air France 
and decisively choose Rome as its sole hub.  Predictions of 
immediate economic pain to the region are overstated, but 
certainly possible is an atrophying of the area's 
attractiveness to investors should Milan remain long without 
a genuine international hub.  Regardless of Alitalia's future 
decisions regarding Malpensa, however, the airport suffers 
from fundamental flaws (its location and cannibalization by 
other regional airports in particular) that will continue to 
impact its appeal.  A refocused Malpensa is the most likely 
route to its survival, with more cargo, flights to the Middle 
East and Asia, and/or an increased presence of Lufthansa 
possible scenarios.  However, it's unclear whether Malpensa 
can reinvent itself in time to head off lasting economic 
damage to the region and be ready for Milan's hosting of the 
Expo in 2015.  End summary. 
 
A Business Center With No Hub? 
 
¶2. (SBU) The final decision of the re-invented Alitalia ) 
with its Air France partner ) to make Rome's Fiumincino its 
only international hub (after initial promises to make 
Malpensa an equal partner) has sparked hand wringing, 
recriminations, and gallons of ink spilled in the local press 
about the &devastating8 economic impact on Milan and 
Lombardy.  Indeed, Malpensa airport is now a shadow of its 
former self ) and of the image local and national 
politicians had for the airport when it opened in October 
¶1998.  The airport lost four million passengers (from 23 to 
19 million) and 20 percent of its total traffic in 2008.  For 
the moment, Alitalia (which had 1,238 weekly flights from 
Malpensa as late as March 2007) has 201 weekly flights from 
the airport with only three intercontinental destinations 
offered (New York, San Paolo, and Tokyo). 
 
¶3. (SBU) However, the reality is that the immediate impact on 
the Milan region is more ego than euro.  Alitalia eliminated 
the lion's share of its flights from Malpensa ) with the 
commensurate cuts in airport staffing ) in April 2007, with 
some additional cuts in November 2008.  In fact the final 
number of 201 weekly flights is an increase of 56.  According 
to regional officials and a noted local transport researcher, 
the closing of this latest chapter in Alitalia,s tortured 
history should not lead ) as many press articles have 
claimed ) to hundreds or thousands of additional layoffs in 
the immediate term. 
 
¶4. (SBU) This is not to say that the hollowing out of 
Malpensa has not and will not take its toll on the local 
economy.  According to a study done by Milan's Bocconi 
business school, Malpensa's &connectivity index8 (a measure 
of an airport's linkages and thus attractiveness for 
international travelers, with Heathrow the benchmark) dropped 
from 35.1 to 22.6 in 2008 ) around the same level as 
Helsinki or Budapest.  Furthermore, according to a study done 
by Milan's Chamber of Commerce, the &de-hubbing8 of 
Malpensa will cost Lombardy 10 billion euro and 45,000 jobs 
between now and 2020.  Though an academic with whom we spoke 
would not comment on the Chamber's numbers, he did say that 
within a year or two Lombardy's economy would start to wither 
without a genuine international hub as existing international 
investors and Italian exporters move and new investors avoid 
Milan because of its poor transport links.  He pointed out 
that the record shows that the existence of a &Class A8 
international hub is essential to compete for foreign 
investment. 
 
&Roma Ladrone8 or &Linate Cannibale8? 
 
¶5. (SBU) Even our soberest contacts have been very critical 
of the decision making process that brought Alitalia and Air 
France together and made Rome the country's sole hub for the 
time being.  The most charitable explanation we heard was 
that the new Rome-based Alitalia wants to develop one hub at 
a time and thus logically would start close to home. 
However, most thought the politically potent unions, Alitalia 
bureaucracy, and by some accounts Air France itself brought 
too much pressure to bear on the government and Alitalia,s 
new owners (a consortium of mostly northern businesspeople), 
which had to agree de-emphasize Malpensa despite the economic 
peril. 
 
¶6. (SBU) On paper it is odd that the national carrier would 
 
MILAN 00000031  002.2 OF 003 
 
 
essentially abandon an airport serving a region that accounts 
for nearly 50 percent of Italy's GDP and the majority of its 
exports.  However, there are some fundamental problems that 
hurt Malpensa beyond hazy domestic politics and the 
&single-hubbing8 strategy of Air France.  A key issue is 
management, with Malpensa's owner (SEA) reportedly refusing 
to offer any incentives to attract new carriers or routes, 
choosing instead to raise existing fees to make up the 
current deficit.  Another major problem is location.  One 
journalist with whom we spoke asserted that because Malpensa 
is so far from Milan and so poorly connected with its most 
likely customer base outside the city, it was hard to imagine 
the airport ever really becoming world-class.  Capitalizing 
on this weakness, the number of competing regional airports 
) with notable and expanding international airports in 
nearby industrial centers of Bergamo, Verona, and Turin ) 
cannibalize flights and passengers that might otherwise 
choose Malpensa. 
 
¶7. (SBU) Along these lines, the giant thorn in Malpensa's 
side is Milan's competing international airport Linate.  This 
airport ) the Reagan to Malpensa's Dulles ) is smaller, has 
a runway that doesn't accommodate the largest jets, and is 
more expensive to fly from.  However, it is 15-minutes from 
the city's business center, rather than an hour or more. 
Also, Linate is the hub of the profitable Rome-Milan shuttle 
(255 weekly flights vs. 35 from Malpensa) and is Alitalia,s 
Milan center for intra-EU flights to the most important 
European hubs (Alitalia flies to London, Frankfurt, and 
Amsterdam from Linate, for instance, but not from Malpensa). 
The new Alitalia management on February 9 issued an ultimatum 
that Linate had to be closed to all flights besides the 
(Alitalia-dominated) Rome shuttle before they could consider 
expanding at Malpensa.  Our non-political contacts agree that 
Malpensa is not competitive with Linate as is, but not a 
single local politician is willing to publicly suggest 
closing Linate or eliminating flights.  Even regional 
political figures who in the past supported Malpensa over 
Linate are now afraid to call for Linate to shut down as it 
has become the only game in town for the moment.  The fact 
that the same company, linked politically and financially 
with the city of Milan, owns both Linate and Malpensa (as 
well as a portion of competitor Bergamo) also complicates 
matters. 
 
From Whence Salvation? 
 
¶8. (SBU) With Alitalia clearly preferring Rome and Linate, 
rescue is unlikely to come from that direction.  Neither will 
it come in the short term from American carriers ) despite 
their rights under Open Skies and an abundance of vacant 
slots (though perhaps not many at prime times due to the 
unclear fate of the slots apparently to be vacated by the new 
Alitalia).  They tell us that because of the U.S. economic 
crisis and priorities elsewhere in the region they were 
unlikely, at this point, to add any additional routes or 
frequencies. 
 
¶9. (SBU) There is some encouraging news.  Cargo (down 14.5 
percent in 2008 because of Alitalia,s exit) is making a 
comeback with Cathay cargo and Luxemburg-based Cargolux 
announcing several new frequencies this year and additional 
cargo coming with new frequencies added recently by Emirates 
and Etihad Airways.  These new Middle Eastern flights could 
also be part of a trend, our contacts say, of increasing 
attention by Middle Eastern and Asian carriers wanting to add 
long-distance Malpensa flights. Another hopeful trend, 
according to observers, is the expansion of Lufthansa (which 
launched this month six new European routes using its newly 
formed Lufthansa Italia subsidiary).  Though Lufthansa did 
not get (or even publicly bid for) Alitalia, there's still 
some thought locally that the German carrier will gradually 
make Malpensa a semi-official hub for flights to Europe and, 
perhaps, beyond.  Lufthansa, through its affiliate Air 
Dolomiti, already plays a major role in the region's other 
airports, ferrying passengers to Frankfurt or Munich for 
onward flights. 
 
Comment: Can Help Arrive in Time? 
 
¶10. (SBU) The Malpensa of today is not a viable airport.  It 
is currently an oversized hub for discount carriers ) 
arrival and departure screens are filled with EasyJet, 
Volare, and a host of other low-costs.  Though there are 
glimmers of hope, they may not be short-term solutions. 
Expanded Middle Eastern or Asian traffic will in many cases 
 
MILAN 00000031  003.2 OF 003 
 
 
require amendments to existing bilateral air accords, 
something that will take time.  Meaningful Lufthansa 
expansion into Malpensa will likely hinge on the success of 
its Lufthansa Italia experiment and also fair access to slots 
no longer being used by Alitalia.  The basic question, then, 
is whether Malpensa's new shape can take form before it's too 
late for the local economy or for the Expo which will come to 
Milan in 2015. 
WEYGANDT