F
R

1
2
-
2
0
0
1

AIR DOLOMITI: SMALL BUT SOLID

For many north Germans, Munich is as good as in Italy. Then when they land at Erdinger Moos airport in the capital of the state of Bavaria, this impression is only reinforced by the up to eight ATR 42's and ATR 72's in their white and turquoise colours that will typically be on view airside in front of the cargo sheds.

Italian airline Air Dolomiti's fleet operates a shuttle-like service to the most important cities on the other side of the Alps and flies non-stop from Bavaria to Ancona, Bergamo, Genoa, Pisa, Turin, Trieste, Venice and Verona, in the summer to Sardinia as well. The services to Venice and Turin are as frequent as four times a day. Altogether, Air Dolomiti takes off and lands in Munich 28 times a day and 340 times a week. This makes it the third biggest carrier to operate out of Erdinger Moos, after Lufthansa and Deutsche BA.

"If you want to see our fleet, you will have to go to Munich," says Otto Benz, second in command at Air Dolomiti. For six years he headed up Lufthansa's Italian operations in Rome, and today he works in the "border region of Italy", as he calls it. Air Dolomiti's main base is at Trieste airport, right at the north-east corner of Italy next to the border with Slovenia. But a lot of the time there is a yawning emptiness at the spacious airport, and seldom is more than one ATR belonging to the home carrier to be seen on the ramp. On the other hand, as a base, Trieste is ideal, Benz explains, as it has a skilled workforce, in aircraft maintenance of all things, which the company performs independently on its entire fleet comprising at present 18 aircraft. The most important destination in Italy, which is also home to the largest number of the airline's crew, is actually the city of Verona.

Air Dolomiti is a phenomenon. It first flew in 1991 with three Dash 8-300's, having been founded by the Leali steel group. Today the Leali family still owns 50.3% of shares in the company. ATR-42 turboprops have been in service since 1993, and for some years they were the only aircraft type in the fleet. The aim was always to be a regional airline with international operations.

"We never wanted to play a big role in the domestic Italian market. It would have been difficult to compete with the Alitalia monopoly," says Otto Benz. After a short interlude with Crossair, the airline entered into a teaming agreement with Lufthansa, which in January 1999 acquired a significant shareholding, initially 26%.

Today Air Dolomiti is still a small company which is ranked 59 in the top 100 regional airlines world-wide, having carried 835,000 passengers in 2000. Its partnership with Lufthansa is close, lucrative and unusual for the industry. After a stock market flotation and a further issue of capital this year, Lufthansa now owns 20.7% of the shares. The main benefit to Air Dolomiti is that it retains its own identity while at the same time enjoying the status of a regional partner of the Star Alliance. "We have much more independence than other carriers of this size," says Otto Benz, naming yield management, capacity and flight planning, marketing, sales and technology as areas in which Air Dolomiti still makes its own decisions. "We are not a franchise operation of Lufthansa either, and we do not operate a wet lease model. That is a quite different business model." All Air Dolomiti flights are codeshares with Lufthansa, operated under the flight code EN/LH, "but we carry the risk and either pocket the profits or have to accept losses," says Benz.

It was primarily because Alitalia, with its chronic financial problems, had been neglecting the north of Italy that Air Dolomiti was able to develop its market niche. The region between Trieste and Turin is one of the richest in Europe, yet the national flag carrier has only a weak presence here.

"In 1997 Verona did not have any international flights, and Alitalia had given up its service to Bari some time earlier. The Bari route is today the only domestic route we fly twice a day or around the year," says Otto Benz. "The entire region had been ignored for years by Alitalia, which was concentrating on Rome-Fiumicino and only very sporadically offered possible point-to-point flight," explains David Jarach, Professor in Air Transport Marketing in Milan. "This meant that the considerable demand for air transport was simply ignored, and Alitalia's retreat left a gap for Air Dolomiti to grow into without having to fight a powerful and perhaps destructive competitor."

In fact Alitalia did try to win back northern Italy, opening a new hub in Milan-Malpensa in 1998. Together with its then partner, KLM, the idea was that it would offer both trunk routes and also feeder services to Amsterdam. However, the shortcomings of Malpensa in the connection department were such a source of annoyance that KLM even terminated its partnership with Alitalia over this issue. The government in Rome aroused the anger of other European airlines and also the EU because it wanted to force Alitalia's competitors to fly to Malpensa instead of to the city airport of Linate, while Alitalia was to continue to be the only airline represented there.

Since the terrorist attacks in the USA the new chief executive of Alitalia, Francesco Mengozzi, has now drawn up an updated business plan covering the period 2002 to 2006, which proposes a complete change of direction: Fiumicino is to be upgraded at the expense of Malpensa. This could further strengthen the market position of Air Dolomiti.

"Alitalia was always too confident that it could steer the traffic into its hubs, but it just didn't put in the required investment," says Otto Benz. "One can't force the market to go in one particular direction, even if it is the government that is attempting to do so. Malpensa still has major problems with its airside infrastructure and there is only very limited scope for growth." On the other hand Air Dolomiti has no desire for a weak Alitalia. "Healthy competition can only be maintained if we have a strong, healthy competitor. But in the present situation we never know what they will be doing tomorrow." For Lufthansa, Italy is strategically the most important market in Europe outside Germany, and Air Dolomiti is its instrument here.

"We need an Italian presence in Italy rather than a German one," says Otto Benz, but the "north Italian discipline" does not get along well with the German mentality. "We contribute to Lufthansa's network in Munich and also in Frankfurt, plus Lufthansa gains market share through the codesharing connections in Italy," says Otto Benz, describing the advantages for Air Dolomiti's large partner.

Lufthansa's share of the international traffic from Italy is around 13%, whereas Alitalia's share is somewhat low for a national carrier, only 35 to 40%. 20% of all Air Dolomiti passengers to Munich fly from there on intercontinental services operated by Lufthansa or by other Star Alliance partners, with up to 30% transferring to connecting flights to other parts of Europe. The other half divides equally between passengers whose destination is Munich and passengers with onward flights within Germany. Air Dolomiti's costs are lower than Lufthansa's. Another way of looking at it, to quote Otto Benz, is that "we are always independent wherever the critical issue is economy".

One example is the on-board service, one of the undisputed strengths of the company. Under the brand name "Settimocielo" ("seventh heaven") guests are offered a specially made sparkling wine cocktail along with delicacies from the Italian cuisine, depending on the season in different décor. Here, as in design features such as the bright green leather seats in the cabin, in which legroom is relatively generous compared with elsewhere, one can see the feminine touch of the wife of the chief executive, Alcide Leali, an interior designer, at work.

Despite the pleasures to be had on the fold-down trays, Air Dolomiti's catering costs are around the same level as at Lufthansa CityLine, whose passengers do not enjoy nearly as generous an on-board service. "We always carry our own catering for the return flight, as it would cost too much to use German suppliers," says Otto Benz. The cost advantage of northern Italy is also manifest when it comes to maintenance. "The costs of maintenance for Lufthansa CityLine or in France are around 30 to 40% higher than here," says Technical Director Valerio Dell'Angela.

Unlike most regional airlines, Air Dolomiti only moved to jets relatively late: in March 2001 the first Canadair RegionalJet CRJ-200 joined the fleet, and by May three out of a total of six aircraft on order had been delivered. "Our route network is ideal for turboprops. It only pays to fly jets if one can fly an extra cycle per day," says Otto Benz. "Munich will always remain an ATR route."

Air Dolomiti is a conservative airline - capacity has only been increased in response to growing demand and the company has always stuck to its niche strategy. "The jets were delivered at exactly the right time for us," Otto Benz believes. Today they fly the Amsterdam-Verona, Berlin-Milan Linate and Paris-Turin routes, while Copenhagen, Madrid or Manchester are viewed as potential new jet routes. Air Dolomiti does already have experience of operating larger jets, but it was not positive. In the middle of 1999 it leased a Fokker 100 from Alpi Eagles to open up the Venice-Paris route. "But it was not our style, a plane like that is simply too big for us," says Otto Benz.

From page 24 of FLUG REVUE 12/2001