Alitalia & Fiat: Consultant Reflects on Italian Transportation Industry Struggle

Pier Carlo Trucco is the current managing director, co-founder and main shareholder of Keydos, a management-consulting firm based in Milan and Rome, Italy. He holds an MBA from UCLA and made his career as a partner in large multinational consulting firms including Ernst & Young and Deloitte Consulting. He advises large Italian and international corporations in the fields of strategic planning and organization. He has published a large number of articles in business journals and the general press. The Dartmouth Business Journal had the opportunity to ask Pier Carlo Trucco about his views on the field of management consulting, recent events in Italian industry and finance, and the connection between the Italian economy and the US economy in this time of financial crisis. 

Dartmouth Business Journal (DBJ): What led you to choose a career in management consulting?

Pier Carlo Trucco (PCT): For a young MBA, that was probably the most sought-after profession in Italy and Western Europe. I’m not sure it still is…

DBJ: Which do you feel was most valuable to the success of your career: your college and post-college studies or the experience you picked up on the job? What does an average day of work at your consulting firm entail?

PCT: Frankly, in my country, a U.S. degree is quite appreciated in the job market. That means you get a good start, which is essential. But, overall, I should say that what you learn on the field is way more valuable. Each day, we focus on results and on project deadlines. This may, and usually does, result in long workdays, including weekends. I have seen American colleagues getting home at 5 p.m. on a regular basis, though. This may have many explanations, including a more efficient way of organizing work on that side of the Atlantic.

DBJ: What, in your opinion is the most difficult or stressful part of the management consulting profession? What do you find most rewarding about it?

PCT: What is difficult and stressing is also the most rewarding: client satisfaction is the key. This is a very difficult and moving target, especially since competitors do exist.

DBJ: Has your consulting firm been involved with the airline industry in Italy? What, in your opinion, led to Alitalia’s decline?

PCT: I have worked for the airline industry and for Alitalia. The projects I’ve been involved in focused the matter of alliances and strategic development of routes.

Alitalia’s decline has come a long way. We can date it back some 20 years. I know this may seem like an exaggeration, but we must keep in mind that Alitalia, like many European flag-carriers, used to be a subsidized, state-owned company. Failure to cope with the changing market was its main problem. As the European Union acted against national monopolies, starting in the early nineties, two types of competitors emerged. The first type would be a European company with a similar cost structure but possessing a stronger hold on the market, granting it a lead in the business traveler segment. Examples are British Airways or Lufthansa. The second type of competitor was the emerging low-cost airline, such as Ryan Air or EasyJet. These names may mean little to an American, as they are point-to-point carriers dedicated to serving the European market. Think of Southwest, to give you an idea. While the dominant flag carriers weakened Alitalia’s competitive position with the European business passengers and on the intercontinental routes, the low-cost airlines hit the economy class passenger market. Alitalia found itself with an unchanged cost structure but with declining revenues. As we know, this is the path to bankruptcy, unless the government rescues you. However, the EU rules now prevent governments from rescuing airlines. So you can guess what happened then.

DBJ: So, it went bankrupt?

PCT: It underwent a procedure similar to that involved in Chapter 11 Bankruptcy in the United States. Then, an industrial group came and bought the majority of assets.

The US press has covered this rescue you refer to of Alitalia Airlines by an Italian industry group and an impending investment in Alitalia by Air France. How is the new Alitalia planning to stay afloat?
There are controversial opinions on the price paid for the so-called rescue. Most analysts believe that the price paid was too low. Furthermore, the government has suspended the anti-trust regulation for a period of six months in order to favor the new company’s take-off. European competitors are not exactly happy and have appealed to the EU. To answer your question, I would say that the new Alitalia heavily counts on preferential treatment and the ability to take its first steps in a protected environment.

DBJ: What, if anything, is fundamentally different in the new Alitalia that will make it successful?

PCT: The financial ratios of the new company are definitely better than in the previous version. Now, there appear to be decent profitability ratios, and the fleet is adequate with respect to the company’s operations. The routes will be focused on one main hub (Rome) while previously there was an ill-optimized strategy based on two hubs (Milan and Rome), which constituted too many for a medium-sized airline. Furthermore, the alliance with Air France will help to offer Alitalia passengers a truly global network with lots of destinations and frequencies.

DBJ: Has your consulting firm been involved with the Italian automotive industry? What, in your opinion, led to Fiat Group’s recent successes in that market?

PCT: Fiat has regained market share in the past few years, and profitability has come back. This has been the result of a more focused strategy, concentrating efforts on the automobile, as opposed to other traditional Fiat interests such as aerospace and industrial automation, as well as a renewed focus on domestic markets. I wouldn’t call this a long-lasting recovery though. In my opinion, Fiat’s thrust was on the downward slope even before the present global crisis. However, it is difficult to support this opinion with conclusive evidence since the European market is currently down 40% and Fiat’s stock is performing accordingly.

DBJ: The US press has covered the agreement between American automaker Chrysler Motors and Italian automaker Fiat S.p.A. to form a nonbinding, albeit strong connection between the two companies. What is the role of consulting firms in laying out the stipulations for this type of agreement?

PCT: I can only guess, having not been involved directly. I suppose management consulting firms may have advised on strategy, especially helping define the relative roles of the two partners in the future market. Some organization and project management consulting may follow. This should take one or more consulting firms that have strong expertise in the automotive industry.

DBJ: How has the global economic crisis we are currently experiencing affected your field of work? Do you think the crisis has hit Italy as hard as it has hit the United States?

PCT: I will begin by answering the second question. Analysts say that Italy may perform better than other countries in the present global crisis due to its peculiar business environment. We are stronger in the so-called real economy than in financial institutions. Although this used to be an issue, it no longer is. Our industrial structure is composed of a huge number of small and medium enterprises. Many observers make the point that this will dilute the risk of corporate failures, if adequate liquidity is provided to the system.
With regard to the management consulting industry, in theory we should be well-off, the same way as physicians prosper when you have some epidemic. In fact, we may meet the profound need for reorganization of companies affected by the crisis. The unanswered question is: will the patient have money left to pay for the doctor?

DBJ: How is President Obama perceived by the Italian business world? President Obama and his administration have announced plans to unfreeze the credit market and heighten financial regulations. What kind of effect do you think Obama’s new policies will have on Italian industry, if any?

PCT: Given the leading role of the American economy, any event developing in the US will clearly affect Europe. Nevertheless, I believe that the crisis will take different paths on the two sides of the Atlantic (and on the two sides of the British Channel). Continental Europe will suffer more from the recession than from “toxic finance”. The point of junction will undoubtedly be the liquidity crunch. However, I believe that from now on Obama’s actions will mainly be an American matter, i.e. they will have limited impact on Europe.

DBJ: What is the one piece of advice you would give to a college student interested in pursuing a career in management consulting?

PCT: It takes a real interest in the client to be a management consultant. So, take this test: if your dream is to spend your life in your beautiful office, don’t go for this job. Pursue management consulting only if your dream is to spend your life in constant contact with your client and on location in your client’s office.