Starting from Tuesday 10 November, Italo SpA will suspend most of its train runs and will request layoffs for its staff.
The company announced this on Wednesday 4 November with a press release print not too detailed, in which he specified that only 2 services per day will remain active on the route connecting Rome to Venice and 6 per day on the one that goes from Naples to Turin via Milan. Eight in total, then. Before the pandemic, the races were 112 per day while in the last period, after an almost total interruption during the spring lockdown, they were first brought to 87, and then to 58 from last November 3.
The decision was made after the last one decree of the President of the Council of Ministers (DPCM) which prohibits travel into and out of regions with high epidemic risk except for work needs, necessities or health reasons. The ban currently concerns (in addition to the Aosta Valley) Piedmont, Lombardy and Calabria, three regions in which different high-speed races managed by Italo have terminus. In all likelihood, therefore, the decree will further reduce the demand for seats on its long-distance routes, which has already fallen by 90 percent according to Italo’s press release (although it is not indicated on what time frame).
Italo is an unlisted private company, but there is still public money at stake in its choices. The layoffs will concern approximately 1,500 employees. To these are added about 3,500 people who work in the related industries, who may sooner or later need similar subsidies.
However, part of the economic aid destined by the government to the railway sector should reach the company with the Relaunch decree of last May. There is talk of about 70 million euros for 2020 and another 80 million per year from 2021, to be divided substantially between Italo and Trenitalia. At the end of October the money had not yet reached the company’s account, and its president, Luca Cordero di Montezemolo, had said that “without public aid immediately” Italo would have closed. The Minister of Infrastructure and Transport, Paola De Micheli, responded by ensuring that the decree for the allocation of resources, necessary to release the funds of the Relaunch decree, had already been signed by her and by the Minister of Economy, so the money would arrive. . It is currently unclear whether Italo actually received the funds.
The second reason why this story interests everyone is that, if Italo were to fail, high-speed rail transport in Italy would once again be a monopoly of Ferrovie dello Stato through its subsidiary Trenitalia. And competition on the high-speed market has so far reduced prices and also increased the number of passengers who choose this type of transport instead of other more polluting ones. Furthermore, the competition pushes all operators (therefore also Trenitalia) to try to constantly improve their service.
In Italy, the rail transport market was liberalized in the early 2000s by implementing European directives that went in that direction. The management of the railway network and the transport service, two distinct activities, were until then a single monopoly in the hands of Ferrovie dello Stato. With liberalization, the State divided the two activities by assigning the management of the monopoly railway structures to Rete Ferroviaria Italiana (a new company specifically created and controlled by FS), and instead opening the transport market to competition (while continuing to de facto hold the monopoly through Railways).
In the same decade, the state put new high-speed lines into operation. Thus a new market was created: that of high-speed passenger transport on long-distance routes. To compete with Trenitalia on this market, in 2006 a group of entrepreneurs (including Luca Cordero di Montezemolo and Diego Della Valle, an entrepreneur already known for footwear companies) founded Italo – Nuovo Trasporti Viaggiatori SpA (in short: Italo SpA).
The company began providing transportation services in 2012 and has gained ever-increasing market share ever since. At first it had invested heavily in differentiating its service from Trenitalia, trying to offer a better service so that customers were willing to pay more. From 2015 onwards its strategy changed, and it began to compete with Trenitalia also on price. The strategy led to lower prices and total demand for high-speed in Italy to rise: from 8 billion passenger-kilometers in 2010 to 15 billion in 2017 (latest data available on the company’s website, the only provide a market estimate). Over the same period, Italo’s market share grew from zero to 35 percent.
The first financial statements of the company, however, had closed at a loss, predictably, due to the high initial investments. Only in 2016 after a debt restructuring and a recapitalization of 100 million euros, Italo had started making profits: 32.7 million euros. Two years later, on the strength of rising earnings, shareholders decided to sell Italo to the US investment fund Global Infrastructure Partners (GIP), which paid the company € 1.98 billion. Some of the founders had then bought back a smaller part of the company, but GIP retains full control with 72.6 percent. In 2019, the last financial year before the COVID-19 pandemic, Italo achieved a turnover of 681 million euros with a profit of 151 million.
Like all transport, rail has also been heavily affected by the restrictions on mobility adopted in an attempt to contain the COVID-19 pandemic. On 10 April 2020, during the lockdown, the CEO of Italo Gianbattista La Rocca had declared in an interview with Telebag that demand had dropped by more than 99% compared to before the epidemic and that the number of passengers had dropped from about 60,000 to 300 per day. As a result, the company had reduced its services to just two trips a day on the Rome-Venice route.
To cope with the difficulties, in the same interview, La Rocca asked the State to suspend part of the annual fee that Italo must pay to RFI in order to use the railway network. Aid of about 200 million euros a year, according to La Rocca (although costs of 161.6 million euros for tolls and traction are reported in the budget), against which the administrator pointed out that the company had a in turn made sacrifices, suspending the distribution to shareholders of the dividend of 151.42 million already resolved and cutting the remuneration of managers by 20 percent (it must be said, however, that the year before he had distributed dividends for 343 million euros).
On May 21, after the easing of the containment measures of the pandemic, Italo began to reintroduce several routes, albeit with the maximum capacity of 50 percent resulting from the government’s impositions on interpersonal distancing on long-distance trains. An initial derogation from the Ministry of Transport that had raised the capacity to 80 percent was immediately canceled in the summer. At a meeting on Sept. 15, the government’s Scientific Technical Committee, assessing the matter, decided that high-speed trains do not qualify for maximum capacity limits to be removed. A hypothesis of using Italo trains for local transport does not seem to have been taken into consideration to date.
In September, La Rocca quantified the impact of the pandemic on Italo’s balance sheet in a loss of 200 million euros, estimating that it could reach 400 million by the end of the year. The company has a reserve of around 1.5 billion euros, but has debts of around one billion.
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