Too big to stay? The restructuring of Italy’s flag carrier and its consequences on airline pricing

Abstract

Airline financial distress is a global phenomenon, yet its market implications remain underexplored. A notable case is the restructuring of Italy’s flag carrier, Alitalia, which went bankrupt and ceased operations on October 14, 2021. The following day, ITA Airways took over, inheriting parts of Alitalia’s network while operating under a distinct governance and management structure. This article examines how this transition has affected Italy’s aviation market and fare dynamics. By estimating price regressions at the route level using monthly fare data from 2017 to 2023, and by accounting for the non-random selection of routes retained by the airline after the reorganization, we find that the restructuring led to lower fares in the domestic market but higher prices on international routes, particularly for long-haul flights. In response to competitive pressures, ITA has adopted a more complex pricing strategy: functioning as a low-cost carrier domestically while raising fares on long-haul routes.