Lufthansa to Enter Italian Market: Long Negotiations and Conditions
Air traffic - Lufthansa may take over Italian state airline Ita
Lufthansa is set to enter the Italian market by acquiring a stake in the state-owned Italian airline Ita. The EU Commission has given its approval after a lengthy review process. However, the German airline giant must meet a series of conditions. The antitrust authorities in Brussels, for instance, require that Ita cede takeoff and landing slots in Milan-Linate and provide new competitors with start-up aid on medium and long-haul routes. Negotiations with competitors are also part of the deal.
First Step: 41% Stake in Ita
Initially, Lufthansa will acquire a 41% stake in the former Alitalia. In the coming years, there is a possibility of a complete takeover. The two CEOs, Carsten Spohr of Lufthansa and Antonino Tajani of Ita, are expected to announce the decision at a press conference in Rome at midday. Italian Finance Minister Giancarlo Giorgetti will also be present.
Long-Drawn Negotiations
The negotiations and reviews regarding Lufthansa's entry into the Italian market, which was previously a competitor, have been ongoing for over a year. Italia Trasporto Aereo (ITA) emerged from the state-owned Alitalia in 2020, which had frequently encountered financial turbulence. The company currently employs approximately 4,500 people. In comparison, the Lufthansa Group currently has nearly 99,000 employees and has integrated Swiss, Austrian, and Brussels Airlines as its previous state-owned airlines. The brands and hubs in Switzerland, Austria, and Belgium have been retained. ITA is not the official legal successor of Alitalia but has secured the rights to the legendary name, which may be revived soon according to corporate circles.
Access to the Italian Market
Lufthansa CEO Carsten Spohr had recently expressed optimism about receiving approval from Brussels. Lufthansa gains access to the Italian market with this acquisition, which is particularly lucrative due to its close ties to the United States. Breaking away from the Air France-dominated Sky Team alliance is an added advantage.
Ita Cannot Survive Alone
According to many experts, Ita would not have been able to survive on its own. In the domestic market, it was pushed into the second tier by low-cost carriers like Ryanair and Easyjet. On profitable transatlantic routes, Ita struggles to compete against the mighty US carriers. In a strong alliance like with Lufthansa, this is significantly easier, as acknowledged by the EU Commission.
EU Commission's Concerns
At this point, the EU antitrust authorities had raised concerns, as Lufthansa, over the North Atlantic, engages in a joint venture with United and Air Canada. However, all major US carriers and European Lufthansa competitors, IAG (British Airways) and Air France-KLM, are active on the most lucrative air traffic market in the world. The Commission was convinced in March that the competitive pressure from other airlines on routes between Italy and the US, as well as to and from Canada and Japan, could be neglected.
EU officials had concerns that Lufthansa was concentrating too much market power on short-haul routes between Italy and middle European countries. There is competition, primarily from companies like Ryanair, but these low-cost carriers often start operations from remote airports. Lufthansa has been active in northern Italy with its own regional subsidiary, Air Dolomiti, for years.
Higher ticket prices anticipated
The EU Commission anticipated mainly disadvantages for consumers. With little competition on routes and significant market power concentrated with one provider, this supplier could theoretically charge prices above market level. Passengers would then have limited or no option to switch to cheaper competitors. Therefore, there are strict competition rules in the EU.
Italy's right-wing government, led by Prime Minister Giorgia Meloni, speculated that other competitors were trying to block the acquisition in Brussels. There were also open accusations from Rome towards France and Air France.
Overcome cost-cutting measures in fleet and personnel
Similar to the 2007 acquisition of Swiss, Ita is a restructured company that has already undergone painful cost-cutting measures in its fleet and personnel. With joint purchasing and better planning, it could generate operational profits quickly, according to Lufthansa experts. And for 2027, the joint business plan of Lufthansa and the Roman Finance Ministry from the previous year already forecasted a revenue of 4.1 billion Euros (2022: 1.6 billion Euros).
Risk factor: Italian government
325 million Euros are to be the first installment for 41% of the shares in the Airline's capital with 71 deep-blue painted aircraft. The Italian state, given the rapid government changes, remains on board initially. From 2025, Lufthansa can exercise the option to acquire the further 49% under precisely defined conditions and potentially become the sole owner of the Airline. The evaluation of the business development for the remaining 10% of the shares from the state is still pending.
Jörg Eberhard, Lufthansa Strategy Chief, is in talks to become the new CEO of Ita. He has been leading the Air Dolomiti subsidiary in northern Italy for nearly eight years. He could join the five-member Ita administrative board with another Lufthansa holding.
- Lufthansa's entry into the Italian market will be facilitated by acquiring a stake in the state-owned Italian airline Ita, which was previously known as Alitalia.
- Europe's antitrust authorities in Brussels have given their approval for Lufthansa's entrance into the Italian market, but it must meet a set of conditions to do so.
- One of the conditions set by Brussels is for Ita to cede takeoff and landing slots in Milan-Linate and provide new competitors with start-up aid on medium and long-haul routes.
- Lufthansa's acquisition of a 41% stake in Ita will give it access to the Italian market, which is particularly lucrative due to its close ties to the United States.
- Many experts believe that Ita would not have been able to survive on its own, as it was pushed into the second tier by low-cost carriers like Ryanair in the domestic market and struggled to compete against US carriers on profitable transatlantic routes.
- The EU antitrust authorities had raised concerns that Lufthansa, over the North Atlantic, engages in a joint venture with United and Air Canada, but the Commission was convinced that competitive pressure from other airlines on routes between Italy and the US could be neglected.
- Lufthansa CEO Carsten Spohr had expressed optimism about receiving approval from Brussels, and with the acquisition, Lufthansa breaks away from the Air France-dominated Sky Team alliance.
- Germany's Lufthansa gains access to the Italian market with this acquisition, which is an added advantage due to its strong partnership with Air France and Swiss International Air Lines in the EU.
- The Italian government, led by Prime Minister Giorgia Meloni, has speculated that other competitors were trying to block the acquisition in Brussels, but the deal moves forward with strict competition rules in place to protect consumers.
