Germany's Lufthansa secured EU anti-trust clearance to acquire a 41% stake in Italy's ITA Airways for 325 million euros ($350 million) on Wednesday, following the relinquishment of certain routes and slots. This acquisition is set to enhance Lufthansa's footprint in the profitable southern European market and is among three significant transactions in the European aviation sector, highlighting the industry's push to increase scale to counter rising operational costs. ITA provides Lufthansa with crucial long-haul routes, and Lufthansa has the option to acquire full ownership if ITA's financial performance improves.
According to the European Commission, Lufthansa and ITA have agreed to cede Italian short-haul routes to one or two competitors. Lufthansa has disclosed ongoing discussions with Easyjet and Spanish low-cost carrier Volotea. The merged entity will also engage in interlining agreements or slot swaps for long-haul routes to boost frequencies and enhance connections for one-stop flights. Interlining agreements enable individual airlines to manage passengers on itineraries involving multiple flights across different carriers. Additionally, Lufthansa and ITA will transfer some of ITA's slots for short-haul routes at Milan's Linate airport to competitors, facilitating the establishment of a sustainable operational base.
EU antitrust chief Margrethe Vestager stated in a release that the remedy package proposed by Lufthansa and Italy's Ministry of Economy (MEF) on this cross-border deal adequately addresses competition concerns by maintaining a sufficient level of competitive pressure on all relevant routes. Lufthansa can only finalize the deal once approved rivals commence operations on the ceded routes. EU regulators had previously encountered issues where approved rivals declined to take up routes and slots, citing inability to compete with Lufthansa. Lufthansa has grappled with increasing labor costs due to strikes earlier this year, prompting a profit warning. Analysts suggest that turning around ITA, whose predecessor Alitalia faced long-term financial difficulties and bailouts, will not be straightforward. Lufthansa will likely require substantial investment to rebuild ITA.
European regulators are also concerned that the region's three largest airline groups — IAG, Air France KLM, and Lufthansa — are becoming overly dominant, potentially diminishing consumer choice and making air travel less affordable. The commission is currently scrutinizing British Airways-owner IAG's bid to acquire Air Europa and is set to assess Air France-KLM's offer to take a 19.9% stake in Scandinavia's SAS. IAG expressed satisfaction that the Commission acknowledged the benefits of airline consolidation.
