The European Union has initiated a comprehensive investigation into Deutsche Lufthansa's recent purchase of a minority stake in ITA Airways, formerly known as Alitalia. Concerns have been raised regarding the potential negative impact this deal may have on competition.
The European Commission, the executive branch of the EU, stated on Tuesday that the acquisition could potentially impede competition on both short-haul routes connecting Italy with countries in Central Europe and various long-haul routes between Italy and the United States, Canada, Japan, and India.
To elaborate further, Lufthansa and ITA Airways already serve as formidable and closely competing entities, providing non-stop connections on specific routes. However, they face limited competition mainly from low-cost carriers that often operate from more remote airports, rather than major hubs located near capital cities.
The commission expressed concern that this deal could grant ITA Airways excessive influence at Milan's Linate airport, making it more challenging for competitors to offer passenger air transport services from the hub situated near the city center.
Last year, Lufthansa reached an agreement with the Italian Ministry of Economy and Finance to acquire a 41% stake in ITA Airways, aiming to expand its presence in what the airline referred to as the third-largest airline market in Europe.
Under the terms of the agreement, Lufthansa committed to investing €325 million ($353.7 million) in ITA Airways to obtain the stake, while the Italian government pledged an additional €250 million to support the airline financially. This arrangement provides Lufthansa with the opportunity to further increase its stake in ITA Airways or potentially acquire it outright.
ITA Airways: A New Chapter in Air Travel
ITA Airways, the successor to Alitalia, finds itself in a challenging position. Even before the Covid-19 pandemic hit, Alitalia was entangled in special bankruptcy proceedings. Despite its reputation for flying Hollywood movie stars and being the official airline of the pope, Alitalia struggled to turn a profit in the face of competition from European low-cost carriers such as Ryanair Holdings and Wizz Air Holdings.
In an effort to navigate these difficulties and chart a new course, Lufthansa recently presented proposals to address concerns raised by the European Union (EU). However, the EU deemed these commitments insufficient in both scope and effectiveness. Undeterred, Lufthansa remains dedicated to working towards a prompt resolution of the commission's review and implementing the necessary investments.
Lufthansa is confident that the transaction will ultimately be approved after careful consideration by the commission. They envision ITA Airways as an essential and complementary addition to the Lufthansa Group's multi-hub system, which already encompasses four network airlines. Lufthansa Group sees participation in ITA Airways as a catalyst for positive competition in Italy and Europe.
Despite multiple attempts to obtain a comment from ITA Airways, they have chosen not to respond at this time.
The commission has until June 6 to render their decision, allowing for 90 working days from now.
