The concern raised is that this move may lead to increased prices for customers and a decrease in service quality. The European Commission’s competition services have outlined the objections and unresolved issues before approving the merger of the two companies. The final decision is expected by June 6.
Italia Trasporto Aereo S.p.A., dba ITA Airways, is Italy’s flag carrier. It is owned by the Government of Italy via the Ministry of Economy and Finance and was founded in 2020 as bankrupt Alitalia’s successor. The airline flies to over 70 scheduled domestic, European, and intercontinental destinations
The European Commission has highlighted three potential areas of concern
The alliance might reduce competition on specific short-haul routes connecting Italy with Central European countries, diminish competition on specific long-haul routes between Italy and the United States, Canada, and Japan, and potentially reinforce ITA’s dominant position at Milan-Linate Airport.
Until the European Commission approves, Lufthansa’s investment of 325 million Euros in acquiring a 41% stake in ITA remains on hold, as do the commercial synergies between ITA and Lufthansa’s network.
Lufthansa and the Italian Ministry of Economy can present “remedies” to the competition concerns raised by the integration between Lufthansa and ITA, as listed in the statement of objections, by April 26, 2024.
In response to the pending document from Brussels, on Saturday, March 23, the Italian Minister of Economy Giancarlo Giorgetti criticized the EU Commission, accusing it of obstructing the agreement between Lufthansa and ITA by stating:
“For ten months, we have been struggling with Europe, which does not allow us to create a European champion capable of competing with international giants.”
In a swift response, Margrethe Vestager, Vice President of the European Commission, stated:
Emerging vs. Competition
“If you review the history of merger approvals in my ten years at the European Commission, you will see that numerous large companies have been created through mergers. This happens because very often it is possible to approve a merger while preserving competition.”
The European Commission’s document emphasizes that Lufthansa and ITA operate extensive networks of routes from their respective hubs in Austria, Belgium, Germany, Switzerland, and Italy.
Lufthansa has a joint venture with United Airlines and Air Canada for transatlantic routes and with All Nippon Airways for routes to Japan.
Joint venture partners coordinate pricing, capacity, scheduling, and revenue sharing.
ITA could limit competition
Brussels initiated an in-depth investigation on January 23 to assess whether Lufthansa’s acquisition of a stake in ITA could limit competition in passenger air transport services to and from Italy.
Following the investigation, the Commission is concerned that the operation could reduce competition on certain short-haul routes connecting Italy with Central European countries.
Lufthansa and ITA compete head-to-head on such routes, mainly with direct and indirect flights.
There could also be less competition on long-haul routes between Italy and the United States, Canada, and Japan, with low-cost carriers being the main rivals on some of these routes.
The agreement may reduce competition on specific long-haul routes between Italy and the United States, Canada, and Japan, where ITA and Lufthansa, along with their joint venture partners, compete directly or indirectly.
After the merger, the Commission considers the activities of ITA, Lufthansa, and their joint venture partners as those of a single entity.
ITA’s Dominant Milan Hub
This could create or reinforce ITA’s dominant position at Milan-Linate Airport, making it more challenging for competitors to provide passenger air transport services to and from there.
Brussels adds that millions of passengers travel on these routes annually, and the annual expenditure is over 3 billion euros.
The Commission aims to ensure that the operation “does not have negative effects on customers – consumers and businesses – in terms of price increases or service quality reductions.”
The Commission “fears that, without adequate remedies, eliminating ITA as an independent airline could negatively affect competition in these already concentrated markets.
Routes that raise potential concerns represent a small percentage of the total short- and long-haul routes and passengers served by both parties and their joint venture partners, and possible concerns do not affect the vast majority of routings operated by ITA.
Lufthansa remains confident that the operation will ultimately be approved.