For years, Italy has been trying to privatize its struggling national carrier. This was the case when Alitalia existed, and it continued to be the case with the new version of the airline, ITA Airways. Since ITA Airways was formed in October 2021, several parties have expressed interested in acquiring the airline.
Well, there’s now a major update. We knew that Lufthansa had been in discussions with ITA Airways for quite some time, but an agreement has now been reached. Pending government approval, Lufthansa Group will be acquiring a stake in ITA Airways, and the airline will be integrated into Lufthansa Group.
In this post:
Lufthansa Group acquiring 41% stake in ITA Airways
The Italian Ministry of Economy and Finance and Lufthansa Group have reached an agreement whereby Lufthansa will acquire a minority stake in ITA Airways. Specifically, Lufthansa will acquire a 41% stake in ITA Airways through a €325 million capital increase. As part of this deal, Italy has also agreed to invest a further €250 million in the airline.
This agreement gives Lufthansa the right to acquire the remaining shares of ITA Airways at a later date. The purchase price will be based on the business development of ITA Airways. Maybe the Italian government will eventually just pay Lufthansa to acquire the rest of the airline? 😉
The contractual finalizations of the agreement are expected to be completed shortly. This investment does require approval from relevant authorities, including the European Union, which could take several months.
Here’s how Lufthansa Group CEO Carsten Spohr describes this deal:
“Today’s agreement will lead to a win-win situation for Italy, ITA Airways and Lufthansa Group. And it is good news for Italian consumers and for Europe, because a stronger ITA will invigorate competition in the Italian market. As a young company with a modern fleet, and with its efficient and expanding hub in Rome, ITA is a perfect fit for Lufthansa Group. In Milan, ITA serves a strong catchment area which also offers potential for growth. As part of the Lufthansa Group family, ITA can develop into a sustainable and profitable airline, connecting Italy with Europe and the world. At the same time, this investment will enable us to continue our growth in one of our most important markets.”
ITA Airways will become a Lufthansa Group airline
So, what’s Lufthansa’s plan for ITA Airways? Upon closing of the transaction, ITA Airways is expected to immediately start cooperating with Lufthansa Group on a commercial and operational level, to benefit from group synergies.
The plan is for ITA Airways to become the fifth network carrier in Lufthansa Group’s multi-brand and multi-hub system, complementing Lufthansa, SWISS, Austrian, and Brussels (and on top of that, Lufthansa Group has some further subsidiaries). Furthermore, you can expect that ITA Airways will eventually join the Star Alliance.
Italy is Lufthansa Group’s most important market outside the group’s home base countries and the United States, which is why this acquisition is so important to Lufthansa Group.
My take on Lufthansa’s ITA Airways investment
Where do we even begin here? First of all, let me acknowledge that I can appreciate how Italy is an important market for Lufthansa, and how investing in ITA Airways is the easiest way that Lufthansa can considerably grow market share there.
Historically Lufthansa’s biggest challenge in Italy has been competing with SkyTeam, between Alitalia and Air France-KLM. Alitalia belonged to SkyTeam, and ITA Airways has joined the SkyTeam alliance as well. With ITA Airways having cooperated with Air France-KLM and Delta, Lufthansa struggled to grow beyond its current position, especially for long haul service.
So this investment by Lufthansa largely seems to be about poaching market share in Italy from competitors. I think we can expect that ITA Airways will join the Star Alliance, and I imagine Lufthansa will try to get ITA Airways into the transatlantic joint venture (though it’s anyone’s guess if that gains approval).
Lufthansa has an uphill battle with making this investment profitable. Alitalia had been losing a lot of money for a very long time, and on top of that, ITA Airways lost €486 million in its first year of operation, while other airlines in Europe have been turning very healthy profits.
With that in mind, a few thoughts and questions:
- I’m curious what this means for Air Dolomiti, which is another Italian airline that Lufthansa already owns; will Air Dolomiti be merged into ITA Airways, or will it continue to operate independently?
- I can’t help but wonder if Lufthansa will face regulatory approval with this purchase, given that the airline already owns Air Dolomiti, I mean, the European Union is trying to block the Asiana and Korean Air merger, so you’d think this would pose a much bigger risk to competition in Europe
- Even with Lufthansa initially only owning a minority stake in the airline, hopefully the Lufthansa is put in charge of day-to-day operations, or else I could see co-owning the airline with the Italian government being challenging
- While Italy is a huge tourist destination, it’s a tough market for a global network carrier; the country doesn’t have great geography for transatlantic connections to Western Europe, Italy is more of a leisure-oriented destination, competition on short haul flights from ultra low cost carriers is fierce, etc.
- I am excited about ITA Airways hopefully joining Star Alliance, since maybe we’ll finally see partner award redemptions on the airline
Bottom line
Lufthansa will be acquiring a 41% stake in Italy’s ITA Airways for €325 million, with the option of acquiring remaining shares of the airline at a later date. If this deal gets approved, you can expect ITA Airways to be integrated into Lufthansa Group, and become a Star Alliance member.
This is all pretty wild, and I’m curious to see how this plays out. Italy is a huge market for the German airline group, and partnering with Italy’s national airline will give Lufthansa the ability to grow market share. The question is whether Lufthansa can do so profitably. With ITA Airways’ first full year performance, Lufthansa sure has some work to do.
What do you make of Lufthansa Group investing in ITA Airways?
I think there’s a fundamental misunderstanding of the Italian market. The north of Italy is heavily industrialized and one of Lufthansa’s primary connecting markets for long haul traffic. None of the Italian airlines ever provided rival connections at the level of LH. The alternative was Sky team , mostly AF. So the local alliance affiliation plays a significant role. If I use ITA in Europe then I may stick to Skyteam for long haul. Meanwhile...
I think there’s a fundamental misunderstanding of the Italian market. The north of Italy is heavily industrialized and one of Lufthansa’s primary connecting markets for long haul traffic. None of the Italian airlines ever provided rival connections at the level of LH. The alternative was Sky team , mostly AF. So the local alliance affiliation plays a significant role. If I use ITA in Europe then I may stick to Skyteam for long haul. Meanwhile LH strategy has to take over slots at hubs and force prices up. This buy could free up slots at the existing hubs due to duplication and allow a rise in prices too. Meanwhile those additional slots can be deployed on other routes rather than just to facilitate feeder traffic. Swiss/LH is an example. So they may sacrifice some slot slots between Italy and other hubs but deploy them elsewhere where competition authorities don’t have an issue. Air dolomíti says everything about the problem today. Misuse of slots with tiny aircraft out of congested hubs, just to connect Italy with LH. Consolidated ITA and LH will make that more efficient. LH has the cash to face down the unions too. They’ve done it before at LH. ITA will be easy by comparison. The deal for profit based option to buy is clever because it motivates the Italian government to seek profitability. This will likely result in less interference. It also reduces risk. Should the whole thing go belly up, LH will pick up the pieces it wants cheap and let the rest go, without paying the stated option price. Swiss was a mess too when they bought it and now it’s a star performer in the group. They’re in this for the long haul and it fits with their strategy, which they have demonstrated success with so far.
Well, LH tried it with Lufthansa Italy some years ago and so far, they didn’t succeeded actually … so, they know the market after all. And then, SkyTeam loses another partner …
In terms of reliability and service quality the two worst airlines in Europe merge … no big loss. Frankly, I din‘t fly neither LH nor AZ …
Ben, why did LH close Lufthansa Italia a few years ago? I assume that the German name wasn't the only reason it wasn't a success.
this guarantees that we will see very strong US-Italy networks by the US carriers who want to make sure that ITA does not survive.
The real challenge will be for UA which is competing directly against its JV partner since ITA is not a part of the LH JV
I totally agree with Tim Dumb, he has his finger on the pulse of the US-Italian networks…. He after all knows everything and all things aviation, he can say no wrong…. I should know since I live in his head rent free!
If anyone can turn around ITA airways it is Lufthansa however I feel like this is the biggest challenge Lufthansa has ever taken on. The fact that the Italian government will always have a stake makes me feel like they will continue to be a blocker to making ITA an efficient airline or they will start to give Lufthansa money to prop up ITA's losses even if Lufthansa can ultimately reduce the losses.
It depends on whether the Italian government’s stake allows for a control of the board. Lufthansa will be given day to day control of operations even at 40% ownership. Might that be a problem if the government still has a voting majority? Sure. But if/when Lufthansa decides to increase its holding to 90%, what can the government do (unless if retains veto power - which Lufthansa would be crazy to accept).
Being LH HON I do not see anything bad on the move.
Ryanair and others LCC and ULCC should actually not to be compared with LH Group.
They have totally different passengers.
How is this merger ok but EU is against to Korean and Asiana merger?
Seriously stinks.
Ummmmm.....just guessing here but: 1) 1 country investing in another countries air system. 2) EU in much larger market than just S. Korea.
Good point!
But I'm just wondering, Germany doesn't let easyJet or Ryanair to operate in Germany but then, Lufthansa owns good portions of Austrian, Eurowings, Swiss, Brussels, SAS, now this? Feel like forgetting something else Lufthansa owns...
Obviously Something is very wrong...
Easyjet and Ryanair both operate a huge amount in Germany, or what am I missing here?
Easyjet used to serve several inner German connections as well, I don't think there was a ban, they just killed the connections due to profitability as far as I know...
Germany does let Ryanair and Easyjet operate in Germany. However both airlines have found the German domestic market not to be worthwhile and have pulled out of it in the last few years. But they are still offering flights to/from Germany to other European countries.
We don’t yet know if the EU will approve this deal.
Somehow a B6/AA NEA is anticompetitive, but LH absorbing another mid tier Eurpoean airline isnt?
We'll see if this gets approved, or if ITA is allowed to join the JV.
AA/B6 are direct competitors on dozens of routes (upwards of 100?). LH/AZ on less than a handful. Incredibly different competitive landscapes. LH deal would be more similar to the NK/B6 tie up (even though they have a shared hub in FLL that is going to be a big hurdle).
It will be interesting to see how this plays. Would be great to see ITA join Star Alliance.
I'll add that with recent additions and renovations, FCO is now one of the most pleasant airports in Europe from the passenger's perspective, and I'd be happy to connect there.
T1 at FCO is truly world class now. What a difference!
Absolutely terrible. The last thing we need is even bigger Lufthansa Group. What are anti-monopoly authorities doing?
Outside of the 3 EU groups, there’s not a single viable network airline in Europe. TAP? Air Europa? virgin Atlantic? SAS (which is already a merger of national airlines)? Finnair? ITA / Alitalia? None of them are viable and are unable to sustain profitability, requiring frequent bailouts / bankruptcy. It’s better to make the groups bigger and have more connectivity than to shut down an airline entirely because it’s continuously unprofitable
There is no other viable network airline in Europe precisely because Lufthansa has eaten everyone in central Europe (except LO), thus leaving only carriers based at edges of Europe as their competition. It's not possible for, for example, oneworld to have a comprehensive European network with bases in London, Madrid and Helsinki.
Lufthansa is the cause of the problem, not the solution.
TAP, Aegean, Finnair and Aer Lingus should merge under a single brand and establish a fifth hub in Milano (or Munich or anywhere else within the blue banana).
It would therefore be entirety fair if Air France KLM were to invest in TAP and they join SkyTeam
Air Europe is merging with IGT
Alitalia /ITS was and is disaster from a business perspective even if they offer a good product.
I think what would make sense is to leverage Rome's proximity to Africa to serve as Lufthansa's group gateway to the continent, aggregating traffic from China and from Americas through there. Those markets have a different yield than the Asia-Europe or North America - Europe or Americas-Indian markets so it's a good way to have a segregated fleet that's adapted to this reality with more high yield/premium markets handled by LH and LX. Austrian remaining...
I think what would make sense is to leverage Rome's proximity to Africa to serve as Lufthansa's group gateway to the continent, aggregating traffic from China and from Americas through there. Those markets have a different yield than the Asia-Europe or North America - Europe or Americas-Indian markets so it's a good way to have a segregated fleet that's adapted to this reality with more high yield/premium markets handled by LH and LX. Austrian remaining the Eastern Europe/Central Asia gateway it already is.
On the medium haul market the goal is likely to reallocate slots to increase point to point connectivity from German speaking cities to touristic destinations in Italy and improve FRA and ZRH connectivity to premium tourist destinations to capture more touristic traffic from the US.
I don't know the financial of this all but that's something that seem to conceptually make sense.
Does it make sense to have a common arrival bank in the morning from both China and USA in Rome to feed day-time flights to Africa and African returns as night flights/red-eyes?
Consider ITA flies to just 3 destinations in the African continent- Cairo, Algiers and Tunis. Currently as a member of SkyTeam , most feed would be via Amsterdam or Paris as Air France KLM have a comprehensive network, although it means backtracking.
Unless ITA plans to add at least 40 destinations, and that’s subject to government approval, it wouldn’t work. Even in the past, Alitalia’s African footprint was small.
Why waste all this coin just to absorb/kill a competitor?
It's Italy. Give them six months of labor disputes, chain-smoking flight attendants, and a particularly stinky summer in Venice and Rome, and the airline will collapse on its own. Then LH can swoop in and dance on that grave for much less money than the cost of buying ITA now.
You forgot to mention pizza, mandolins and the mafia to your string of idiotic clichés.
I think the main problem that is crippling AZ's profits is that they chose Rome as their main base, which is mostly leisure-based, instead of Milan, which has the highest amount of business travellers in Italy. At least that was something that IG realised and tried with their main base at MXP. Hopefully with LH running day-to-day we could see more of a shift to Milan
Spot on. But reports/rumours (and so far all have been true) say that ITA has to maintain Rome as main base as two bases don't make sense or sth given the size of ITA. Plus LH isn't going to operate 2 hubs in Italy at first.
Should that be the case expect very high frequencies to ZRH,MUC & FRA to tap into that premium traffic. I'd still expect some long haul routes from Milan though.
Indeed as its politics
Lombardy is considered to be Switzerland compared with anything south of Florence.
Economically it makes far more sense for them to have a main hub at Malpensa. Linate as a secondary hub. Rome is primarily a leisure / government travel destination
any ITA takeover will require a Rome focus, anything else will not be allowed of if it does, then it will be political sabotage.
Lufhansa's love affair with Italy has been going on for ages. Anyone remember 'Lufthansa Italia' that folded over a decade ago?
I'm willing to give this a chance. I hope they truly have a proper plan and can get stuff done. There was lots of talk of making Rome a South American hub for the LH Group.
Get the popcorn and let's see how this plays out. Good luck Lufthansa.
LH Italia had to go, it was not LH's active choice. SEA, the airport operator, was not keen on seeing MXP get more investment than LIN. It thus was only a political motivated and hence pushed exit against LH.
Fools and their money are soon parted…
LH Group really is going to have a massive monopoly for lack of a better term across central, south central, and Eastern Europe (LOT isn't owned by LH obviously, but controlling their mileage program certainly gives them a lot of power). No other airline group seems to come anywhere close to that type of market share throughout central Europe.
This is not quite true; remember IAG? Those are the folks who own BA, Iberia, Aer Lingus, Level, Vueling and who are trying to buy Air Europa. Oh, and they're seriously sniffing around TAP too. So, LH is just trying to stay competitive here. And, with so many redundant airlines in their stable, it is nice to see them buy one that actually does expand their market in a clear and meaningful way.
Which of the airlines you've mentioned is located in central Europe? IAG airlines are useless for intra-EU travel unless it's to or from London, Spain, or Portugal. For all other itineraries it's a massive detour to fly on IAG (I'm purposefully excluding Ireland and UK apart from London, since LHR is a pure hell to transit at).
I agree with MaxPower, LH's control of the market is getting ridiculous. I wish we'd at least see...
Which of the airlines you've mentioned is located in central Europe? IAG airlines are useless for intra-EU travel unless it's to or from London, Spain, or Portugal. For all other itineraries it's a massive detour to fly on IAG (I'm purposefully excluding Ireland and UK apart from London, since LHR is a pure hell to transit at).
I agree with MaxPower, LH's control of the market is getting ridiculous. I wish we'd at least see LO leave M&M (if not *A altogether). Having VIE as my main airport sucks, there's almost no competition.
@Stogie
Yep. What Samo said. I don't mean to suggest LH Group is the only airline group in Europe, far from it, only that their domination and unique pricing control intra Europe is quite dominant already, particularly in central Europe. One could argue LIN/MXP serve a central European connecting and competing role for ITA that will go away from any competitive sense against FRA, ZRH, VIE, or MUC if LH Group takes over.
Anti-competitive behavior for sure.
"lol wut/that seems oddly specific" :)
As I wrote in all the other posts about ITA and Lufthansa, the idea that Italy is a "seasonal" destination is plainly wrong. Italy is a country of 60 million people and the third-largest economy in the EU. Milan is a major financial center and northern Italy attracts millions of premium and business travelers year-round. Ironically, Alitalia's business plan was adapted around the idea that Italy is a leisure destination and never relocated its hub...
As I wrote in all the other posts about ITA and Lufthansa, the idea that Italy is a "seasonal" destination is plainly wrong. Italy is a country of 60 million people and the third-largest economy in the EU. Milan is a major financial center and northern Italy attracts millions of premium and business travelers year-round. Ironically, Alitalia's business plan was adapted around the idea that Italy is a leisure destination and never relocated its hub to Malpensa, where it could've intercepted most of the business traffic. We all know how that ended. Just look at the conditions imposed for the (failed) merger by KLM: relocating the hub to Malpensa to make the company more profitable. Alitalia refused to do so and the merger didn't happen. This is the third post where you reiterated that Italy is a seasonal destination, you might want to change that.
and never relocated its hub to Malpensa
Huh?? That's the exact OPPOSITE of actual history.
MXP was Alitalia's primary longhaul AND domestic hub from 1998-2007.... at its peak they had more than 500 flights!
Nonsense, FCO had always been Alitalia's main hub. Alitalia tried to relocate to Malpensa multiple times, especially since KLM included the relocation as a condition for the merger. Alitalia was unable to relocate (due to political and management issues) and the merger failed. Malpensa was a hub but not the main hub, as KLM wished.
Source: https://www.wsj.com/articles/SB96513265341548748