Lufthansa Group Acquires the Worst Airline Ever

Alitalia, Lufthansa

I can’t remember the first time I heard a rumor that Lufthansa was interested in buying Alitalia… ages ago to be sure. But this long-lived rumor has now become reality. Lufthansa will buy a chunk of Alitalia’s successor, ITA, to ensure that it remains the Worst Airline Ever for years to come. As an added bonus, Lufthansa can now share in the airline’s losses year-in and year-out.

Lufthansa will throw away €325 million as a cash infusion into ITA. In exchange, it will be the proud embarrassed owner of 41 percent of the airline. With that promised cash infusion, Italy is quite literally paying Lufthansa to take ITA off its hands by adding another €250 million cash infusion of its own. Combined, the €575 million should last the airline for one or two weeks.

At least Lufthansa Group knows what it’s getting into with this. Carsten Spohr, Lufthansa Group CEO, said, “Today’s agreement will lead to a win-win situation for Italy, ITA Airways and Lufthansa Group.” Notice he only used “win” twice, and that’s because it is a win-win for Italy and ITA. For Lufthansa… not so much.

The plan is to bring ITA into Lufthansa’s stable of former flag carriers, just like Austrian, SWISS, and Brussels Airlines. The name will remain (unless it reverts to Alitalia), and there will still be a management team that runs the airline. Then it’ll be all about those desired “synergies” to help fix ITA and grow it to profitability.

To be fair, Italy has always been a hugely important market for Lufthansa. Munich is the de facto best hub to serve Northern Italy. Just take a look at this footprint which is just for Lufthansa and Air Dolomiti, the Italian-based subsidiary of Lufthansa Group.

July 2023 Italy departure on LH/EN via Cirium
Not shown at bottom are Palermo and Catania

This doesn’t include all the other Lufthansa Group airlines which grow the service pattern even more.

Italy has been important to Lufthansa for so long that it even launched Lufthansa Italia in 2009. While Air Dolomiti was built to connect Italian cities into the Lufthansa network via Munich, Lufthansa Italia was meant to connect Milan to important European cities.

Lufthansa/Lufthansa Italia network from Milan/Malpensa for July 2010 via Cirium

The idea was doomed from the beginning. Lufthansa ended up using A319s to fly from Malpensa. The idea was to fill the void after Alitalia all but abandoned Milan as a hub. The problem is, while it might not have been a hub, Alitalia still served most of those European cities from close-in Linate. So did Air France, British Airways, Iberia, etc. Malpensa was a tougher sell, as was the idea of a German airline pretending to be Italian. (And barely pretending at that… Lufthansa Italia? Come on.)

It never made money, and Lufthansa gave up in less than 3 years, but that doesn’t mean Lufthansa ever gave up on the dream of controlling more share in Italy.

It now walks into a market that is incredibly competitive and full of low-cost carriers. It doesn’t have the same protectionist government policies that it enjoys in Germany to shield the airline, so it will be a bumpy ride. And while Lufthansa has generally coveted the more industrious Nothern Italy, ITA is now very much a Rome-focused airline, so it’s a whole different story.

Just how bad is the competitive situation? ITA has about 27 percent of seats departing Rome this coming July while ultra low cost carriers (ULCCs) have about a third. If you include Ciampino where Ryanair has a large operation, ULCCs are over 40 percent. In case you’re curious, Lufthansa itself (not including other LHG subsidiaries) has over 58 percent of seats departing Frankfurt this July while non-Lufthansa-owned low cost carriers are virtually non-existent. Munich is no different.

So, what now? Well, Lufthansa will have to unwind ITA’s long-standing relationships with Air France-KLM and Delta. They already kicked the airline out of the joint venture over the Atlantic, so that shouldn’t be all that tough. Presumably ITA will end up in Star Alliance like all the other Lufthansa “network” airline subsidiaries.

Then, once Lufthansa is able to magically fix the airline, it will have the option to purchase (most of?) the remaining shares “based on the business development of ITA Airways.” I’ve seen figures floated around that would give most of the remains to Lufthansa for a half a million euros or so, but I don’t see how there’s any way to know the price at this point… or if ITA will still exist by then with more bailouts. And I assume the Italians will want to keep a small minority stake of 5 to 10 percent just to be able to mess with Lufthansa for years to come.

Good luck, Lufthansa. You’re gonna need it. Just ask Etihad.

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31 comments on “Lufthansa Group Acquires the Worst Airline Ever

  1. Not mentioned here is the effect of Tren Italia, the high-speed train network throughout Italy as it’s destroying domestic air service.

  2. @ Cranky, Lufty can buy another 48% in 2025 for half a BILLION euros, the price to be adjusted depending on performance against a pre-agreed business plan. And get total ownership ultimately, although I haven’t seen any definite timeline or price for that. Presumably it’ll be all sunshine and rainbows, flying pigs and all that by then.

    Half a billion euros was also the size of ITA’s losses last year so that cash injection isn’t going to go very far. And any further cash injection from the Italian government is going to be heavily scrutinised by the EU as potential illegal state aid (they’re already in trouble for their Covid package), so Lufthansa is likely on its own to cover any further losses from this point onwards.

    It’s back to the Etihad glory days! ITA = Worst Airline in the World; ITA = Lufthansa; Lufthansa = Worst Airline in the World!

    PS: They will be partnering with Trenitalia, similar to what is already being done in Germany/Switzerland/Austria with the local train operators there.

  3. Also, ITA is SkyTeam with Delta, Lufthansa is Star Alliance with United. Will ITA switch alliances or will it be a dual alliance situation?

    1. ITA will switch alliances. If there’s any airline out there that treats Star Alliance seriously, it’s Opa Lufty.

    1. I think this is somewhat lost in the discussion. I recognize that DL always had a stronger position with KLM/AF but the ITA relationship couldn’t have been immaterial. I’d be curious to understand what SkyTeam’s losing. As a UA flyer, I’m actually kind of please to see this transaction happen as it’ll hopefully open up more connection possibilities for my eastern European travel. Although, you can’t beat the 25 minute minimum connection times at VIE. Assuming you like being drenched with sweat as you board your TATL flight.

    2. None whatsoever, since the terms of their JV with AF/KLM are pretty much set in stone. If they need someone in Sky in the central Med, their only option is TunisAir (there might be negative feedback regarding Air Algerie being a SkyTeam member with Air France). Better start researching that ATL-TUN route, Widget.

    3. Delta will likely just route connections through CDG and AMS. It does have flights on its own metal to Rome, Milan and Venice (summer season).

    4. I recall that DL really wanted AlITAlia to connect more to the Balkans/Greece but Alitalia never really grew that part of their network. Since excluding ITA from the JV, DL has ramped up its Greece connectivity with ATL and BOS and has the only year-round North America to Greece service out of JFK. They’ve also partnered with fast growing SkyExpress to access the islands, an relationship that I expect will continue to grow.

      1. DL could partner with Air Serbia that covers all of Croatia and a ton of Greek islands (plus the rest of the Balkans). While not super practical, JU also covers a fair amount of destinations in Italy (Palermo, Catania, Naples, Bari, besides the major ones). AF has a strong codeshare with them and KLM flies 2x daily to BEG in summer. This would actually help plug a pretty massive hole in the SkyTeam network. in general since TAROM is on its way out.

  4. Cranky must be having a field day on this one – the LH Frankenstein grows by including his most disliked airline in Alitalia/ITA!

    1. Now we just need LH to buy a stake in Aerolineas Argentinas (and perhaps one of the Indian airlines as well), so that it will have a more complete set of dysfunctional airlines.

  5. Italy demonstrates the issues carriers in Europe have, in a nutshell. There are a lot of places with limited space close in airports served by legacies with high fares, and a zillion ULCCs often out in the boonies.

    Throw in that Italy is similar to Florida in that it gets high leisure travel volume, and it’s a really tough market.

    We are going to Naples in September, and due to the timing we have to fly from Naples to London. There are three ULCCs on the route, Ryanair, EasyJet, and WizzAir, all of which are around 200 Euros one way, and BA serves the route also for a whopping 600 Euros. One way.

    ITA doesn’t serve the route. They can’t compete with the cheap guys, and they don’t have the pull with the higher end business travelers or the connections to get the kind of fares BA can command.

    There is a wide gap between the legacies and the cheapies in Europe, and ITA has no place between. This is going to fail too. In Germany LH basically owns two monster hubs serving large metro areas. They won’t have that advantage in Italy.

  6. “Ready to prove that German efficiency is no match for Italians”…Cranky Flyer, the acquisition of ITA by Lufthansa has nothing to do with Italians and Germans. There are efficient Italian companies (for example Ferrero) and not efficient German companies (look at the Berlin airport saga). You should stick to the airline business analysis and keep any stereotypical nationality prejudices to yourself.

    1. Except… as one who spent years living in Italy, speaks fluent Italian, and visits Italy at least yearly, that was the funniest line in the article because it’s true. It may not be 100% true, as you did point out some glaring exceptions, but it’s probably 80% true, which is close enough. It’s also an accurate reflection of the way many Italians view themselves. I recall being in meetings in Northern Italy (the more put-together part of the country) and leadership saying “We need to be more like the Germans and be more efficient in how we do this” and things like that.

      1. Yes, of course we can carry on with the stereotypes…Northern Italian and Northern German efficiency are no match with Southern Italian and Southern German efficiency, and so on and so forth. I have worked for both German and Italian companies and I have often been surprised to see how inefficiency can be driven by rigidity and efficiency by creativity. Italians run many companies efficiently, including trains and airports, as much as Germans do. The reasons for Alitalia/ITA’s failure are very complex and have nothing to do with nationality.

    2. But being in Germany is why the Berlin airport is/was such a big fiasco. If it took place in Italy nobody would be surprised or think twice about the problems and cost overruns. Even in France, Spain, the UK, America, or most other countries it wouldn’t be as big a deal as it has been in Germany.

  7. Great writeup! Though I must say I’m slightly disappointed we didn’t get more snark in here. This ITA/LH merger seems ripe for more content in the months and years to come though!

    Now if only they can figure out a way to let my ITA flight on July 1st credit to a Star Alliance partner.

  8. Maybe Lufthansa will now become the “Worst Airline Ever.” By the way, isn’t Frankenstein’s castle somewhere near Frankfurt?

  9. When your competition (EY) literally hands you a white paper on what NOT to do in dealing within the Italian aviation market, what do you (LH) decide…

    Great idea, rubber stamp please!

    Grabbing the popcorn now.

  10. ITA is the super hot, but super psycho girl that LH just can’t resist. It will be interesting to see whether LH manages to “fix” ITA or will ITA dissolve a big hole in the middle of LH’s bank account. Based on my analogy above (which I actually think is pretty apt), the latter is a pretty sure bet.

  11. LH’s strategy is clearly to control enough airlines in continental Europe to protect the mothership and possibly make money on some of them. You get fixer-uppers like Brussels Airlines that never will be financially viable but LH not only protects its empire but also does a public service to countries which cannot mount an intercontinental airline any other way. ITA will end up in the same class of LH Group airlines. LH probably will not exercise its option for further equity but doesn’t need to because it has locked up whatever part of the market it thinks it can control.

    The intra-Europe and intra-Italy market can easily make or break ITA’s future but the real significance of ITA is its intercontinental routes. While they are trying to expand beyond their traditional strongholds, of which the U.S. is by far the strongest market, the LH group will end up siphoning off connecting traffic from its core brands in order to provide ITA with the volume to make routes such as to India work.

    As for ITA’s presence in the Star transatlantic JV, it is very likely United really doesn’t them. United like American and Delta have some of their most aggressive transatlantic schedules to Italy this summer and the chances are high that level of demand will not fall anytime soon; United has no reason to want to share that revenue with ITA since AZ historically got lower average transatlantic yields than the U.S. airlines esp. in the winter when U.S. airlines cut back to a bare minimum but AZ has to maintain a fairly robust transatlantic network.

    I doubt if Skyteam will be sad to see ITA leave; AF/KL and DL clearly did the math in removing AZ from the JV when it was expanded to include VS which speaks volumes about why there is little value in making a risky equity investment. AZ simply has much less strategic value; there were limited connections over Italy and most can be served over AMS or CDG. AZ is in Skyteam this summer and it will undoubtedly take time for the EU to approve the deal anyway so status quo including any efforts by LH to shore up AZ won’t happen anytime soon.

  12. LH has nice presentation on this transaction at https://investor-relations.lufthansagroup.com/en/investor-relations.html
    It includes the reality on the statistics behind Italy (#3 GDP in EU, #3 Airline Market in EU, strong O&D traffic in Milan and Rome)

    In addition, this site has their latest Investor Presentation (May 2023) which shows Adjusted EBIT performance by Airline for Q1CY23 (page 32).
    LH has a lift on their hands to get their Airline Group to positive EBIT. This is before ITA.
    It will be interesting to follow this as their Traffic returns toward 100% as Q1CY23 was still down ~27% versus Q1CY19 (page 26)

    I will leave it to CF and others (Tim Dunn, etc) to comment on LH Groups operational KPIs across Yield, RASK, and CASK (page 28)

    LH Cargo did GREAT during Pandemic but Supply:Demand has renormalised in this area but EBIT has come from Cargo > MRO > Passengers.

    The “opportunity” or “wild card” is can LH apply the Swiss Airlines model to the rest of the Group Airlines. Whatever they are doing with Swiss is producing material EBIT and can serve as a model for the other brands.

    This transformation is worth following and I hope CF and the Commenters (eg Tim Dunn, et al) continue to follow this story.

    1. laxlgb…
      good comments.
      Keep in mind that all of those statistics about market size were true for Alitalia and are true for the low cost carriers, and in the international arena, true for the big 3 which carry the majority of longhaul international travel in/out Italy.

      While the 1st quarter is challenging for many airlines, it is noteworthy that Swiss was the only profitable airline in the LH Group. While the mothership – LH itself – should return to profitability later this year, it is a stretch to think several other of the lead weights will stop being so heavy.

      The takeaway seems to be that other investors – airline and non-airline – and had the chance to invest in Alitalia and ITA but passed. It is never a great sign when you are the investor of last resort.

  13. I actually flew ITA at the beginning of the month from Pescara to CDG via Linate. My two flights were actually fine and my suitcase showed up in Paris not long after landing.I even bought access to the ITA Lounge at Linate which was nicely appointed and had good food to serve as dinner. My only gripe is that despite ITA being a SkyTeam airline, Delta doesn’t give SkyMiles for flights on it.A Delta problem rather than an ITA one.

  14. So is Italy putting €250 or €250 million into Alitalia?

    As an undocumented Italian citizen, if it’s €250 I definitely think it’s a good deal… and if it’s €250 million… eh what do I care? I’ven’t paid any Italian taxes.

  15. the problem with ITA is the italians (I can say that I am Italian) – They have no concept of Customer Service and they have made the ITA hub Rome (where all the politicians are) and neglected the North where all the paying passengers are. I saw a map the other day which showed that something like 2/3 of all Italian air traffic is from Lombardy and Veneto and yet the Politicians put the ITA hub in Rome. Malpensa is a disaster to get to and from, with trains taking ages and the roads a nightmare. Unless LH get the opportunity to run the airline without political interference they have zero chance. Personally as a lifetime senator it suites me – I was lifetime on AZ and we know how that ended so I have avoided giving ITA any of my business. Given how difficult the italians have made this partial acquisition I am not sure why LH persisted – I think it became a matter of principle rather than common sense. I hope LH prove me wrong and we get a serious airline operating out of Milan, but somehow the Italians will screw it up…

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