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.
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.
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.