It’s been far too long since I’ve written about the worst airline ever, but now seemed like the right time to jump back in and check on ITA, or Alitalia in disguise.
ITA and the Italian government had dreamed of having one of the big airline groups take a stake for years, but they were never able to nail down a suitor. That’s what happens when you are a sustained train wreck.
When we last left off in May of 2023, Lufthansa Group (LHG) agreed to buy a 41 percent stake in the airline for €325 million which would bring ITA into the LHG stable of airlines. The deal was done, pending regulatory approval.
Naturally, it couldn’t be just a simple transaction. Now, the European Commission has told LHG that the “preliminary” view is that this acquisition “may restrict competition.”
This is probably true. When you have a mess of an airline like ITA that is run more for the employees than anyone else, putting a competent management team from another airline in charge is going to most definitely eliminate lower fares and bad ideas. So it’s not just losing a competitor, but it’s losing a dumb one that makes this a real threat. Fares will probably rise, and services will be pared or moved around. that’s where the concern lies here.
Specifically, the EC has three areas of concern.
Reduce competition on a certain number of short-haul routes connecting Italy with countries in Central Europe
The first worry is on routes where the airlines overlap. Looking solely at nonstop flying, this summer sees overlap between ITA and LHG as follows:
- Milan/Linate – Brussels: 3x daily on ITA, 3x daily on Brussels Airlines
- Milan/Linate – Frankfurt: 3x daily on ITA, 4x daily on Lufthansa
- Rome – Brussels: 2x daily on ITA, 3x daily on Brussels Airlines
- Rome – Frankfurt: 2x daily on ITA, 5x daily on Lufthansa
- Rome – Munich: 2x daily on ITA, 5x daily on Lufthansa
- Rome – Zurich: 2x daily on ITA, 4x daily on SWISS
The EC isn’t just concerned about the nonstops though. It’s also concerned about connecting itineraries. This makes sense when you consider that Lufthansa has a large northern Italian operation that feeds through Munich. There would be significant overlap between the two airlines where others may not compete.
My favorite part of this is where the EC says “Competition in such routes appears limited and comes primarily from low-cost carriers, such as Ryanair, who in many cases operate from more remote airports.”
Yes, yes that’s true. But maybe the EC hasn’t noticed that Germany is remarkably unfriendly to new entrants that aren’t just another Lufthansa subsidiary with a silly name. Ryanair has shouted from the rooftop for years about how hard it is to get anything useful there. Denying an LHG/ITA merger is not the right answer, but requiring slots to be divested in Munich and Frankfurt… well that might be interesting.
Reduce competition on a certain number of long-haul routes between Italy and the US, Canada and Japan
Here we see the consequences of the ever-consolidating Transatlantic market — plus the always less-competitive Japanese one. There are exactly zero overlapping nonstop routes between LHG and ITA on long-haul flying. ITA flies long-haul only from Rome while LHG flies from its hubs in Brussels, Frankfurt, Geneva, Munich, Vienna, and Zurich. So that isn’t an issue.
The real problem is connecting markets. The big three joint ventures control nearly everything over the Atlantic. You have Delta/Air France-KLM/Virgin Atlantic, American/IAG/Finnair, and United/Air Canada/LHG. ITA used to be a part of the Delta joint venture, but it’s not there any longer so technically it is one of the few independent operators over the Atlantic, lumped in with the likes of other three letter airlines LOT, TAP, and SAS (until it joins the Air France-KLM joint venture soon).
ITA doesn’t have a very large footprint. Most of its connections center on Italy or the surrounding Mediterranean countries. Of course, LHG can get people there as well, so this would reduce competition in those few markets.
In Japan, you have similar dynamic with fewer players. There’s LHG aligning with ANA and IAG aligning with Japan Airlines. Air France-KLM has friends at Korean which can still serve the market through Incheon. But it’s the same problem as over the Atlantic. The 1x daily ITA flight from Tokyo/Haneda to Rome offers another competitor in the market. That would go away.
What’s the solution here? Presumably it might involve opening up additional access at Haneda, but I don’t know what unaligned airline would step up to use that slot. There is no easy answer on this one.
Create or strengthen ITA’s dominant position at the Milan-Linate airport
This is a tricky one. Linate is the close-in airport to Milan’s city center. It’s only a 15 minute drive east of the city, and it is very convenient. Malpensa is about 45 minutes northwest of town, though it does have good train connectivity. The only downside is you have to get by Chef Boyardee to get there.
(Funny story… the real Chef Boyardee is Ettore Boiardi and he was born in a Milan suburb, but it was actually an hour south of town on the way to Bologna. So that’s clearly why Bologna never took off as a reliever for Milan.)
Malpensa is not going anywhere. It is the primary international, long-haul airport and it sees ample service today. Linate is a great city airport with connectivity in important business markets. For that reason, it is desirable. And ITA has a lock on the place.
Milan/Linate Departure Share by Month
Data via Cirium
Back in the old days, Meridiana had a notable operation there, but it went belly up, and even with the new Aeroitalia and easyJet’s growth, ITA now has a higher share of operations than it did before, usually a bit north of 60 percent of departures.
LHG just happens to be number two in the market. It is now sitting in the 8 percent range. This is an obvious concern for the EC, but in this case, I would think slot divestitures would be a very clear way to solve the issue. It’s not clear that LHG would like this plan.
Now, we wait to see what really comes of this. I would imagine LHG will work on a package to try to satisfy the EC. But if not… well get ready for the continued independence of the worst airline ever, at least until it goes bankrupt again.
This week’s episode of The Air Show podcast was a no-brainer. It’s the Boeing episode. Listen to all of the wisdom that Jon Ostrower has to share from his detailed reporting, along with a talk about what the future holds. It will be live today.
31 comments on “Lufthansa Group’s Acquisition of ITA Hits a Snag”
“ … putting a competent management team from another airline in charge ….”
Surely you are not talking about LHG here? Or are your forgiving (forgetting) about the assorted airline-within-an-airline creations in recent decades? ;)
He is talking about LHG… and don’t call him Surely.
I just wanted to wish you both good luck. We’re all counting on you.
Listen kid, I’ve been hearing that since I was at UCLA!
Best ever string of comments! ?
Oliver – You got me, big mistake. I should have said “more competent”!
They are competent when compared to ITA/Alitalia.
Your article seems to be criticising the EU Commission for saying that the proposed LH-ITA merger would restrict commission, while you propose that LH maybe give up some slots at Frankfurt and Munich. LH surely know that volunteering to surrender slots will get them EU approval but they just don’t want to surrender slots unless they absolutely have to. In other words, this is how the various parties come towards a reasonable deal in any merger with competition concerns.
I’m sure somebody high-ranking in the Germany Transport Ministry knows full well what Michael O’Leary has been saying but that same person also talks to LH senior management. Isn’t it now up to LH as to what they want to do ?
David – Who said I was criticizing the EC? I agreed with them.
I wouldn’t be surprised if LH thinks they can try to get this through without giving up anything – no one else is going to buy ITA and the EC has been criticized for years for allowing the Italian government to get away with ignoring the EU state aid restrictions while propping up Alitalia and creating ITA. The EU might be willing to just let it go with no changes or only a few symbolic ones just to get rid of ITA once and for all.
Is EasyJet having a 100% market share at Linate in August 2019 a mistake in the data or did something unusual happen then?
Linate was substantially closed in summer 2019
https://www.aviation24.be/airlines/alitalia/milan-linate-airport-closed-from-27-july-to-27-october-2019-alitalia-transfers-flights-to-malpensa-and-bergamo/
That is a beautiful graphic.
Let us not forget that Tren Italia & competitors have highspeed service between Italy & adjoining countries witch render many of these short hall air routes redundant & ridership numbers prove that.
YouTube channels such as “RM Transit” & “Not Just Bikes” have all sorts of videos on this subject & are quite enjoyable to watch.
Good point. The EC/EU is doing everything it can to reduce short haul flights in lieu of train travel yet it didn’t consider train travel in its competitive analysis. Always nice to know ours isn’t the only government capable of such crimes against logic and common sense.
Italy is surrounded by three seas and the Alps. Other than perhaps Genoa-Nice, train service is no substitute for convenient air travel.
Even on some domestic routes (and I am ignoring Sardinia, Lampedusa and Pantelleria as islands) rail is not a credible option. Catania to Milan Linate gets about 9 flights per day. Even with the high speed train goijg through largely flat terrain, you need at least 12 hours between city centre stations.
As I type highspeed rail is growing in not just Italy, but throughout the EU. You just don’t here much about it & that is why your first reaction is to fly even though the train is a legit option. Check the two resources I posted above to learn more & then decide.
I had a very easy, comfortable and inexpensive train trip from Naples to Florence on Trenitalia.
Forgot about “Adam something,” but he’s more sarcastic in his whit.
A new airline movie blockbuster “Godzilla versus Chef Boyardee” – coming soon to a theater near you!
And introducing a new food item – Godzilla and chefs-hat shaped pasta in marinara sauce. Yum????
Want to know why there is little Oneworld and Skyteam presence in mainland Europe East of the Rhine River?
Don’t underestimate the dominance of the monolithic Lufthansa Group. They have corporate contracts, credit card holders, the VFR market etc all under their grip thanks to how big they are here. It’s hard to compete.
Frankfurtly I’m not the biggest fan of making the Frankfurtstein bigger.
I think you hit on precisely why the EU sees concern.
The LH Group has many more airlines under their JVs that are spread out over more hubs.
And Germany, Switzerland and Austria have long had stronger ties to eastern Europe; air service simply followed.
A an alliance change for LOT could be pivotal but even SAS has the potential to change “the wall” which exists between western continental and central Europe.
There is alot of air service from the UK to Italy.
And I suspect that part of the reason that SkyTeam removed AZ from the JV was because of the much more concentrated nature of the Italian air market – on top of AZ’s financial performance. Given DL’s size to Italy, they believe they can handle the market on their own aircraft, sharing revenues with AF/KL/VS
oneworld would seem like the most logical alliance to get a merger w/ AZ through w/ minimal divestitures
Congrats Tim, you only briefly mentioned Delta once. There’s hope for you yet.
Careful, Tim. You’re gonna hurt yourself stretching to kiss Delta’s butt one of these days.
Despite the collapse of the USSR being almost 35 years ago…. countries that were formerly communist STILL have much less money. Salaries are lower, people have less disposable income, etc…
Additionally, if you look at countries like former Yugoslavia, Hungary or Romania, the likes of Ryanair and Wizzair are hugely dominant in air transport. Star Alliance is still rather weak compared to the LCCs. Go look at the list of tomorrow’s departures from Budapest airport on FlightRadar24 and you will see what I mean
People living in North America might think of Spirit as some sort of cowboys who are best avoided…. but this is very different if you live in east of Germany/Austria/Italy. If you live (for example) in Lithuania and you want to fly somewhere, then the ULCCs are likely to be your first choice of carrier.
No one is flying *A from Budapest to Barcelona.
But if you want to fly internationally you have to stick to Star Alliance, which is my point.
“…Malpensa does have good train connectivity…”
Indeed it does, good connectivity but rotten service. It’s a real milk run to Milano Centrale that takes an hour with nine stops on the way.
Not at all like the fast service at Fiumicino or – heaven help us! – Heathrow.
The star alliance is too big as it is. A behemoth relative to Skyteam and Oneworld.
The problem isn’t the size of the alliances, it’s the proliferation of joint ventures reducing competition.
I’d like to see them banned outright.
As a United 1K, I’m very pleased about that fact.