EU Regulator Says Lufthansa Airlines, ITA Airways Deal Could Harm Competition

The European Commission (EC) has told Lufthansa and the Italian Ministry of Economy and Finance (Ministero dell’Economia e delle Finanze, MEF) that it objects to the merger between Lufthansa Group and ITA Airways. The EC’s preliminary view into the acquisition concluded that the merger would restrict competition on certain routes in and out of Italy.

Wide-ranging investigation into the Lufthansa and ITA Airways merger

The EC said that it had launched an in-depth investigation into the initial merger agreement in January 2024, exploring whether the potential merger would restrict competition on flights in and out of Italy.

Since then, the Commission has investigated the potential impact of the merger, including an analysis of internal documents, detailed information provided by the involved parties, and information and views from competing airlines, airports, slot coordinators, and travelers.

The preliminary report into the Lufthansa – ITA Airways merger concluded that competition would be reduced on several short-haul flights between Italy and Central Europe, where Lufthansa and ITA Airways either compete or would compete with direct or indirect flights. Furthermore, competition seemed limited, as noted by the EC, since low-cost carriers like Ryanair connect the same two city pairs from more remote airports.

In a statement to Simple Flying, Lufthansa Group said that it was making progress with the acquisition of ITA Airways, adding that it will analyze the conclusions presented by the Commission and work with the EC constructively.

The Germany-based company added that it would submit remedies to the EC in order to address any remaining concerns, as it keeps working toward a timely approval of the transaction. Lufthansa emphasized it believed that competition in Europe would be strengthened once ITA Airways joined the Lufthansa Group.

“As part of our “multi-hub” and “multi-brand” structure, ITA Airways will benefit from the same synergies of our group that have already made SWISS, Austrian Airlines or Brussels Airlines successful. The Lufthansa Group’s participation in ITA Airways creates added value for both partners through the combination of our brands and business models, as well as through the interaction of our hubs and different route networks.”

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Further competition concerns

Furthermore, the EC expressed concerns about competition on long-haul flights between Italy and the United States, Canada, and Japan. According to the Commission, ITA Airways and Lufthansa, as well as its joint venture partners, either compete or would directly compete on routes where competition is insufficient from other carriers.

“In its assessment, the Commission treats the activities of ITA, Lufthansa and its joint venture partners as those of a single entity after the merger.”

To note, Lufthansa, in addition to being part of the Lufthansa Group, is also part of Star Alliance, which unites United Airlines, Air Canada, All Nippon Airways (ANA), as well as other airlines, providing services to/from Italy. ITA Airways is currently not associated with any of the three alliances. Lastly, the EC expressed concerns about competition at Milan Linate Airport (LIN) since the merger would only strengthen ITA Airways’ position at the airport. As a result, rival airlines would struggle to provide flights from/to LIN.

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Putting forth remedies

Still, the EC has only provided a ‘Statement of Objections’ to the parties, informing them about potential competition concerns. Furthermore, the Commission emphasized that the statement does not prejudge the outcome of a full investigation. In addition. Lufthansa and the MEF can put forth potential remedies to address any competition concerns expressed by the EC, with a deadline of April 26, 2024.

Photo: Bradley Caslin I Shutterstock

However, a Lufthansa Group representative noted that the Group would not be commenting on confidential proceedings or on the ‘Statement of Objections’ provided by the EC. Still, the spokesperson stated that the group was willing to constructively work with the regulator and find solutions that are compatible with the current economic situation of a highly competitive Italian market, emphasizing that the group was confident that ITA Airways would become part of the Lufthansa Group by the end of 2024.

Lufthansa Group announced that it would be merging with ITA Airways in May 2023, with the former initially acquiring a 41% stake in the latter. The shares would be acquired with a capital increase of €325 million ($352 million), and Lufthansa would have the option to purchase a 100% stake in the company at a later date.

Photo: Fraport AG

When the EC approved the Korean Air and Asiana Airlines merger, the Commission said that the new entity would have to sell off all of Asiana Airlines’ cargo assets, including aircraft and business contracts, as well as welcome new entrants into the EU-South Korea passenger markets.

A day after the EC announced that it had opened an investigation into the Lufthansa and ITA Airways merger, the regulator said it was also looking into the International Airlines Group (IAG) acquiring the remaining shares of Spain-based Air Europa. However, the EC has not filed a ‘Statement of Objections’ for that transaction.

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The European Commission will provide its verdict on 6 June 2023 after the completion of an in-depth investigation.