Lufthansa’s entry into ITA opens up a chance for a rethink – Economy

The idea of ​​acquiring the Italian state airline had been in the minds of Lufthansa managers for many years. In fact, former CEO Wolfgang Mayrhuber was only hours away from buying the airline when it was still called Alitalia and was the epitome of mismanagement. However, the supervisory board stopped the plan. Has been for months now Lufthansa attempts to take over ITA Airways, which was newly founded on the ruins of Alitalia, in order to add another airline to the group.

Now on Wednesday, the outgoing Italian government under Prime Minister Mario Draghi decided not to sell ITA Airways to Lufthansa, but to start exclusive negotiations with the American fund Certares, which is linked to Air France-KLM and Delta Air Lines. Nothing better could have happened to Lufthansa.

The arguments for joining ITA were not really convincing from the start. Group boss Carsten Spohr and his people thought that ITA would give Lufthansa even better access to the large Italian aviation market. And again and again it got through that one had to secure ITA for that reason alone, so that Air France-KLM and Delta would not get the provider.

The ITA is also only a small provider among many

As far as the specific case is concerned, the matter is more complicated than it appears at first glance: Italy is, in principle, an interesting market for every airline. However, it is already very well occupied, especially by low-cost airlines, which even dominate domestic business. There is not much left for a comparatively expensive newcomer like ITA, at most the long-haul. But the ITA is only a small provider among many, which is unlikely to generate any profits in the future either. That would not have been different as part of the Lufthansa Group.

ITA itself has burned hundreds of millions of euros in the short time since the first flights a year ago. This is partly understandable for a new company, but the general conditions have deteriorated – high fuel costs, rising interest rates, a bad economic situation. Certares has offered to give a putative future right-wing Italian government significant say in ITA. But that can only go wrong.

Aside from the specific case, the plan to buy ITA was old school thinking and mostly aimed at securing market share. But why actually? Lufthansa has bought several airlines in the past 15 years – Austrian, Swiss and Brussels Airlines. So far only Swiss has been a financial success, benefiting from the specific and advantageous conditions of its home market. Austrian and Brussels are still in need of restructuring today.

That size is always better with airlines remains to be proven. There are examples where the calculation has worked: In Europe, this is above all the International Airlines Group (IAG), the parent company of British Airways, Iberia, Vueling and Aer Lingus. In the US, the big four – American, United, Delta and Southwest – are making big profits in a largely consolidated market, but Europe is a long way from that. As long as governments like in Italy continue to get involved, it will stay that way.

Finally: Lufthansa has so many structural problems of its own that the last thing the company would have needed would have been a loss-making, heavily politically influenced and also fairly small group addition like ITA. After the state bailout in the pandemic, Lufthansa is suffering from immense debts, at the same time the fleet urgently needs to be modernized, not to mention the current problems in service. The relationship with the employees also needs improvement, to put it mildly. So it would just be a good strategy to try to become a really good airline again. Then the rest usually takes care of itself.

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