The European Commission has initiated a thorough investigation to evaluate the proposed acquisition of ITA Airways (ITA) by Deutsche Lufthansa AG (Lufthansa) and the Italian Ministry of Economy and Finance (MEF) under the EU Merger Regulation. This in-depth probe is crucial to determine the impact of this transaction on competition in passenger air transport services on various routes in and out of Italy.
Lufthansa and ITA are prominent players in the aviation industry, operating a vast network of domestic and international routes within the European Economic Area (EEA) and long-haul flights connecting the EEA with the rest of the world. Lufthansa’s joint venture with United Airlines and Air Canada, focusing on transatlantic routes, raises additional considerations in this investigation.
The Commission’s Preliminary Concerns
The initial phase of the investigation indicates that the acquisition might lead to reduced competition in passenger air transport services on several key routes. This concern arises particularly because Lufthansa and ITA are direct competitors on specific routes to and from Italy.
Key points of concern include:
- Potential Reduced Competition on Short-Haul Routes: The acquisition might diminish competition on short-haul routes between Italy and Central Europe, where Lufthansa and ITA currently offer direct competition with limited alternatives, mostly from low-cost carriers operating from more remote airports.
- Long-Haul Routes Between Italy and North America: The Commission plans to assess whether ITA, Lufthansa, and their joint venture partners should be considered a single entity post-merger, particularly on routes to the US, Canada, Japan, and India.
- Dominance at Milan-Linate Airport: The transaction could fortify ITA’s dominant position at Milan-Linate Airport, potentially challenging for competitors to offer services from this location.
- Impact on Other Airlines: The Commission will also evaluate the transaction’s potential adverse effects on airlines dependent on ITA’s network for their international operations.
The notification of the transaction was made to the Commission on 30 November 2023. Although Lufthansa offered commitments on 8 January 2024 to alleviate the Commission’s preliminary concerns, these were deemed insufficient. Consequently, the Commission did not proceed with testing these commitments with market participants.
The Commission now has 90 working days, until 6 June 2024, to make a decision. It’s important to note that the opening of this in-depth investigation does not predict the investigation’s outcome.
Companies and Products
ITA, based in Italy, is a full-service carrier operating both domestic and international flights in passenger and cargo air transport. Created by the Italian State in October 2020, ITA is part of the SkyTeam alliance. Lufthansa, headquartered in Germany, offers similar services and is a member of the Star Alliance, including a transatlantic joint venture with United Airlines and Air Canada. MEF manages the Italian government’s economic and financial policies and holds stakes in strategic companies, including ITA.
Merger Control and Procedure
The Commission has the responsibility to assess mergers and acquisitions involving companies exceeding certain turnover thresholds and to prevent concentrations that could significantly impede effective competition in the EEA or any substantial part of it. Most notified mergers do not pose competition problems and are cleared after routine review. The Commission usually has 25 working days to decide on a merger, with the option to start an in-depth investigation if needed.
This proposed transaction is among three ongoing Phase II merger investigations, including deals involving Orange and MasMovil, Korean Air’s acquisition of Asiana, and Amazon’s proposed acquisition of iRobot.
The European Commission’s investigation into the ITA acquisition by Lufthansa and MEF is a critical step in ensuring fair competition in the European aviation market. The outcome of this investigation will be pivotal in shaping the future landscape of air travel in and out of Italy.
