To get the okay for the wedding, Ita Airways and Lufthansa are willing to give up a “substantial” package of slots at Linate airport, to let a competing carrier enter some medium-range routes in Rome and Milan, to transfer traffic rights and even to assure the EU Antitrust of a “freezing” of tariffs on intercontinental flights between Italy and North America. But on other points the two carriers are currently being rigid and are trying to question the parameters used by the community technicians. This is what three European sources familiar with the documents received in Brussels explained to the Corriere. Ita, Italian Treasury and Lufthansa did not comment.
The “statement of objections”
According to the offices led by Competition Commissioner Margrethe Vestager, the union between the two airlines would lead to an anti-competitive situation on 39 routes (international and intercontinental) and to a dominant position at Linate airport, with the result that there would be damage for consumers both from an economic point of view and in terms of the quality of the services offered. For this reason, on March 25, a long list of “objections” was sent to Frankfurt and Rome which, if not resolved, will push the EU Antitrust to block the merger in the skies.
The response of the carriers
On 11 April Lufthansa and ITA (together with the shareholder, the Ministry of Economy and Finance) sent their counter-objections to the European Commission and a new package of “corrective” measures – after the one in January – to respond to the community concerns. In over 200 pages the two companies reply on every point highlighted by the community objections. While On Friday 19 April the parties involved will have to explain in a closed hearing in Brussels – not only to EU officials, but also to consumer associations, organizations representing travel agencies – the goodness of the union project.
Short flights
In the package – say the European sources, going into the details of the negotiation – Lufthansa and Ita divide the short-haul routes served by Brussels, between Italy and Central Europe (Germany, Switzerland, Belgium, Austria). In those where the merger would bring the competitors from 3 to 2, no “remedy” is offered because the parties involved believe that a rivalry would still remain. Their reasoning is: if there is a competitor it will be difficult to raise prices, otherwise customers will all book with the competitor.
The offer on 8 routes
On the routes (always short haul) where, however, the union would reduce the competitors from 2 to 1 (because they are currently served only by Ita and Lufthansa), the companies are willing to give up space. And in fact they offered the Commission “remedies” on 8 of the 12 direct routes. They are those – the sources list – between Milan and Düsseldorf, Frankfurt, Hamburg, Stuttgart and between Rome and Frankfurt, Munich, Zurich and Hamburg. In this case the offer of the Italians and Germans is to identify a “remedy taker”, a rival carrier that operates some of the frequencies by basing at least one plane in Linate and another in Rome Fiumicino. In Milan easyJet could be chosen, in Rome Ryanair or Wizz Air.
The role of Ryanair
There are two critical issues in this connection segment. The EU Antitrust does not consider Ryanair a rival carrier of ITA and Lufthansa because he believes that low cost airlines fly to different airports and serve a different clientele from the (business) ones of Italians and Germans. A point that Ita and Lufthansa reject, not only because Ryanair has over a third of the Italy-Europe flight market, but also because it is a strong rival on some routes: in fact they see no problems on the routes between Rome/Milan and Brussels.
Future overlaps
Another critical point is that of the so-called “future overlap”, i.e. future overlaps, the European sources further explain. In the list of problematic routes drawn up by the Commission there are some that do not constitute a problem today, but which could become one in the future if Ita, for example, decided to start direct flights to certain destinations. This is the case of Rome/Milan-Vienna. Here, according to the EU Antitrust, a competitor should be brought in. But the request is deemed unacceptable by Italians and Germans: according to them, remedies cannot be granted for things that are not concrete and only possible.
The Linate node
The other issue, that of the excessive presence of the two betrothed at Linate, is judged to be among the easiest to resolve, according to European sources. Once together, Ita and Lufthansa would have approximately 2/3 of the slots (take-off and landing rights) at the Milan city airport. For this reason, in the document sent to Brussels the carriers talk about the transfer of a significant package of slots to be reassigned to rivals, in all likelihood following the international rules established by IATA and the rankings.
Sacrifice in the long haul
The real problem – according to the sources – is that of intercontinental flights. A few days ago the president of Ita, Antonino Turicchi, was clear: asking the Italian carrier to sacrifice a large part of its long-haul routes, which are also the most profitable in the sector, is not acceptable. And in fact in the list of 39 routes there are 8 direct intercontinental ones (to the USA, Canada, Japan) where Ita flies and, in 2024, will operate 13 in total. In short, the Italian company should reduce its presence by over 60 % of its long-range routes.
The commitment on tariffs
On these routes, the proposal from Ita and Lufthansa does not put cuts on the table, but a commitment to guarantee a certain offer (to be understood as the number of places for sale), without reducing it after the wedding and consequently to keep tariffs fixed or reduce them. Since the European Commission fears that the wedding would lead to a worsening of service and an increase in the cost of tickets, according to ITA and Lufthansa this proposal could answer their concerns.
The incentive to rival carriers
THEItalians and Germans – according to sources – believe that the best solution would be to find a “remedy taker” also on these intercontinental routes. But since these are connections where there is already a lot of competition and where operating costs are high (double-aisle aircraft are needed, sufficient staff, costs for kerosene, etc.) at the moment there is no carrier that could take a piece of it. Although in any case – as anticipated by Corriere – Brussels would ask Ita and Lufthansa to financially support the rival’s operation.
Connections with stopovers
On the 5 indirect intercontinental routes – those where there is a stopover – considered problematic, Ita and Lufthansa reply to the European Commission that there are already several solutions, competing with each other. Those flying between Catania and New York, for example, can take a ticket that includes a stopover in Rome (with Ita), in the hubs of the Lufthansa group, but also in the airport hubs of Air France-KLM and Iag (the holding company that controls British Airways and Iberia). In short, according to them, the Italian-German wedding would not change anything.
Times
According to the same European sources the EU Antitrust is inclined to ask ITA and Lufthansa to review the package of remedies, particularly on intercontinental flights, without even carrying out the so-called “market test”. This would mean moving the deadline for the dossier which is currently set for 6 June by about twenty days: at that point the Commission could express its opinion on the merger by 26 June.
Tags: transfer slots Linate freezing fares
