What will be the German counter-move to the Ita-Lufthansa dossier?

“We have an airline called ITA, it was called Alitalia. We said: ‘let’s try to build a European champion that can compete with the international giants’. For ten months we have been fighting with Europe which does not allow us to do this.” This was how Economy Minister Giancarlo Giorgetti began, speaking two days ago at the convention of the Identity and Democracy party “Winds of Change” underway in Rome, speaking about the ITA-Lufthansa dossier.

Perhaps he sensed that something wasn’t going right, so much so that at the last meeting with Brussels Giorgetti had sent none other than Marcello Sala, the mega gig director of the public subsidiaries, a sign that the minister has lost patience and now he wants to see clearly why the EU is hesitating on the marriage with the Germans and what the problems to be addressed actually are given that the letter from Brussels does not differ much from the one announcing the start of phase two of the investigation.

Rumors would have reached the Northern League minister several times that someone “within some office” in what could be defined as the “deep state” was working against the marriage between ITA and the German giant. Perhaps Sala’s intervention goes precisely in this direction: identifying the problem and clarifying the events that characterized the dossier and trying to limit the damage.

THE RESERVATIONS OF THE EUROPEAN COMMISSION ON THE ITA-LUFTHANSA OPERATION

And the EU’s response was not long in coming: in fact, the Commission informed the Lufthansa Group and the Italian Ministry of Economy and Finance on the preliminary results of the evaluations of the privatization dossier between ITA and Lufthansa, according to which this operation could restrict competition on certain markets in passenger air transport services in and out of Italy. According to the Commission, they may face an increase in prices or a decrease in the quality of services after the merger.

Lufthansa and ITA operate an extensive route network from their respective hubs in Austria, Belgium, Germany, Switzerland and Italy. Lufthansa is the promoter of the joint venture with United Airlines and Air Canada for transatlantic routes and an ally of All Nippon Airways for routes to Japan. Again according to the Commission, the various partners of the joint venture coordinate on the application of prices, traffic capacity, programming and sharing of revenues.

DG COMP’s investigation included, inter alia, the analysis of documents and detailed information provided by the parties and the collection of information and opinions from competing airlines, airports, coordination bodies, slot managers and also clients. The Commission also examined proactive proposals from individual consumers, consumer organisations, airports, rival airlines and trade unions who expressed their views for or against this operation.

In essence, the Commission fears that the operation could reduce competition on a certain number of short-haul routes connecting Italy with the countries of central Europe and even if on this point the issue would be the one that has the impact less competition as it involves the vast majority of low cost companies. The Commission would also like those involved to force United, Air Canada and All Nippon Airways to reduce a certain number of long-haul routes between Italy and the United States, Canada and Japan respectively. On these routes, ITA on the one hand and Lufthansa with its joint venture partners on the other are considered by DG COMP to be a single entity after the merger.

LINATE AND THE ROUTES

But there is also the Linate issue, where the Commission believes that a strengthening of ITA could make it more difficult for rivals to provide passenger air transport services to and from the Lombardy airport.

Again according to the EU, every year millions of passengers travel on those routes for a total annual expenditure of over 3 billion euros and the objective is to ensure that this operation does not lead to negative effects for customers in terms of price increases or decrease in the quality of services.

But what are these routes that the Commission has put under the magnifying glass? According to some rumours, the direct and indirect routes most at risk of violating competition were initially at least around sixty and then reduced to a total of 39, of which around fifteen are long-haul routes.

Furthermore, the Commission examines ITA’s activities and states that, in the absence of adequate solutions, if ITA entered a group and lost its independence, this could have negative effects on competition. For the Commission, the routes that ITA currently operates are not of particular concern as they are small in number compared to the total and concern only a small percentage of the total routes and passengers served by both parties and their joint venture partners.

DG COMP then clarified that the communication is only a formal step in an investigation, where the Commission has informed the companies concerned in writing of the objections raised against them and this does not prejudge the outcome of the investigation. Lufthansa and the Mef now have the opportunity to consult the Commission’s file and request an oral hearing and therefore also to respond to the objections raised by the EU itself. They also have the opportunity to propose solutions to address the preliminary competition concerns identified by the Commission and can decide to submit remedies at any time from today until the end of the appeal, which currently expires on 26 April 2024.

THE BALL PASSES TO LUFTHANSA AND THE MEF

Now the word is up to Lufthansa and the Mef. To address EU concerns, some experts say Lufthansa could arrange to sell traffic rights to a rival, although regulators also want to ensure that the rival that acquires those assets and starts using them almost immediately before allowing the airlines to conclude agreements.

For its part, Lufthansa said through a spokesperson: “We are making further progress with our planned investment in ITA Airways. We will analyze the objections presented today by the EU Commission, we will discuss every single point in detail with the Antitrust Authority and, in the subsequent phases, we will continue to cooperate constructively with the EU Commission”. The spokesperson then continued on the issue of remedies: “As suggested by Executive Vice President Margrethe Vestager we will submit a proposed remedies to the Authority in order to address the remaining concerns. We remain confident that the operation will be approved, also because we are convinced that competition in Europe, especially in Italy, can only be strengthened if ITA Airways is part of the Lufthansa Group. As part of our ‘multi-hub’ and ‘multi-brand’ structure, ITA Airways will benefit from the same synergies across our Group that have already made Swiss, Austrian Airlines and Brussels Airlines successful airlines.” The participation of the Lufthansa Group in Ita Airways, concluded the spokesperson of the German group, “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 connection networks different”.

On the content of the letter sent to the parties by the Commission, the Lufthansa spokesperson wanted to underline: “We do not comment on the details of the confidential proceedings or the objections presented today, but we can say that we are ready to propose constructive solutions compatible with such an economic reality of aviation as competitive as the Italian one and to be confident that ITA will become part of the Lufthansa Group family by the end of this year.”