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Lufthansa acquired a 41% stake in ITA Airways

At the end of May 2023, the Italian Ministry of Economy and Finance (MEF) and Lufthansa AG finalized an agreement regarding a minority stake in ITA Airways.

Deutsche Lufthansa AG, commonly known as Lufthansa, is the largest German airline. Photo: Getty Images

Deutsche Lufthansa AG, commonly known as Lufthansa, is the largest German airline. Photo: Getty Images

As part of this agreement, Deutsche Lufthansa AG will acquire a 41 percent minority stake in the Italian national carrier for EUR 325 million through a capital increase.

The capital infusion will directly benefit ITA Airways, contributing to its financial strength. Furthermore, the MEF has committed to injecting an additional EUR 250 million into ITA Airways through a capital increase.

Another significant aspect of the deal is the inclusion of options that grant Lufthansa the possibility of acquiring the remaining shares of ITA Airways.

 

The Growth Opportunity

For several years, Germany has proven to be too small of a market for Lufthansa. In an effort to expand their reach, Lufthansa has made strategic acquisitions, including Swiss, Austrian Airlines, and Brussels Airlines.

However, these acquisitions have mainly focused on the northern part of Europe.

The recent acquisition of ITA Airways marks a significant milestone for the group as it establishes a strong presence in the southern region of Europe, specifically the third largest economy in the EU.

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This deal brings about various synergies for ITA Airways.

By becoming part of the Lufthansa group, ITA Airways will have access to an extensive partner network, benefit from centralized revenue management, and tap into global sales and marketing channels.

These advantages will undoubtedly enhance ITA Airways’ competitiveness and overall operations.

 

The Threats

ITA Airways was established between 2020 and 2021 with the support of the Italian State and financial assistance amounting to over one billion USD from the European Commission.

However, the airline currently operates at a deficit and its possibility to reverse this trend seems challenging. One contributing factor to ITA’s current low operating costs is its reduced personnel expenses, primarily due to the pilots and cabin crew having contracts with favourable terms.

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However, this situation is likely to change after Lufthansa’s acquisition of ITA, posing a potential threat to the airline’s cost structure.

Furthermore, the rising flight prices resulting from the increased cost of carbon emissions will intensify competition for mid-level airlines like ITA Airways, particularly when pitted against low-cost carriers.

In the Italian market, Ryanair and easyJet, two prominent low-cost airlines, dominate the landscape. In fact, Ryanair claimed a market share of nearly 40% in 2022, further highlighting the competitive challenges faced by ITA Airways.

Lufthansa’s acquisition of a 41% stake in ITA Airways provides a valuable growth opportunity for the German airline, allowing it to establish a strong presence in the southern region of Europe and benefit from synergies within the Lufthansa group.

However, the acquisition also presents challenges for ITA Airways, including potential changes to its cost structure and heightened competition from low-cost carriers in the Italian market, necessitating strategic management to ensure long-term success.

To get in contact with feedback on this article please email us at publishing@krugmaninsights.com 

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