FRANKFURT, GERMANY — European aviation faces rapid consolidation as Lufthansa acquires stake in ITA Airways.
In the midst of rising consolidation in the European aviation industry, Lufthansa Group recently acquired a minority stake in ITA Airways, Italy's struggling carrier. This strategic move could lead to increased acquisitions of mid-tier national airlines.
The success of the Lufthansa-ITA deal will be a key indicator of whether larger airline groups can revitalize unprofitable airlines that have succumbed to fierce competition. Lufthansa CEO, Carsten Spohr, views this move as a testament to the ongoing consolidation in the European airline industry and an essential step for future success.
Multiple airlines, including Portugal's TAP and Scandinavia's SAS, have had a tough time competing against budget carriers such as Ryanair and Wizz Air. These struggles have attracted potential bids from major airlines, including Lufthansa, Air France-KLM, and British Airways owner IAG.
Aviation analyst, James Halstead, suggests that many carriers are still operational mainly due to their national flag carrier status, despite facing difficulties. In the coming years, analysts predict the market will bifurcate into two distinct segments - large airline groups purchasing smaller national carriers, and low-cost behemoths like Ryanair.
Data from TRA Consulting indicates that the top five European carriers, including Lufthansa and Ryanair, controlled around 50% of the market in 2018, in contrast to the United States where consolidation occurred earlier, and major airlines owned an 86% share. Experts caution that airlines not absorbed by the three larger groups risk fading into oblivion.
Rescuing a failing airline is challenging, especially in the face of budget carriers' rapid expansion. Increased carbon costs and the pressure to utilize sustainable aviation fuel (SAF), which is five times more expensive than regular fuel, may steer consumers towards budget airlines more frequently.
Lufthansa's major hurdle with ITA will be to counter Ryanair's dominance, which controls nearly 40% of the Italian market, Europe's third-largest. Additionally, there's rising competition in Eastern Europe, where Ryanair and Hungary's Wizz Air are vying for market share.
Despite the challenges, the Italian government regards the Lufthansa deal as ITA's best hope after years of losses and unsuccessful attempts to restructure Alitalia.
