DALLAS — The European Commission has informed Lufthansa (LH) and the Italian Ministry of Economy and Finance that their proposed ITA Airways (AZ) acquisition could restrict competition on inbound and outbound routes from Italy.

In the statement of objections sent as part of the in-depth investigation of the LH takeover, the EU Commission states that the transaction may cause customers to face an increase in prices or a decrease in service quality.

Specifically, the Commission thinks LH's gradual acquisition of control of AZ could hinder competition at Milan Linate Airport (LIN), the city airport of Lombardy's capital, and on specific routes connecting Italy with Central Europe, North America, and Japan.

Lufthansa and the Italian Ministry of Economy and Finance have until April 26, 2024, to present "remedies" to the competition concerns listed in the statement of objections to the European Commission.

Antitrust Concerns

The EU executive said the Italo-German integration could "reduce competition on several short-haul routes connecting Italy with Central European countries." On these routes, Lufthansa and Ita "compete head-to-head mainly with direct and indirect flights. Competition on these routes appears limited and mainly comes from low-cost carriers, such as Ryanair [FR], which often operate from more remote airports."

Furthermore, merging the Italian and German carriers could "reduce competition on several long-haul routes between Italy and the United States, Canada, and Japan. On these routes, ITA on one side and Lufthansa and its joint venture partners on the other compete head-to-head with direct or indirect flights: competition from other airlines appears insufficient."

In its assessment, the Commission considers the activities of AZ, LH, and its joint venture partners to be those of a single entity after the merger. This would put the newco in a position to "create or strengthen a dominant position for Ita at Milan Linate airport, which could make it more difficult for competitors to provide passenger air transport services" to and from the European hub.

The Commission notes that millions of passengers travel on these routes yearly, with an annual expenditure of over €3 billion. The EU executive says it wants to ensure that the acquisition does not negatively affect customers, consumers, and businesses with price increases or a decrease in service quality, thus tarnishing AZ's "positive" restart of its operations.

Response from Lufthansa

Lufthansa has responded by saying it would analyze the objections presented today by the EU Commission, discuss each point in detail with the Antitrust authority, and, in the following stages, continue to cooperate constructively with the EU Commission. LH will then submit a proposal for remedies to the authority to address the remaining concerns.

"We remain confident that the operation will be approved—also because we believe that competition in Europe, especially in Italy, can be strengthened by having Ita Airways as part of the Lufthansa Group," emphasizes LH.

"As part of our 'multi-hub' and 'multi-brand' structure, ITA Airways will benefit from the same synergies as our Group, which have already made Swiss, Austrian Airlines, or Brussels Airlines successful airlines.

The Commission launched the in-depth investigation on January 23 to assess whether LH's acquisition of a stake in AZ could limit competition in providing passenger air transport services within and outside Italy. The investigation is in phase two, and the Commission has until June 6 to decide.