In a move that signals a wave of consolidation in Europe’s fragmented aviation market, Lufthansa’s recent acquisition of a minority stake in Italy’s struggling ITA Airways has injected fresh momentum. This development opens the door for larger airline groups to potentially acquire other mid-tier national carriers that have succumbed to fierce competition.
Lufthansa CEO Carsten Spohr emphasized the significance of the deal, stating, “It’s further evidence that consolidation in the European airline industry is continuing and in my view necessary.” He believes that success hinges on scale and the ability to leverage the strengths of operations under a unified entity.
National carriers such as Portugal’s TAP, which received government assistance during the pandemic, and Scandinavia’s SAS, currently navigating bankruptcy proceedings, have faced difficulties competing against low-cost rivals like Ryanair and Wizz Air. As a result, Lufthansa, Air France-KLM, and IAG (the parent company of British Airways) have laid the groundwork for potential bids to acquire TAP, as the Portuguese government seeks to divest its ownership.
Aviation analyst James Halstead notes that several carriers only exist due to the perceived need for a national flag carrier, and these carriers find themselves struggling in the competitive landscape. Analysts predict that the market will eventually split into two segments: the three major airline groups (Lufthansa, Air France-KLM, and IAG) that acquire smaller national carriers and the low-cost giants like Ryanair.
Andrea Giuricin of TRA Consulting highlights that the Lufthansa-ITA deal aligns with the trend of increased integration among regional and national carriers over the past 25 years in Europe. According to TRA Consulting data, in 2018, the top five carriers in Europe, including Lufthansa and Ryanair, held roughly 50% of the market, while in the United States, where consolidation occurred earlier, the major airlines commanded an 86% market share.
Analysts caution that carriers not absorbed by the larger airline groups face an increased risk of fading away. These carriers will struggle to grow and lose market share, ultimately losing appeal and eventually ceasing operations.
Lufthansa’s deal with ITA Airways, along with other recent acquisitions such as Korean Air Lines’ takeover of Asiana Airlines, will be key topics of discussion at the upcoming International Air Transport Association (IATA) annual meeting in Istanbul.
CHALLENGES AHEAD
Reviving a struggling airline presents numerous challenges, especially as low-cost carriers rapidly expand their presence in markets like Italy and Eastern Europe. Analysts argue that as the cost of carbon rises and air travel becomes more expensive, consumers will gravitate toward low-cost carriers, making it harder for larger airline groups to rescue struggling mid-level airlines.
European carriers, in particular, face pressure to utilize sustainable aviation fuel (SAF), which can be up to five times more expensive than regular fuel. This cost consideration is likely to drive cost-conscious consumers to opt for budget carriers more frequently.
For Lufthansa’s ITA Airways, the greatest obstacle will be competing against Ryanair, which holds almost 40% of the market share in Italy, Europe’s third-largest market. ITA Airways must also offer competitive advantages in mid- and long-haul flight options.
Eastern Europe is also experiencing mounting pressure, as Ryanair aims to increase its market share in growing economies, intensifying the competition with Wizz Air based in Hungary.
Despite the challenges, the Italian government views the deal with Lufthansa as the only viable path forward for ITA Airways, following years of losses and failed attempts to revitalize Alitalia. Italian Economy Minister Giancarlo Giorgetti stressed the
