Lufthansa-ITA and Iberia-Air Europa marriages slow: airports' "no" and Europe's doubts
All against air consolidation in Europe. It seems unusual, at times incomprehensible; but the various merger activities that should [...]
Tap Air Portugal
Scandinavian Airlines (SAS)
Lufthansa
ITA Airways
Iberia
Air Europa
All against the air consolidation in Europe. It seems unusual, at times incomprehensible; but the various merger activities that are supposed to make their way-from Lufthansa-ITA to Iberia-Air Europa, via the sale of Tap and Air France-Klm's entry into SAS-are moving forward slowly and continue to attract more criticism than praise.
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Although this process should equalize the European market with the North American market (in the U.S. Delta, American, United and Southwest control 75% of the market) and limit the advance of low-cost airlines, giving more benefits to customers, especially frequent flyers.
On the one hand, the EU Commission continues to deepen its study of the acquisition processes and to lengthen the time for an eventual green light; on the other hand five powerful continental associations have surprisingly come out against the consolidation taking place.
Airports vs. consolidation
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Let's start with the latter news. In recent days the European associations of travel agencies and tour operators (ECTAA), the airports (ACI Europe), consumers (BEUC), the passengers (EPF) and large online travel agencies (EU Travel Tech) appealed in a joint statement warning about the danger of the consolidation process taking place in the skies over the old continent.
Lufthansa, Austrian and Swiss queues.
According to the statement, in fact, themiting the U.S. model would lead to "less connectivity with negative impacts on communities and passengers; while airlines would only benefit more."
Finally, the European associations' analysis emphasizes that operations involving ITA, Air Europa, Sas and Tap will bring the five largest groups (Lufthansa, Air France-Klm, Iag, Ryanair and easyJet) to check the market's 73.5% compared with the 47% of almost twenty years ago (2005).
"Consolidation will drastically limit competitiveness in thousands of routes, giving some companies the opportunity to abuse their dominant position in some markets. The European Union can still stop and learn from mistakes committed in the U.S., where the absence of competition at higher prices and lower quality services," the associations recall.
But these claims, in the writer's opinion, do not seem to be supported by the facts. Consolidation in the U.S. has allowed the Coexistence of various business models and aggressive competition on so many routes; prices at the moment are no higher than in Europe. In fact, in some cases and on the busiest routes there is plenty of supply and low prices.
Moreover, by geographical and industrial conformation in the U.S. there is no widespread and efficient railway system competing with air transport; unlike in Europe.
Standoff over Iag-Air Europe plans
Meanwhile, the EU also continues to waver and extend the green light for the acquisition of the 100% of Air Europa by Iag (Iberia and British) and ITA Airways' 41% by Lufthansa Group. And it is not certain that the transactions will eventually go through.
In recent weeks, in fact, the European Commission announced the opening of in-depth investigations into the two proposed purchases.
In fact, on January 23 and 24, Brussels extended the examination time for the two transactions and, on the same days, also chose to carefully study the Tap privatization plan (which both Lufthansa and Air France are looking at with interest) proposed by the Portuguese government. In the latter case, however, it is more political instability than competition issues that worry Brussels.
Regarding the Air Europa case, the European Commission "has preliminary concerns that the transaction may reduce competition in the market for air passenger services on several domestic routes, Short-haul and long-haul in and out of Spain". Both Iag (i.e., Iberia and Vueling) and Air Europa operate an extensive network of domestic routes in Spain, short-haul routes in Europe, and long-haul routes, particularly to and from Latin America.
"Iag and Air Europa are strong and close competitors in the provision of passenger air transport services on certain domestic routes to and from Spain," the Commission noted.
In particular, Brussels is concerned about reduced competition on Spanish domestic routes; routes between mainland Spain and the Balearic and Canary Islands; services between Madrid and some major European cities; and routes Long-haul between Madrid and North and South America., on which both offer a direct connection and face competition from a few other airlines.
Finally, the survey also covers the quantity of slots of the two airlines, particularly on the Madrid-Barajas airport.
The commission has 90 working days to decide whether the takeover can go ahead, so Iag will only find out in June whether it can proceed.
Ita-Lufthansa, it will be discussed again in June
Same goes for Lufthansa with Ita. In June, however, not only will there be European elections (which may then change strategies and orientations with respect to this issue); but we will already be in the middle of the Iata summer schedule and the networks will already be well defined. Quite a problem for those who would have preferred to proceed with a reorganization of the network of connections ahead of the summer period, the most challenging but also the most profitable.
On the Lufthansa-Ita case, however, the Germans had already in advance Offered concessions (on slots and routes) in an attempt to facilitate a quick green light for the agreement from the Commission. Concessions that were not considered sufficient. The Commission now has until June 6 to make its decision.
"With the opening of the in-depth investigation, we want to further evaluate the transaction and ensure that the acquisition of ITA does not reduce competition in the short- and long-haul traffic and that it does not lead to higher prices, lower capacity or lower quality for passenger air transport services in and out of Italy," he said Margrethe Vestager, EU Competition Commissioner.
The decision, therefore, extends the already Long and harried process of securing a stable and integrated future for our flag carrier. In particular, the Commission is concerned that the agreement could reduce competition on routes between Italy and Central Europe.
Regarding long-haul routes to North America, the EEU said it will further evaluate whether ITA, Lufthansa and transatlantic joint venture partners (United Airlines and Air Canada) should be treated as a single entity after the merger.
"The operation could reduce competition on some long-haul routes. Between Italy and the United States, Canada, Japan and India. The transaction could create or strengthen Ita's dominant position at Milan's Linate airport, which could make it more difficult for competitors to provide passenger air transport services from the airport in question," the Commission's memo stressed.
Movements on Tap and Sas
Meanwhile, while everyone expected Air France-Klm's bid for the acquisition of Tap Air Portugal, the Franco-Dutch group surprised the market with an offer (last October) for a share Of 20% in Scandinavian Airlines (SAS) Which may also grow in the future.
Indeed, the Portuguese political crisis has slowed down the process of privatizing the flag carrier (as has happened so many times with Alitalia and Ita in recent years). Once the tender is ready both Lufthansa and Air France-Klm will be in the running.
And on a smaller level, again in Northern Europe, in December. Norwegian Air, on the other hand, got the green light For the acquisition of the regional carrier Wideroe.
Do deals make frequent flyers happy?
European air transport, then, is in turmoil; but not everyone looks forward to this process. We will have to wait until at least 2025 to find out whether we will also have in the old continent healthy and strategic competition between large groups and between two models (legacy and low-cost)-thus conforming to the market not only in North America but globally (see Middle East and Asia)-or whether various formulas of integration and disruption will continue to be experimented with, in a somewhat more haphazard manner.
It also seems a foregone conclusion that greater aggregation in Europe. Would improve the lives and activities of frequent flyers. The growth of the three major groups (Lufthansa, Air France-Klm and Iag) referring to the three major alliances (Star Alliance, Skyteam and Oneworld) would give passengers more opportunities for connections, more accumulate miles and points (and spending them), lounge access, and benefits and partnerships.
The limitations of Ita's Volare loyalty program (despite recent and upcoming agreements and innovations) are obvious; while a future entry into Lufthansa Group's Miles & More would change the outlook for the many Italian customers.
