READ ALL OF THE LATEST UPDATES FROM ASCEND BY CIRIUM EXPERTS WHO DELIVER POWERFUL ANALYSIS, COMMENTARIES AND PROJECTIONS TO AIRLINES, AIRCRAFT BUILD AND MAINTENANCE COMPANIES, FINANCIAL INSTITUTIONS, INSURERS AND NON-BANKING FINANCIERS. MEET THE ASCEND BY CIRIUM TEAM.
Alex Vathylakis, PhD., Principal valuations analyst, ISTAT appraiser at Ascend by Cirium
After several attempts from other airline groups to successfully acquire and privatize Italy’s flag carrier, it is finally Lufthansa’s turn to try by taking a 41% share in ITA Airways. it is finally Lufthansa’s turn to try by taking a 41% share in ITA Airways. This is a move that the German airline has considered several times in the past, but only this time was it happy enough to proceed.
Lufthansa has stated that it sees ITA as a start-up and that it has nothing to do with old Alitalia.
The question remains: will it turn out to be a startup with benefits, or one with excess baggage?
In terms of fleet, the Italian flag carrier reached an all-time low in its modern history during its transition to become ITA, restarting with 3,600 employees and 52 aircraft in 2021. This has grown to an all-leased fleet of 75 today. The airline has 62 more aircraft on order, which will help towards growing and modernizing its fleet of ageing Airbus A320s and A330s. The objective is to reach a reasonable ratio of 5,500 employees and 94 aircraft (58:1) by 2027.
The restart during the pandemic was a good opportunity for ITA to enter the market at competitive lease rates, making its operations more cost effective, while also modernizing its fleet.
Another advantage for Lufthansa is ITA’s fleet commonality across the entire LH group. Admittedly, it is not too difficult for Lufthansa or its maintenance arm Lufthansa Technik to operate/be familiar with a certain type, but the current ITA greatly simplifies an integration into Lufthansa Group – with the only new variant being the A330neo.
The competitive landscape in Italy has been divided into the regional/European traffic and the long-haul market in the charts below. Chart 2 shows the annual seat capacity for flights of up to 2,500 miles, as of May 2023. It is clear that low-cost carriers have driven growth in Italy over the years and have potential to aggressively increase their market share further. On the other hand, amid this very competitive environment, there is an opportunity for ITA to regain an important market share as the only mainline carrier in the country once it is connected and optimized with the Lufthansa Group’s existing network. The emphasis for Lufthansa, however, is likely not to aggressively increase market within the continent, but rather to combine the European network with more profitable long-haul hub operations out of Italy.
Alitalia’s share, in terms of seats, consistently dominated the long haul-market in Italy until the start of the pandemic. It is now led by Emirates, which provides capacity from Dubai to Rome, Venice, Bologna and Milan, while also connecting the latter with New York. Therefore, markets such as the Americas, Asia and North Africa are still to be regained and grown, with important potential when the trend in total capacity growth is observed.
Lufthansa management certainly sees the acquisition as a strategic win, being keen to push its mainline competitors IAG and Air France-KLM away from its hubs and core territories in central Europe. The move therefore also benefits the wider group as it is able to further dominate and balance mainline traffic in central Europe.
Lufthansa Group has been observing the space and was keen to set foot in Italy for years through acquiring Alitalia, but not at any cost. It is also experienced in this market through its own brands Air Dolomiti and the short-lived Lufthansa Italia, and with a fairly positive track record of growth in Zurich and Vienna after the two national carriers were integrated.
ITA, which will be able to reuse the brand name Alitalia in the future, appears to have restarted an operation which is leaner than ever, at a favorable time during the pandemic and without losing a significant market share across its network.
There are undoubtedly challenges ahead. The synergy between the Italian government and the German-led management will therefore be key for the outcome as differences in interests and mentality between the two sides can still be a major showstopper. However, it appears to be the most promising attempt to date for the Mediterranean airline to become competitive.
LEARN MORE ABOUT CIRIUM FLEETS ANALYZER – SEE MORE ASCEND BY CIRIUM POSTS.
