Frankfurt, Rome The Swiss shipping group MSC wants to buy the Italian airline ITA Airways – with Lufthansa as a partner at the side. Memories of the long suffering of the predecessor airline Alitalia are awake: Several times, companies from outside the industry should bring the rescue there, such as the state railway company Ferrovie dello Stato. But the idea failed.
It is reasonable to think that MSC is now threatened with a repeat at ITA Airways. But this time the general conditions are much better. The plan announced on Monday evening makes sense – for ITA and especially for Lufthansa. There are three main reasons for this.
First: ITA is the successor to Alitalia, but much smaller. The airline fulfills what Lufthansa had always demanded from Alitalia: a radical downsizing. Lufthansa would therefore get involved with an airline that is already well advanced in the restructuring.
The management in Switzerland proceeded in a similar way. After Swissair went bankrupt, the new Swiss was created on the basis of Crossair with state help. Starting in 2005, Lufthansa gradually acquired the already heavily restructured airline. Today, Swiss is considered a success story.
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Second: Should the takeover of ITA Airways by MSC succeed, Lufthansa would have access to the coveted Italian market without investing large amounts of its own money. The takeover is largely financed by MSC, Lufthansa is said to be the industrial partner and initially wants to participate with a small sum at most.
“From Lufthansa’s point of view, the idea of going through with the takeover alongside MSC makes sense,” says Gerald Wissel from Airborne Consulting, a consultancy specializing in aviation: “This reduces the management’s financial risk.”
Italy is important for Lufthansa’s strategy
The Lufthansa leadership is thus fulfilling a promise to investors. Despite all the enthusiasm for the Italian market, Lufthansa boss Carsten Spohr has always made it clear that he has in mind a commercial partnership rather than a direct entry into ITA as a first step. Later, when Lufthansa has reduced its own debt, the group can get bigger, up to and including taking over the majority.
Third: Even without direct entry, Lufthansa would largely close the Italian market to its rivals. Because the British-Spanish IAG is also said to be interested in ITA. Managers from Air France-KLM come and go from ITA – the Italians are also connected to the group through the airline alliance Skyteam.
Air France-KLM is currently not allowed to buy due to EU requirements because the group still needs state aid. But there was a certain pressure to act at Lufthansa headquarters. Italy is an essential part of the strategy with which CEO Spohr wants to take off after the pandemic. The manager has clearly defined the home market: It is a strip that stretches from Scandinavia via Germany, Austria, Switzerland and the Czech Republic down to Italy.
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With the exception of Italy and Scandinavia, the airlines in the Lufthansa Group already have a strong presence in these countries. In Scandinavia, the Germans cannot buy for the time being, airlines like SAS are not in the shop window. Therefore, the low-cost branch Eurowings should secure the market there. In Italy, the gap could be closed with ITA. Lufthansa could route feeder flights and local traffic via its own hubs in Germany.
But there are also risks. Low-cost carriers like Ryanair, Easyjet and Wizz Air have used Alitalia’s years of weakness to gain traction. They dominate short-haul traffic in the country. “The Italian market is interesting, but it is also a very difficult one,” warns consultant Wissel: “The low-cost airlines have a very strong market position there.” The aviation expert points out another challenge: “In addition, there are very strong trade unions and a state , who will remain on board with ITA as a shareholder.”
It is also difficult to assess what MSC expects from joining ITA. With around 650 ships, the Swiss family company is one of the largest shipping companies in the world. Like all shipping companies, the company should benefit from the high freight costs and have a lot of money in the till.
MSC justifies the purchase intention with synergies in passenger and freight traffic. ITA Airways President Alfredo Altavilla also sees this industrial logic. He points out that MSC carries three million passengers a year and needs planes to bring holidaymakers to the ports. “That’s very important for us because it’s long-haul flights that make money,” Altavilla told Handelsblatt.
In fact, it is common practice to regularly “swap” some of the vacationers on the cruise ships in ports. This happens with planes and mainly on weekends. This would allow ITA to make good use of its own jets on days when there are fewer business travelers – and with predictable income. But consultant Wissel is skeptical: “No cruise line needs its own airline. That just reduces flexibility.”
Altavilla also sees synergies in the freight sector. MSC operates a fleet of large container ships. “Today, cargo is the sector where the highest profit margins are achieved,” said the ITA chairman. A partnership with the largest freight company in the world would allow the airline to “step into the freight business as a protagonist”. This could also upgrade Milan Malpensa Airport, which has always played an important role in the Italian cargo business.
Whether the expectations will be fulfilled remains to be seen. “The question is how will it go on? How will the Rome hub be integrated? Lufthansa already has many hubs. That creates a great deal of complexity,” adviser Wissel remains reserved.
More: ITA Airways President Altavilla: Takeover by Lufthansa and MSC? “The industrial logic of the offer is very convincing”