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Europe's antitrust watchdog sounded an alarm on Monday regarding Lufthansa's ambitious move to acquire a 41% stake in ITA Airways for €325 million ($352 million), potentially signaling turbulence ahead for air transport competition.

Higher Prices, Diminished Service Threaten Air Travelers

The European Commission issued a stern statement of objections to both airlines and the Italian Ministry of Economy and Finance, responsible for the nationalization of Alitalia in 2020, leading to the formation of ITA. The commission expressed apprehension that ITA's integration into Lufthansa's fold might disrupt competition dynamics in an already tightly-knit market, ultimately affecting consumers with inflated prices and compromised service quality.

Critical Concerns Arise from In-Depth Probe

In a comprehensive probe, the commission highlighted several critical concerns. It underscored potential ramifications on both short-haul flights linking Italy to other European nations and long-haul routes connecting Italy with key destinations like the U.S., Canada, and Japan. These routes witness an annual expenditure exceeding €3 billion by passengers, with current competition primarily stemming from the rivalry between Lufthansa and ITA, leaving the presence of alternative competitors notably lacking, the regulatory body emphasized.

Lufthansa deal may hurt Air Transport competition : ITA's Dominance at Milan Linate Raises Red Flags

Furthermore, the commission raised alarms over the strengthening of ITA's dominance at Milan Linate airport, foreseeing potential hurdles for competitors to offer passenger air transport services in and out of this crucial hub.

Formal Step in Probe Amidst Growing Concerns

The commission's statement marks a formal step in its ongoing investigation. Stakeholders, including the concerned airlines and the Italian ministry, are granted the opportunity to respond and propose remedies to assuage the preliminary concerns raised by the commission. The deadline for these responses and remedies is set for April 26.

Lufthansa deal may hurt Air Transport competition : Lufthansa's Response and Prior Negotiations

Lufthansa, in response to the commission's objections, expressed readiness to engage constructively, aiming to find solutions aligned with the competitive landscape of the Italian aviation market. The airline remains optimistic about incorporating ITA into its group by the year's end.

The deal, initiated in May 2023, saw Lufthansa pledging €325 million for a significant stake in ITA, alongside a €250 million investment from the Italian ministry. However, concerns raised by the commission earlier this year regarding reduced competition and proposed fixes by Lufthansa deemed insufficient have further complicated the situation.

Looking Ahead

As the investigation unfolds and stakeholders navigate through regulatory hurdles, the fate of the Lufthansa-ITA deal hangs in the balance, with broader implications for air transport competition across Europe and beyond.