The takeover of Alitalia is a bit like The Young and the Restless, when you think it’s over a new twist comes to question everything. And the one we are about to talk about would not be of the least importance.
As we told you here, after being cowardly dumped by Etihad, the beautiful (?) Alitalia was living at the expense of her parents (the State and the Italian taxpayer) while waiting to find a husband to their liking.
Italian Style Household
After a lot of procrastination, they were about to become a 3-person couple (which proves that in Italy they have an open mind) who would stay at Mom and Dad’s. Namely:
- The Italian State remains indirectly the majority shareholder with 15% of the capital, knowing that the national railway company Ferrovie dello Stato would take 35%.
- Atlantia, the holding company of the Benetton group would take 40%.
- The remaining 10% would go to Delta.
And everything seemed to be finalized and it was expected that the banns would be published soon. And then everything collapses!
The beautiful (?) Alitalia started to work better and bring in more money, especially with the tourists who came from far away (the long haul) which pushed the parents to ask for an even higher dowry.
They asked Delta to reconsider its position and bring in more than the $100 millions originally planned. What the American seducer, not stingy in free union these last times, the last one with a penniless South American “stolen” from a distant cousin, has answered by… waiting.
German-style hold-up
It is there that a former spurned suitor, Baron Von Lufthansa, returns to the scene. The German had expressed his interest in the beautiful (?) Italian girl, but the parents had opposed it firmly and definitively.
The reason? Lufthansa, which after having married and put back on the right track a Belgian (Brussels Airlines), an Austrian (Austrian) and a Swiss (Swiss), strong of this knowledge and concerned that his wife does not throw the money out of the window wanted to rule everything in the house and saw with a bad eye the invading presence of the parents-in-law! But the Mama wanted to stay and watch her daughter and the baron returned to his native Germany.
But there are marriages of passion and marriages of reason. Delta has been slow to react, but Lufthansa has once again expressed interest in a commercial partnership and is reportedly putting 200 million euros on the table. Enough to shatter the union that was taking shape?
Lufthansa, a serial recoverer!
Enough jokes. Lufthansa has built up a good reputation for turning around ailing airlines, while Delta, with rare exceptions, only invests in airlines that are not doing too badly (Air France, Virgin Atlantic, etc.). And this is something that the Italian government readily recognizes, as it is looking for the most beautiful party for its national airline and prefers to see it on the arm of the German industrialist, scalded as it was by the brief marriage with a fortune from the Gulf, as money is not everything.
Lufthansa-Alitalia: a credible hypothesis?
But in this lying poker game where everyone is trying to get their hands on a sleeping beauty at a lower cost, is the Lufthansa option credible?
The German airline is only talking about a “commercial partnership“, not a takeover. Firstly, in our opinion, in order not to scare the Italian government, but also because given the history of Alitalia, it prefers to pay to see before going any further.
But at 200 million euros it is not a partnership, it looks more like an engagement, which may never be celebrated when we know the German conditions.
- To be a majority alone or with 2.
- Reduction of the fleet and crew costs.
- No investment without prior agreement with the unions to avoid any surprises.
- Right of review of governance.
- Target operating margin of 8% (for information, Air France KLM’s is 1%).
Enough, in our opinion, for the State and the unions to become nervous, anticipating an inevitable social breakdown.
But, on the other hand, we cannot imagine Delta giving in to government demands without the same guarantees. In fact, in March it did not say anything else, but in a less direct way, when it suggested that taking a stake was not the only option and that it wanted to be sure to influence the strategy of the Italian airline.
But one thing is certain: it will be Lufthansa or Delta, but not both together. And today Lufthansa seems to be the one ready to invest the most.
An issue beyond Alitalia
There is no doubt that there is a lot of discussion in the headquarters at the moment, especially as the case may seem very Italian at first sight, but it has much wider implications.
It is primarily a question of partnerships. The two transatlantic joint ventures, one between Air France-KLM, Delta and Virgin Atlantic, the other without Virgin but with Alitalia are due to merge at the end of the year. There is no chance of this happening if Alitalia falls into the hands of Lufthansa. But why not, finally. I think that Delta and Air France KLM are now betting more on Virgin Atlantic, in which they both have shares, than on the historically problematic Italian airline.
Then a question of alliances. We do not see Alitalita remaining in Skyteam if it comes under the control of Lufthansa. It doesn’t matter whether it joins Star Alliance or not (after all, LATAM is leaving OneWorld without joining Skyteam) but Skyteam’s footprint in Europe, already small compared to Star Alliance, would be further weakened and this without insulting Air France, KLM and Air Europa (otherwise Tarom and Czech Airlines are part of the alliance but frankly considering what it weighs in terms of attractiveness and network …)
If Alitalia were to join the Star Alliance, it would include SAS, Lufthansa, Swiss, Austrian, LOT, Aegean, Brussels Airlines, Turkish Airlines, TAP Air Portugal, Croatia Airlines and therefore Alitalia in Europe. Skyteam and OneWorld would be continental dwarfs and the commercial impact anything but zero.
Finally, a European supremacy issue in what was until now a three-way game between IAG (British Airways, Iberia, Aer Lingus, Level, Vueling), Lufthansa Group (Lufthansa, Swiss, Austrian, Brussels Airlines, Eurowings) and Air France-KLM (Air France, KLM, Transavia) in which it must be admitted that the Franco-Dutch duo had already been left behind. The integration of Alitalia into Luftansa Group would dramatically encircle Air France-KLM from a geographical point of view and would be a blow to IAG. When we see how Lufthansa Group excels in offering combined routes between its different airlines and hubs, the integration of Alitalia would hurt the competition considerably given the new possibilities that would be offered.
And I’m not even going to mention the loyalty programs, with the increased attractiveness of Miles&More, which is already the program not only of the Lufthansa Group airlines but also of LOT, Croatia, Condor and Luxair!
Alitalia: a European issue at least
Beyond knowing who will get their hands on Alitalia, it is the great balance in the European sky that is at stake. I think that Air France-KLM or IAG don’t care where Alitalia will end up, but they know where they don’t want it to land: a bit of “anything but Lufthansa“. From there to having Ben Smith ask Delta to do whatever it takes to close the deal?
As for whether Lufthansa is really interested in Alitalia or just wants to push the envelope a little further and weaken its competitors, starting with Air France-KLM…
In short, the continuation in the next issue because with Alitalia we are never far away from a new twist!
Photo : a Lufthansa plane meets an Alitalia plane by InsectWorld via Shutterstock
