Vestager may torpedo two airline mergers

The EU Commission’s Margrethe Vestager, a Danish national, is world-renowned for taking up the fight against tech giants. Meanwhile, the EU’s transport industry could be added to her list. In 2019, the Commission prohibited the merger of the two leading European rail companies, Siemens and Alstom. These dogmatic antitrust norms ended all efforts to create a European rail champion. Now, Ms. Vestager is taking action against the planned fusion of IAG and Air Europa, as well as ITA and Lufthansa, for competition reasons.

Europe is not an island. That’s true geographically, but not economically. Ms. Vestager sees this differently. Her yes or no to mergers is only based on the question of whether the results will impair competition within Europe. This became very clear in 2019, when she prohibited the intended merger of the two rail companies, Siemens and Alstom. Their going-together would violate competition rules, she argued. The fact that the China State Railway Group is twice the size of the two merged European market leaders, played no role in her considerations.

Margrethe Vestager from Denmark is the second most powerful woman in Brussels, after EU Chairperson Ursula von der Leyen  – source: @Euronews

First IAG and Air Europa …
Now, she has taken on British IAG and Spanish Air Europa. According to the Commission, the airline’s merger would impair competition on Spanish domestic routes to the Balearic and Canary Islands, and on short-haul routes between Madrid and main European cities. This also applies to flights to Israel, the UK, Switzerland, and Morocco. Other airlines could also be squeezed out of the market by the British-Spanish duopoly on long-haul routes from Madrid to South and North America, the EU competition watchdogs speculate. IAG offered 400 million euros for the takeover of Air Europa’s passenger and cargo business. Now the entire package is on hold, halted on 09FEB24, on the initiative of Ms. Vestager and her team.
The concessions made by the two airlines are not sufficient for okaying the merger, holds the Commission. Originally, the issue was supposed to be decided by 07JUN24, but has now been stopped for an indefinite period of time.

…followed by Lufthansa and ITA
Two thousand kilometers further east, in Italy’s capital, Rome, there is a similar scenario. Lufthansa and ITA are planning to merge, with Lufthansa acquiring 41% of the Alitalia successor in a first step. However, this project also remains poised on a knife-edge, as Lufthansa does not want to bow to the tough conditions demanded by the EU Competition Commission. Among other things, these stipulate severe slot cuts for the duo in Rome and Miland, jeopardizing long distance flights. As justification for her tough conditions, Ms. Vestager included flights operated by Air Canada and United Airlines between Italy and North America, two members of the Star Alliance group, like Lufthansa. If their flights are added to the package, a certain market dominance of the Star group cannot be denied. Market experts, however, speak of an arbitrary calculation to put pressure on Lufthansa and ITA to agree to certain conditions demanded by Brussels.

Lufthansa – ITA deal at stake
Currently, the parties involved are trying to find acceptable solutions fitting all sides. However, if the Brussels required traffic limitations are too far reaching and the costs exceed the benefits, Lufthansa has signaled to the Vestager team that it would step out of the ITA deal. If so, ITA would need a new, financially strong partner or else bankruptcy looms. It would blow the Commission advocated policy to consolidate the European aviation landscape and create three or four champions capable of successfully competing state supported carriers from the Gulf region or China. In the rail sector, as Siemens and Alstom demonstrate, Ms. Vestager has successfully prevented an Airbus on rails.



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