Lufthansa Invests in Alitalia's Successor, Optimistic for Air Travel Rebound

Deutsche Lufthansa AG, a German airline, has a 4.97% share in the market.

The company announced that it had put in an offer to acquire a portion of ITA Airways, the Italian airline formerly known as Alitalia, in the hope that air travel will continue to improve.

On Wednesday, Lufthansa announced that it was requesting exclusive negotiations with the Italian government to initially purchase a portion of ITA Airways. This would give them the option to purchase the remaining shares at a later time. This decision follows the formation of a consortium, which includes Air France-KLM Group AFLYY 1.45%.

Delta Air Lines Inc. has seen a 0.56% change.

Negotiations that began last year to purchase a portion of ITA ultimately ended without an agreement being reached.

Lufthansa expressed its desire to grow in Italy, which it identified as its "most significant market outside of its home countries and the United States." This is due to Italy's status as one of Europe's largest economies and most sought-after vacation spots.

As the world begins to recover from the pandemic, airlines are responding to the increased demand for air travel by adding more routes and increasing capacity. ITA has responded to this by introducing direct flights from Rome Fiumicino to New Delhi, the Maldives, San Francisco and Rio de Janeiro.

In late 2021, ITA Airways began operations following the downfall of Alitalia, which had been in the midst of bankruptcy proceedings for a long time prior to the Covid-19 pandemic. The new airline had less than half of Alitalia's aircraft fleet, and its network was narrowed to focus on profitable routes. The Italian government is looking for a new partner or buyer to reduce its influence over the airline.

In its prime, Alitalia was known for transporting Hollywood celebrities and was even the official airline of the pope. Unfortunately, it has been difficult for the company to make a profit, especially with the emergence of European low-cost carriers such as Ryanair Holdings PLC and Wizz Air Holdings PLC. These companies are offering cheaper prices and lower costs, making it difficult for Alitalia to compete.

In order to secure a deal for ITA, Lufthansa must gain the approval of the Italian Ministry of Economy and Finance during negotiations concerning how ITA can be incorporated into Lufthansa's operations and infrastructure.

Alex Irving, an equity analyst at Bernstein, expressed in a note to clients that obtaining ITA is one of the most difficult endeavors in European aviation. He further noted that the airline has been consistently unprofitable and that investors have previously put money into minority stakes that have not been profitable.

In August of last year, Air France-KLM, Delta, and Certares Management LLC formed a consortium and were granted exclusive negotiations with the Italian government regarding the privatization of ITA Airways. Unfortunately, the talks did not result in a successful outcome and the exclusive period ended in October.

On Wednesday, Air France-KLM declared that they had only wanted to be involved in the negotiations as a potential business partner, not as a majority owner. The Italian government is aiming to completely privatize the airline in the end.

Air France-KLM declared that they will stay on track with ITA's privatization process. They also expressed their interest in forming a partnership with the Italian airline. ITA is still a member of the SkyTeam alliance, which includes Air France and Delta Air Lines.

Lufthansa is one of the original members of the Star Alliance, its competitor.