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Berlin is poor but sexy, noted one of its former mayors. Judging by the fuss, the same can be said for its namesake airline. Lufthansa plans to buy up Air Berlin. The EU fears that Germany’s flag carrier will end up with too much market power. But the rest of the European aviation industry is likely to be quite relaxed about the prospect.
In October, the German group agreed to buy half of Air Berlin’s assets for an estimated €210m, in a deal brokered by a government keen to minimise job losses in an election year, and to preserve as much German ownership as possible. The EU Competition Commission cannot ignore the implications of this move. Air Berlin would come with LGW, a domestic subsidiary, and Niki, an Austrian holiday airline, plus some aircraft. After bedding LGW down, the combined group’s market share within Germany would be 82 per cent. A quarter of Lufthansa’s internal routes would become monopolies, notes Condor, a subsidiary of Thomas Cook that has opposed the deal.
As a remedy, Margrethe Vestager, the EU competition commissioner, might well prefer that Lufthansa sell off Niki, or some other routes that may include valuable take-off and landing slots at airports such as Düsseldorf. Niki, as a standalone airline, would make for a simple sale — though analysts wonder whether it would survive on its own.
Low-cost carriers such as Ryanair and easyJet will not care either way. Prices on domestic German routes have reportedly risen at least a quarter since October when Air Berlin stopped flying. Ryanair has already expanded in Germany, with 10 aircraft based in Frankfurt from next summer, while easyJet awaits the review for its own deal to buy 25 planes from Air Berlin. These come with slots at Tegel, the Berlin airport business travellers prefer. Neither airline would welcome the continuation of irrational price competition from a floundering rival, whatever their public protestations about the carve-up.
All this future revenue promise has made Lufthansa pretty alluring to punters, too. Its shares have soared 141 per cent this year, and more than 40 per cent since Air Berlin filed for insolvency in August. The German airline has had 15 deals, including snapping up budget carrier Eurowings, reviewed by the EU since 2000. It is clearly pretty good at getting its way, and will most likely extend its record with a deal for Air Berlin.
Should the EU block Lufthansa’s deal with Air Berlin? Or would this deal eventually bring more airline competition throughout Europe? The Lex team is interested in hearing more from readers. Please tell us what you think in the comments section below.