Lufthansa this month continued its exertions for hegemony over swaths of European commercial aviation by securing approval from the vast majority of Austrian Airlines' shareholders to acquire that carrier. It could further expand its influence now that the European Commission has approved its proposed take-over of UK-based bmi, though the German carrier is not keen on buying that airline in its current state.
Regardless of the outcome of the bmi situation, Lufthansa has cemented itself as the most active commercial airline buyer in Europe. It already is integrating with Brussels Airlines(with EC's detailed review of Lufthansa's planned acquisition of that carrier scheduled for completion by 1 July) and previously integrated Swiss International Air Lines into its aviation group.
Meanwhile, Air France has expressed interest in acquiring SkyTeam partner CSA Czech Airlines, while oneworld alliance partners British Airways and Iberia continue merger discussions. Bloombergquoted Iberia commercial director Manuel Lopez Colmenarejo as saying the tie-up is "possible and even likely" in a matter of months.
Citing "economic pressures," Lufthansa in a recent financial report wrote that "the consolidation of the European aviation sector is progressing, and we are continuing to advance our ongoing transactions." Lufthansa noted other industry movement, including a cross-shareholding deal between Air Berlin and TUIfly in the German market.
Many involved in the travel industry are in a wait-and-see mode to determine how the next round of European airline mergers may affect their businesses. "If you look down the road 18 to 24 months, you will have a totally different marketplace than what you have today," said Ingersoll-Rand global director of travel and meeting services Pascal Sturyve, speaking in April during an Association of Corporate Travel Executives conference. "The impact on sales and the way your negotiations are going to go ... it is too early to tell, but certainly something to watch for. In some markets today, where you do not have a dominant player in place, because of consolidation all of a sudden you could get a very dominant carrier in that market."
BCD Travel in an online industry newsletter noted that airline consolidation has left corporate customers "wondering whether it will make their preferred supplier agreements less competitive." According to BCD Travel senior vice president for supplier relations in Europe, Middle East and Africa Thomas Stoeckel, "In Europe, the experts said there would eventually be only three airlines. That has not happened yet, but we are on our way to it. The big airlines are worrying that they will miss the opportunity if they don't buy potential candidates now. It has become a race.
"Many think competition will remain but will not be as strong as before," Stoeckel continued. "It is hard to predict what the impact will be on fares."
Stoeckel's counterpart in the Americas region, David Mitchell, added that "clients should keep their options open during the current phase of uncertainty, including maintaining relationships with individual" airlines.
The European Commission stated that Lufthansa's proposed acquisition of bmi "would not significantly impede effective competition in the European Economic Area or any substantial part of it." On overlapping routes, "the parties, which are both members of Star Alliance, already cooperate with each other. The Commission's investigation showed that Lufthansa would be unlikely to start operating flights on those routes on which it currently only markets flights operated by bmi and vice versa. The same conclusion was reached for all other routes where the parties currently do not cooperate, as, inter alia, the combined entity would continue to face sufficient competition on these routes."
With a fleet of about 50 jets, bmi operates a mainline network from its base at London Heathrow Airport (where it owns many highly coveted takeoff and landing slots) and regional operations from bases in Birmingham, Manchester and other UK airports.
But Lufthansa has lost interest in upping its current 30 percent stake to the proposed 80 percent without an additional cash infusion from bmi chairman Sir Michael Bishop (who owns the 50 percent stake that the German carrier would acquire). A Lufthansa spokeswoman said one contractual condition that must be met is for Bishop to inject £100 million (US$159 million) into the airline. "We expect that to be met and don't intend to walk away from the deal," according to the spokeswoman. "It is still the plan to take over bmi."
According to various European press reports, the cash injection by Bishop--from Lufthansa's perspective--would be a required element of the deal due to bmi's failing finances, but Bishop, claiming all contractual conditions have been met, has gone to court in an attempt to force Lufthansa to complete the transaction.
Meanwhile, the Lufthansa spokeswoman would not comment on any potential involvement by Virgin Atlantic. Virgin in December had confirmed ongoing discussions with Lufthansa "regarding the future of bmi."
"We do not comment on the constant speculation," she added, referring to the Virgin scenario as well as fresh press reports about Lufthansa eyeing Polish airline LOT.
Separately, Virgin and bmi this week announced they had expanded their codeshare arrangement. The cooperative services now include Virgin flights from London Heathrow to Boston, Chicago, Delhi, Dubai, Los Angeles, Miami, Nairobi, San Francisco and Washington, D.C.
Still under European Commission review, the Lufthansa-Austrian deal "passed another crucial milestone in the privatization process" by obtaining shareholder approval, according to Austrian board member Dr. Peter Malanik. "We are confident we will be able to go ahead with the closing this summer."
A Lufthansa partner within the Star Alliance, Austrian and regional partners operate a 130-destination network based around a Vienna hub.