Etihad Airways wins EC clearance on Alitalia stake

Etihad and Alitalia deal gets green light from European Commission despite resistance from Europe's legacy carriers.

Passengers board an aircraft operated by Alitalia at Fiumicino airport in Rome, Italy. Alessia Pierdomenico / Bloomberg

Etihad Airways has won European Commission clearance to go ahead with its stake acquisition of Alitalia, the loss-making Italian flag carrier.

The EC noted that “with the exception of the Rome-Belgrade route, the transaction does not raise any serious competition concerns, mainly because of the competitive pressure exerted by other carriers”.

Etihad and Alitalia committed to release up to two daily slot pairs at Rome and Belgrade airports to allay fears of monopoly in the Rome-Belgrade route. Only Alitalia and Air Serbia, in which Etihad owns a stake, provide direct flights on the route.

A new entrant can also acquire grandfathering rights, or the right to use an airport slot on consecutive years, after a fixed period of time.

The airlines would also give access to their frequent flyer programme to new entrants, to make entry more likely, the EC said in its ruling. Etihad will take control of Alitalia’s frequent flyer programme after the transaction. With these commitments, the merger “would not raise serious competition concerns”, the EC said in a statement. There could be a run-off or a bidding to determine who will pay for the privilege of the Rome-Belgrade openings, said Saj Ahmad, the chief analyst at StrategicAero Research.com.

“Naturally, there’ll be a number of bidders, so it’s still pretty much an open process given that the Alitalia-Etihad deal has only just been ruled on,” he said.

The Etihad-Alitalia transaction will involve Etihad buying five pairs of slots at London’s Heathrow Airport for €60 million (Dh276m). While the deal is not expected to have any immediate effect on the competition, it had drawn criticism from Europe’s legacy carriers such as Lufthansa, which had asked the EC to block the deal, citing unfair competition. Air France-KLM had voiced concern over the large-bodied aircraft Middle Eastern carriers operate out of Schiphol.

Last week, Lufthansa and Air France-KLM reported a small increase in traffic.

At Lufthansa, the total passenger figure increased by 1.9 per cent to 66.4 million. In the Middle East and Africa sector, its passenger figures fell 3.1 per cent. Total passenger numbers at Air France-KLM remained flat year-to-date, at 65.2 million compared to same period last year with the load factor increasing by 0.9 per cent to 85 per cent.

Alitalia, Italy’s ailing national carrier, transported 24 million passengers last year. Etihad flew 11.5 million passengers last year, up from 10.3 million in the previous year.

“Alitalia will have to up its game in Europe because it is running one of the most ageing narrow-body fleets and that needs overhauling immediately,” Mr Ahmad said. “It will benefit immensely from any international traffic between Abu Dhabi and Italy as Etihad looks to connect flights that provide more EU and North Atlantic access.”

Etihad is expected to expand in North America with access to Alitalia’s membership in SkyTeam Airline Alliance with Delta Airlines.

A tougher task than handling criticism from European carriers is turning around Alitalia.

“Etihad has battled to stem losses at Air Berlin over the last three years and their claim that they can get Alitalia profitable by 2017 seems difficult to attain,” Mr Ahmad said.

The transaction in which Etihad will take a 49 per cent shareholding in Alitalia is expected to be completed on December 31.

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