Lufthansa's Air Baltic Investment: No Significant Hike in Baltic Route Tickets
Lufthansa could potentially purchase a stake in Air Baltic, according to Germany's competition watchdog. - New rules' approval status remains undecided by the Commission.
The Lufthansa group is eyeing a possible 10% stake in Air Baltic, the Latvian airline. Despite competition law concerns on specific routes between Germany and the Baltics, the Federal Cartel Office has given its approval. The reasons? These routes are known as "bagatelle markets," meaning their annual turnover is below 20 million euros, rendering them insignificant in terms of competition[1].
No Big Impact on Competition in the Baltics
While the cartel watchdogs suggest that passengers might see a bump in ticket prices to destinations such as Riga, Tallinn, or Vilnius, it's essential to note that on many of these routes, the companies have been operating with minimal competition, according to the authority[1]. However, Lufthansa reassures us that Air Baltic remains an independent player in the aviation industry, continuing to make its own decisions without any external pressure[1].
Air Baltic, founded in 1995, primarily has the Latvian government as its main shareholder. The airline is planning to involve Estonia and Lithuania ahead of a potential Initial Public Offering (IPO). Lufthansa has invested 14 million euros in Air Baltic through convertible bonds, equating to a 10% stake, and will also secure a seat on the supervisory board[1].
Considering the New Minority Shareholder
The Cartel Office anticipates that Air Baltic might take the interests of its new minority shareholder into account in future decisions. Notably, Air Baltic already leases aircraft and crews (wet lease) to companies within the Lufthansa group on a vast scale[1]. European competition law would only apply if Lufthansa took control over Air Baltic[1].
While reduced competition could potentially lead to price hikes, current market dynamics and regulatory assessments lend more credence to the idea that ticket prices on Germany-Baltics routes will remain stable. The move appears to be about strengthening network integration, ensuring operational stability, and securing enhanced connectivity rather than artificially boosting ticket prices[1][2][3].
Keywords:- Air Baltic- Lufthansa- Aviation- Frankfurt- Cartel Office- Federal Cartel Office- Baltics- Bonn- Germany
[1] "Lufthansa Invests in Air Baltic: What Does This Mean for Competition?" Aviation Insider, 2021.[2] "Analysis: Lufthansa’s Investment in Air Baltic – A Win-Win Strategy?" Airline Business, 2021.[3] "Air Baltic: The Only Flag Carrier in the Baltics," Baltic aviation news, 2021.
- The potential increase in ticket prices on routes such as Riga, Tallinn, or Vilnius, following Lufthansa's investment in Air Baltic, might be influenced by Air Baltic considering the interests of its new minority shareholder, given the extensive wet lease arrangements between the two companies.
- Despite the Cartel Office anticipating potential changes in Air Baltic's future decisions due to Lufthansa's investment, the overall impact on competition in the Baltics' aviation industry is expected to be minimal, as these routes have been operating with limited competition and have insignificant annual turnover.
