Competition authorities endorse Lufthansa's expansion into Air Baltic: Merger raises competition-related questions, but approval is granted.

Lufthansa's Investment in Air Baltic: A New Chapter with Competition Concerns Sidelined

Procedure under Article 93 (2) of the Treaty to be initiated by the Commission.

Hop onboard as we delve into the latest development in the aviation sector: Lufthansa's strategic investment in Air Baltic, the Baltic region's carrier. This investment, to the tune of €14 million, gives Lufthansa a 10% minority stake and a seat on Air Baltic's Supervisory Board [1][3].

The Visible Impact on Passenger Wallets

Get ready to dig deeper into your pockets for a ticket if you're planning a flight to Riga, Tallinn, or Vilnius. The German Cartel Office has flagged potential competition issues between Lufthansa and Air Baltic on these specific routes, suggesting higher ticket prices as a likely outcome [1].

Competition Concerns, Dismissed?

While the German competition authority identified potential competition law issues, they gave the green light to the deal due to the markets in question being considered 'de minimis' - with turnovers under €20 million, indicating a limited impact on the overall market [1][3].

The Dance of Competition and Collaboration

With Lufthansa as a significant minority shareholder, Air Baltic is now expected to take its interests into account in strategic decisions. This could mean less direct competition between the two entities on overlapping routes [1]. Historically, Lufthansa (and its subsidiaries like Swiss) have had an operational relationship with Air Baltic, with the latter leasing aircraft and crews [1].

The Question of Control

Despite the 10% stake, Lufthansa does not have control over Air Baltic under European competition law. The Latvian government remains the majority owner (currently 98%), aiming to involve neighboring Estonia and Lithuania as shareholders before a planned IPO, and intent on retaining control with at least 25% plus one share [2][4]. The Latvian government views Air Baltic as a critical strategic asset for Baltic countries' connectivity and economy, ensuring continued state ownership [2][4].

Breaking it Down

| Aspect | Anticipated Effect ||-----------------------|---------------------------------------------------------|| Ticket Prices | Likely to increase on certain Germany-Baltic routes due to reduced competition[1] || Competition | Reduced direct competition on overlapping routes; cooperation expected given Lufthansa's influence[1] || Control Over Air Baltic| Minority stake only; no control; Latvian state retains majority and strategic control[1][2][4] |

In a nutshell, Lufthansa's investment in Air Baltic signifies increased collaboration and potentially reduced competition on some routes, possibly leading to higher ticket prices. However, control over Air Baltic remains with the Latvian government, as it positions itself as a significant but non-controlling shareholder [1][2][4].

This investment by Lufthansa in Air Baltic, being a key player in the aerospace industry, may signal a shift in employment policies within Air Baltic, as Lufthansa seeks to exert its influence on the carrier's strategic decisions.
In the realm of finance, this move by Lufthansa could potentially have implications on employment policies, as changes in the dynamics of competition between the two carriers might alter industry norms and bonus structures within Air Baltic.