Roll up, roll up. Lufthansa and other European airlines are trying to power up their engines with M&A. But the European Commission is hesitant to clear them for takeoff. Like with telcos, the idea is that having more competitors leads to lower prices. But blocking transactions risks leaving the continent’s carriers weaker.

Europe’s big legacy airline groups have deals in their windshields. Lufthansa is attempting to land a 41% stake in state-owned ITA, successor to Alitalia, for 325 million euros, while IAG has agreed to buy the 80% of Air Europa it didn’t own for 400 million euros. Alongside Air France-KLM, the duo have also expressed interest in Portugal’s TAP, which the government wants to privatise.

The logic of consolidation is clear. Larger airlines have better negotiating power in areas from maintenance costs to placing giant aircraft orders. Such savings will help in managing the looming green transition, which requires new, more efficient aircraft as well as loading up on sustainable aviation fuel – almost three times as expensive as conventional jet fuel in 2022, according to trade association IATA. As costs increase, the risk is that mid-sized players can’t keep up and eventually wither away.

European Competition Commissioner Margrethe Vestager may not see it that way. Like in telecoms, her focus is on better and cheaper services for consumers rather than building corporate behemoths. Compare with North America: there, the top three carriers held 50% of the region’s scheduled seat capacity, a November IATA analysis found. In Europe, it took 10 carriers to collectively reach the same threshold. Greater market power supports more expensive tickets and, in turn, higher margins. Vestager warned on Thursday that Lufthansa’s bid to acquire a stake in ITA “could lead to price hikes and fewer frequencies”.

Yet continental Europe’s dense train networks are also competing with airline routes. And if the greater consumer choice that helps keep prices low in Europe is partly provided by struggling, state-backed airlines, European taxpayers could still ultimately foot the bill. ITA predecessor Alitalia burned through an estimated 10 billion euros of state money over the last 14 years of its life, Reuters reported. Ryanair CEO Michael O’Leary warned this week an EU veto on the ITA deal would lead it to either eventually go bust or continue to be kept alive by Italian taxpayers.

The post-pandemic travel boom is offering fragile carriers some respite. TAP reported record earnings for 2023, while even ITA managed to slash its net loss to 5 million euros, from almost 500 million euros the year before. But the industry’s cyclical nature means the pendulum will one day swing back. While antitrust concessions – such as offloading airport slots to rivals – are welcome, blocking transactions could put airlines on a shakier glide path.

Antitrust worries risk clipping EU airlines’ wings

Europe’s big legacy airline groups have deals in their windshields.

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