Lufthansa's Gamble in Italy Depends on Rome Airport Expansion

Lufthansa's strategic expansion in Italy is heavily reliant on the growth of Rome's airport. The airline aims to enhance its operations and connectivity in the region, making this airport expansion crucial for its success. As Lufthansa invests in this venture, the outcome will significantly influence its future in the Italian market, impacting both travelers and the broader aviation landscape.

Lufthansa's long-awaited turnaround of ITA Airways in Italy, essential for revitalizing the German airline's fortunes, is closely connected to the ambitious expansion plans at Rome's Fiumicino airport. Facing high costs and delays with Boeing plane deliveries, Lufthansa CEO Carsten Spohr mentioned on October 1 that the investment in international growth, including acquiring a 41% stake in ITA, would help revitalize the struggling Cologne-based airline.

However, ITA's future is heavily reliant on the main airport in Rome. Fiumicino is currently awaiting approval from the Italian airport regulator ENAC to expand its capacity to accommodate 100 million passengers annually by constructing a third terminal and increasing runway space.

"One reason that encouraged us to invest in ITA Airways was Fiumicino's quality. It is among the few airports in Europe with growth potential in both terminals and runways," Spohr stated in July, viewing the airport as a gateway to Africa and Latin America.

Aeroporti di Roma (ADR), which manages Fiumicino, is owned by the infrastructure group Mundys, controlled by the Benetton family and Blackstone equity firm. The airport manager proposed an 8-billion-euro development plan for Fiumicino to ENAC in 2021, which is still under review.

Some analysts, however, question Lufthansa's emphasis on Fiumicino. "They've identified Rome as a hub for Latin America, but ITA isn’t as well-positioned as Portugal's TAP or Spain's Air Europa," remarked Ruxandra Haradau-Doser from HSBC.

When contacted by Reuters, ENAC did not respond regarding the approval process, and ADR declined to comment on the matter. A Lufthansa representative emphasized that ITA's success also relies on the performance of the Milan area in northern Italy.

Federico Maria Alberto Caligaris, an equity partner at CDI Global, noted that focusing on Fiumicino is sensible given Lufthansa's challenges in expanding its other hubs. Andrea Giuricin, CEO of TRA Consulting, anticipated that Fiumicino, which served over 40 million passengers in 2023, would surpass 50 million next year, bolstered by strong intercontinental and tourist traffic to the capital.

The airport's efficient business model is appealing: last year's operating costs accounted for 60% of 2023 revenue, compared to around 74% in Frankfurt, as per Reuters calculations. Giuricin pointed out that a carrier's cost per passenger when accessing a major European airport is 30% to 90% higher than at Fiumicino.

"Fiumicino is also cheaper for intercontinental flights; Frankfurt's costs are nearly double, with general fees 35% to 75% higher," he explained.

Fiumicino, which features ancient Roman statues and artwork in a corridor leading to a newly opened boarding area, received Europe's best airport award from Airports Council International last year. However, travelers believe there is still room for improvement, particularly in expanding the airport and enhancing train connections to Rome, located about 30 km away.

"The airport is nice, but I expected a larger facility for a city like Rome," stated Brazilian tourist Felipe Paiva, who was walking past the Temple of Hadrian in central Rome. "And transportation to the city could definitely be better."

Lufthansa's lack of control over Fiumicino's expansion adds complexity to its investment in ITA, which has faced multiple bankruptcies with its predecessor, Alitalia. Rising labor costs have led the German airline to issue two profit warnings this year, with analysts cautioning that Spohr's investment in ITA might not be a quick fix.

"The plan appears logical and reasonable at first glance, but there are risks involved in its implementation," said Ingo Speich, head of sustainability and corporate investment at Deka Investment, a shareholder in Lufthansa.

Some analysts point out that while Rome is a hub for leisure traffic, it is not the primary destination for business travelers. "Italy's main airport hub should be in Milan, where the wealth and power are, although it lacks political influence," stated aviation analyst James Halstead.

A government source from Prime Minister Giorgia Meloni's right-wing coalition, who wished to remain anonymous, told Reuters that they had no objections to Fiumicino's growth. They added that Milan's Malpensa airport has a diverse range of carriers and would maintain its role even with Fiumicino's expansion, although its proximity to Lufthansa's primary German hubs could pose challenges in the future.

"Rome isn’t a strong hub for Europe," Halstead noted. "While there are opportunities for South American traffic due to the Italian diaspora in Argentina and Brazil, it's somewhat out of the way for attracting overall traffic."

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Source: Reuters‍