German airline Lufthansa's (LHAG.DE) bid for a minority stake in Italy's ITA Airways has ignited talk of further potential sector consolidation as the industry seeks to plot a more profitable post-pandemic recovery.
Many of Europe's legacy flag-carrying airlines are struggling to compete effectively with budget carriers, hampered by weak balance sheets that could be made more robust by merging with rivals, analysts said.
Lufthansa has offered to buy an initial minority stake in ITA, Italy's state-owned successor to Alitalia, it said on Wednesday.
"This may be the next step in European airline consolidation," said Bernstein analyst Alex Irving, citing Portugal's national airline, TAP, as a prime target.
The Portuguese government, which owns TAP, has said it is considering an outright or partial sale of the business. Lufthansa, Air-France KLM (AIRF.PA) and British Airways owner IAG (ICAG.L) are potential buyers, analysts said.
Sweden's SAS (SAS.ST), which has been under Chapter 11 bankruptcy protection in the United States since last summer, is also a potential candidate, Kepler Cheuvreux airlines analyst Ruxandra Haradau-Doeser and Bernstein's Irving said.
An SAS spokesperson said it's "too early in the process to comment on any potential future investors".
British budget carrier easyJet (EZJ.L) is another possible target, said Haradau-Doeser.
"For Lufthansa, the logic of taking over easyJet would be great - it could strengthen its market position in Great Britain, Paris-Orly and Geneva," she said.
Michael O'Leary, the outspoken CEO of fellow low-cost airline Ryanair (RYA.I), also weighed in with his predictions this week.
"TAP will finish up in BA-IAG, then I think easyJet is going to finish up being bought by either BA or Air France or both jointly and then Lufthansa will buy Wizz (WIZZ.L)," he said.
