Lufthansa Bets €325 Million on Southern Europe While Investors Demand Proof the Cost Problem Is Fixable

Lufthansa exercises option to buy 90% of ITA Airways for €325M, betting on long-term growth despite fuel costs and lowered 2026 guidance.

The Frankfurt-based carrier is pressing ahead with its most ambitious consolidation move in years, even as the market punishes it for a profit warning that has yet to fully play out. Lufthansa confirmed it has exercised the option to lift its stake in ITA Airways from 41 percent to 90 percent, a transaction priced at €325 million that is slated to close in the first quarter of 2027, subject to outstanding regulatory approvals.

Shares traded at €8.12 on Wednesday, up 1.6 percent on the day, though the equity remains a long way from its 52-week high of €10.27. The stock has shed roughly 4.3 percent since the company trimmed its 2026 earnings guidance just over three weeks ago, a move management attributed to rising jet fuel prices and geopolitical tensions in the Middle East.

A Structural Bet Wrapped in Operational Uncertainty

The ITA transaction is the clearest signal yet that Lufthansa's leadership is unwilling to let short-term turbulence derail its long-term blueprint for southern Europe. The Italian carrier has been part of the group's portfolio as a minority holding since 2024, but the step up to a controlling 90 percent stake fundamentally shifts the balance of power in Rome's favour — at least from Frankfurt's perspective.

The timing is notable. Lufthansa is pursuing the integration at a moment when its core passenger business is under visible strain. The second quarter delivered adjusted EBIT of €383 million, less than half the €870 million posted in the same period a year earlier, with the margin compressing to 3.4 percent from 8.4 percent. Fuel price volatility alone ate up roughly €750 million, while strikes added another €150 million to the cost base.

Those external shocks are largely beyond management's control, which is why the market's focus has shifted to what Lufthansa can actually influence: its own cost structure. The group has responded by throttling capacity growth, with the 2026 flight offering now expected to stagnate rather than expand by the 2 percent previously flagged. The question investors are wrestling with is whether that discipline will be enough to defend the lowered EBIT target of €1.7 billion to €2.2 billion.

Bright Spots in the Portfolio

Not every division is struggling. Lufthansa Technik lifted first-half revenue by 11 percent to €4.4 billion, with adjusted earnings up 2 percent to €315 million. The cargo arm delivered an even more striking performance, with adjusted profit climbing 47 percent to €199 million. In the second quarter alone, the two units contributed €116 million and €157 million in EBIT respectively, providing a counterweight to the weakness in passenger operations.

The balance sheet adds another layer of comfort. With liquidity of €10.7 billion, the group has the financial firepower to fund structural investments — including the rollout of Starlink high-speed connectivity across up to 850 aircraft by 2029 — without straining its financial flexibility.

The Bull and Bear Case for the Turnaround

Optimists argue the current share price already embeds excessive pessimism. If ITA begins contributing meaningfully from 2027 onward and the margin recovery materialises as forecast, the recent weakness could prove to be an overreaction. The Italian airline is expected to open up new earnings streams once fully integrated, and the completion of the deal in the first quarter of 2027 would mark a tangible milestone in that process.

The bear case is equally straightforward: the same factors that triggered the guidance cut could just as easily undermine the recovery. Booking behaviour has shifted toward shorter lead times, which erodes Lufthansa's pricing power. One analyst cut the price target to €7.50 in mid-August while maintaining an "Underweight" rating, arguing that even the reduced operating profit forecast for 2026 looks too optimistic and that a further downgrade cannot be ruled out.

Operational risks add another layer of uncertainty. An indefinite strike by ground handling staff at Barcelona's Groundforce operation, which began on 4 August, has disrupted roughly 1,200 employees and left flight operations running at between 35 and 80 percent capacity. Meanwhile, German aviation authorities are investigating an incident in Munich in which an Airbus A380 touched down early and damaged runway lighting. All 351 passengers landed safely, but the probe could still result in additional costs or regulatory requirements depending on its outcome.

Insider Confidence Meets Chart Resistance

One data point offers a counter-narrative. Board member Dieter Vranckx purchased Lufthansa shares worth approximately €91,762 in early August at a price of €8,342 per share — a signal that at least part of the management team views the current weakness as a buying opportunity rather than a reason for alarm.

Technically, the stock remains under pressure. Trading at €8.91, it sits below its 50-day moving average, indicating that the short-term trend has yet to stabilise. As long as the operating margin lingers in the low single digits and no credible evidence emerges that the cost trajectory is turning, the shares are likely to remain range-bound.

The ITA closing in the first quarter of 2027 will serve as the next major test — not just of regulatory hurdles, but of whether Lufthansa can execute its southern European strategy while simultaneously repairing its core profitability. For now, the market is treating the stock as a high-risk bet on a turnaround that has been promised but not yet proven.