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Company History
Operates more than 500 aircraft from hubs in Frankfurt, Munich, and Zurich
Services approximately 250 destinations
Acquired full ownership of SWISS
Acquiring significant stakes in other airlines
KEY STRATEGIC ISSUES
International Strategies
o Industry changes, deregulation and the economic pressures of sustaining a profitable business,
Lufthansa formed The Star Alliance with other airlines to provide a seamless network of
intercontinental connections.
o Mergers and acquisitions were costly and ran into governmental regulations and limitations. The
alliance would provide the needed expansion sought by Lufthansa with limited regulatory hurdles
and reduced investments.
o Emphasis is on maintaining a Global strategy that offers the customers a similar level of service
throughout the network.
o Formed Lufthansa Regional a regional airline to compete with the low cost carriers that sprung up
as a result of deregulation.
o Lufthansa Regional was a regionalized part of the International strategy adding to the economies of
scale and to the Lufthansas market size.
o Recently acquired 100% stake in Austrian Airlines.
Cooperative Strategies
o The Star Alliance was a global strategy requiring efficient operations across the network.
Coordination and cooperation were vital to its success.
o As a cross border strategic alliance the goal was to increase market share and profits.
o Limitations in domestic growth and foreign government policies made the alliance an attractive
strategy.
Miscellaneous
o Integration of personnel across globe, employee training programs, diversity, safe place to work.
o Increased CRM strategy customer centric focused services and products.
Airlines being scrutinized for CO2 and NOX emissions. More of an issue as air travel increases.
Fuel currently not taxed.
Present day testing by other airlines on Bio-Jet and synthetic fuel look very promising.
Lufthansa initiatives:
Technical progress
Improved Infrastructure
Operational Measures
Economic Instruments
EXTERNAL ANALYSIS
Industry Definition
Lufthansa competes in the international airline industry
Its business segments include passenger business, logistics, repair and overhaul, catering, leisure
travel and IT services.
General Environment
Global
Demographics
Sociocultural
Economic
IT
Political/Legal
Demographic
Each of Lufthansa's customer segments has different profitability and different service level
requirements and expectations.
Each service offerings are tailored differently to each of the segments.
Differentiating customers by demographic factors but by more business related attributes such as
their purchase history or profitability.
Gold Customers: The profitability level is lower and the commitment is not as high as the platinum
members, even though they are heavy users.
Iron Customers: These customers provide the volume needed to utilize the firms capacity but
whose spending levels, loyalty and profitability are not so substantial enough.
Lead Customers: Customers that cost the company Money. The company must minimize the
customer segment, either by trying to upgrade customers or by disassociating from them.
Global Outlook
Looking at the Airlines from a global standpoint Lufthansa facilitates economic growth, world
trade, international investment and tourism; and is therefore central to the globalization taking
place in many other industries.
Socio Cultural
In the work Place
Now approximately one-third of the workforce is non German.
Continuous education and training is on Lufthansa top priority list not only for employees but also
for managers.
Lufthansa School of Business
CSR
Lufthansa environmental activities engage a wide range of social and environmental projects from
supporting children in need (via the help alliance) to protecting endangered animals and recycling or
introducing fuel efficiency initiatives.
IT
Customer to Business interfacing
Got Rid of legacy
This Helped Lufthansa
Reduction in maintenance cost
Improved site usability and functionality
More flexible booking process
Customer Relationship Management
Mobile Business Model
Conformation-SMS with the flight information
Convenient check-in on cell phone
Alerts you when Flight gets canceled
Political/Legal
In 1978 Deregulation
Allowed foreigners to own 25% of an airline
EU non-European ownership limited to 49%
ASIA, it is not illegal to own an airline
Government Taxes has imposed taxes heavily
Government Fines
Government Funding
Economic
Economic forces can have an effect on Lufthansa daily business operations.
Lufthansa/Consumer Fear Index
Wars Systemic
Terrorist attack Systemic
Plane crash Not Systemic
Banking industry Systemic
Swine Flu Not Systemic
Unemployment Rate Systemic
Oil Not Systemic
Risk Management
Terrorist attack Plane crash
Swine Flu
Oil
Hedging
Airlines % of Hedged Oil
British Air
46%
Southwest
80%
Delta
0%
Level of Savings
5.3%
7.5%
(Paid Spot price)
o Low differentiation
Availability of Substitutes Low
o Road, rail, and ship
o Internet
Five Forces Analysis
Competitive Rivalry Extremely High
Buyer/Supplier Power High
Unattractive
Low profit potential
Competitor Analysis
o
o
o
o
o
o
o
o
o
o
American Airlines
British Airways
Cathay Pacific
Finnair
Iberia
JAL
LAN
Malv
Quantas
Royal Jordanian
o
o
o
o
o
o
o
o
o
o
o
Aeroflot
AeroMexico
Air France
Alitalia
China Southern
Continental Airlines
Czech Airlines
Delta
KLM
Korean Air
Northwest Airlines
Oneworld SWOT
Strengths:
Focus on quality
Complementary global
network
None of its members
declared bankrupt
Opportunities:
Anti-trust immunity
JALs presence
Expecting growth
Mexicana joining
2009
Weaknesses:
Smaller than the other
two
Cant compete in equal
terms
North America
Threats:
Economy
Members bankruptcy
Member may leave for
other alliances
in
Strengths:
Opportunities:
2nd biggest alliance
Vietnam Airlines joining
Market share in the in 2010
North America
Growth in Asia
SkyTeam SWOT
Weaknesses:
Oceania and Middle
East
Lost $19.5 billion in 10
years
Threats:
Economy
No Japanese Airlines
Loss of Continental
Airlines
Core Competencies
Maintenance, Repair and Overhaul (MRO)
Logistics
IT Services
Total Assets
30000
Long-term
Debt
20000
10000
0
2001 2002 2003 2004 2005 2006 2007 2008
RETURN ON ASSETS
0.1
0
-0.1
COMPARISON DATA
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
Strengt
Opportuniti
Weaknesse
Threat
Strengths: Lufthansa
Global Operations
Largest Star Alliance Member
Refocusing of Diversification and establishment of Divisions
Lease planes
IT Division
Strategic ability to predict future trends
Weaknesses: Lufthansa
Largest Star Alliance Member
Development of low cost airline structure
Opportunities: Lufthansa
Encourage Growth of Star Alliance
Increase Ownership Stakes in Different markets
Use IT Division to Develop Operational Stakeholder Relationships
Use Wet Leasing to Improve Regional Network
Expand presence in growing market
Threats: Lufthansa
Other Alliances
Low Cost Providers
Alternative Travel Options for Short Distances
Strategic Alternative 1
Low-End Investment / Responsiveness / Action
Status quo keeping the cost saving, leasing regional airlines and reducing intermediaries,
controlling air ticketing fees
o Cost leadership focus
o Help maintain debt rating and good financial investment standing
Strategic Alternative 2
Moderate Investment / Responsiveness / Action
Focus on customer segmentation using IT CRM implemented on a detailed level
o Data mine CRM information to get higher level of profitability
o Accounts for changing customer needs to maximize profit potential
o Differentiate customers by new market divides: purchase history, profitability, expected
lifetime worth as opposed to demographic, geographic, and economic means
o Through implementation of new technologies, like mobile device check-in, they will be able
to adjust service to a wider audience
Strategic Alternative 3
High-End Investment / Responsiveness / Action
Attempt to acquire stakes in other airlines within anti-trust government regulations in EU and other
countries
o Will diversify their holdings and increase profit potential
o Increases the Star Alliances reach in servicing global air travel
o Allows them to be prepared for a changing market
o Must limit stakes in international acquisitions to not encourage government interaction
o Improves air route network and increases flight availability to loyal Lufthansa customers
o Allows increased presence in new, emerging, and current markets
Recommended Actions
Hybrid Strategy of Alternative 2 and 3
Focus on customer segmentation through newly developed IT systems while attempting to acquire
legal stakes in either competitor or partner airlines.
Reasoning
Why are they going to do it?
Hedges company stability given global and current economic situation
Prepare to gain entrance to new markets given the possibility of relaxed antitrust laws
Allows focus on customers changing needs as they continually become more demanding
Encourages the use of technology to increase ease of access and use of services
How are they going to do it?
Continue to use their strong IT Division to develop innovative technologies
Use their positive debt rating to encourage financial growth and the purchase of stakes in
competing/partner airlines
Use their influence as the largest member of the Star Alliance to encourage some troubled
members to allow partial ownership or acquisition