II.

Main Problem
During the late 80s, the global market for airline industries
experienced a decrease in demand in air traffic. With many external factors
also in play, Lufthansa nearly became bankrupt in 1991. To turn around their
situation, the company underwent a redevelopment process which included
change management for workshops, downsizing of their fleet, and a massive
reduction of their staff. An OPS team was also established to facilitate the
implementation of Programme 93. And in 1993, the first success was
reported in press and television. However, the main problem lies in the
sustaining the success and securing the companys future by maintaining the
change momentum of the organization. In order to establish a more
fundamental change, Lufthansa has to deal with major issues including
strategic cost savings, privatisation, and the organizational structure so that
they could achieve cost leadership.

III. Causes of the Problem

Before its privatization in 1997, Lufthansa was a state-owned, national
airline carrier of the Federal Republic of Germany. It was a monolithic
functional block, with the government having strict control over both routes
and landing slots at airports. Deregulation in America and Europe triggered
intensive price competition. The recession that followed the Gulf War
resulted to a steep fall in air traffic, which in turn led to a decrease in the

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Seat Load Factor with 57% in Europe compared to a world-wide average of

65%.
Even when the crisis became very obviousThey will never let us
die. (Jochen Hoftman, Senior Vice President & Executive Vice President
Personnel and Labour Relations, Deutsche Lufthansa AG). Believing that they
were invincible being state-owned, it still pursued its policy of growth
through own strength and expanded its fleet, leading to a serious overcapacity during that time.
Another key cause of the problem was the existing functional structure
of Lufthansafive departments composed of finance, personnel,
maintenance, sales and marketing, and flight operations. Functional
structure is based on the operational activities such as production, finance,
marketing, human resources and information management. However, this
structure is primarily suitable for smaller companies. It becomes inadaptable
with the expansion of organization, because it neglects strategic issues
which are very important for the development of an organization (UKEssays,
2015). The structure was inefficient because it involves high involvement of
top management in operational problems, slow decision processes, lack of
accountability, low transparency, and an insufficient market proximity.
Because of this, Lufthansa could not respond swiftly and effectively to the
changeable demand and new competitive challenges resulting from the
dynamic external environment that time.

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During the first phase of the organizations redevelopment, it has

drastically downsized both its fleet and its staff. To maintain the success it
has achieved, Lufthansa aimed to be the cost leader. Further reduction in
staff will have caused good people to leave the company, and they also
couldnt reduce their fleet more. Thus, there was a need for a more effective
and strategic cost saving and organizational structure.

REFERENCES:
https://www.ukessays.com/essays/general-studies/airline-lufthansacompanies.php

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