SWOT analysis for Lufthansa case
Paper details:
Need to do a SWOT analysis for Lufthansa (Strengths, Weaknesses, Opportunities, Threats and so on). Lastly, I need write a recommendation for Lufthansa on how they can perform better. In this writing, I will need to focus more on the SWOT analysis, therefore, half to one page for the recommendation is good enough
– Do not use point form and everything has to be in paragraph.
– Source is not necessary, but if your writing needs it, cite it.
9B15M027
LUFTHANSA 2012
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Ivey School of Business Foundation Version: 2015-06-29
On January 1, 2011, Christoph Franz succeeded Wolf
gang Mayrhuber as the chairman of the executive
board and chief executive officer (CEO) of Deutsche
Lufthansa AG (Lufthansa). He began his career at
Lufthansa in 1990 as a management trainee under for
mer CEO Jürgen Weber, where he was involved
with the implementation of a restructuring program that
followed Lufthansa’s privatization. Shortly after,
he moved on to Deutsche Bahn, the public German
rail company, where he eventually became the CEO
of the passenger and transport division. Ten year
s later, he took up the position of CEO at Swiss
International Airlines and successfully implemented
its turnaround as well as its integration into the
Lufthansa Group.
Having developed Swiss Airlines into one of the mo
st profitable carriers within the Lufthansa Group,
Franz moved to his next challenge. In an industry
characterized by growth, Lufthansa did manage to
increase its revenue in 2011, though its
operating margin fell short of e
xpectations and profitability was a
major concern. Between 2007 and 2011, the price of Lu
fthansa shares fell by half. In 2012, Franz had to
find ways to increase the profitability of the gr
oup, especially within the main business of passenger
transportation.
Along with the insufficient profitability of the Lu
fthansa Group, there loomed the threat of the
commodification of air transportation service. The
tremendous growth of competitors from the Middle
East, as well as an announcement by primary competito
r, Emirates, of its plans to further expand the
Dubai airport into an international hub, also caused
increasing concern at the group’s headquarters. The
press reported that at the beginning of 2012, Luft
hansa even demanded government intervention against
further expansion by the Gulf carriers in Europe. Fr
anz urgently needed fresh
ideas and a strategy to
sustain and strengthen Lufthansa’s competitive positi
on. Its management had to make sure that the
airlines from the Middle East would not damage its hold
on the profitable long-haul sector as the low-cost
airlines had done to the European short-haul sector only a few years before.
THE RISE TO AN INTERNATIONAL AVIATION GROUP
In 2011, Cologne-based Deutsche Lufthansa AG, with
its seven affiliated passenger airlines, was the
largest airline group in Europe, operating a fleet
of 696 aircraft and employing 119,084 employees
worldwide. In the first decade of the 21
st
century, Lufthansa had enjoye
d steady growth in its core
Authorized for use only by calvin chu in MGT 4090 at University of Lethbridge from Sep 09, 2015 to Dec 15, 2015.
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Page 2
9B15M027
business area of passenger transportation, primarily thr
ough the acquisition of other European airlines. In
2011, the Lufthansa Group carried 106 million passengers.
With a turnover of 28.7 billion euros in 2011,
it was the world leader, just ahead of the United-C
ontinental Holdings group, which was formed in 2010
through the merger of two large American airlines
(see Exhibit 1). In 2007, Lufthansa generated its
strongest results ever, with an annual net profit of more than 1 billion euros.
1
In the years that followed,
however, they were unable to match these results. In
2011, the main source of Deutsche Lufthansa’s
revenue was passenger transportation, which acc
ounted for 75 per cent of the group’s results.
2
In 1994, shortly after German reunification, Deutsche
Lufthansa experienced the biggest upheaval in the
history of the company. The liberalization of the tran
satlantic aviation market as well as the complete
liberalization of air transport within the European
Union meant that Lufthansa was faced with increased
competition. In response, major restructuring was ca
rried out. Following serious financial problems, the
German government-owned airline was privatized, partially
at first, and then completely in 1997. During
the privatization process in the nineties, alongside it
s core business of flight operations, the Lufthansa
Group set up further independent divisions for air car
go, maintenance, repair and overhaul (MRO) and
catering, as well as its own IT company (see Exhibit 2)
. They chose this portfo
lio approach to partly
counter extreme market fluctuations. With its subs
idiary Lufthansa Sky Chefs, Lufthansa became the
market leader in the catering industry and, with the t
echnical expertise of Lufthansa Technik, the leader in
aircraft maintenance and repair.
The transition into the 21
st
century seemed smooth for Lufthansa, as it was able to further expand its
competitive position while preparing for global competition in a myriad of ways including, for example,
an order for the new Airbus 380. Numerous globa
l issues emerged during the beginning of the new
millennium, including the attacks of September 11 in th
e United States, the outbreak of SARS in Asia and
the war in Iraq. These all took their toll on airlines wo
rldwide, including Deutsche Lufthansa, and steadily
diminished operating results.
Despite these complex issues, Lufthansa’s brand was
generally associated with
high quality. In
addition,
it had a strong reputation in the business travel segment.
With a 40 per cent share of sales from corporate
travel business in 2012, Lufthansa was the market lead
er worldwide. The revenue from first and business
class made up 39 per cent of company results, and fo
r long-haul flights, the premium share was 50 per
cent.
3
Only Singapore airlines, its Star Alliance part
ner, could boast a similar share of 40 per cent.
4
This seemingly positive position enjoyed by Lufthansa c
ould not hide the fact that, for a firm of its size
and turnover, the profits of the last few years were
relatively low. In order to be able to invest in
innovations, such as Internet on board, the flat business
class seat, or the renewal and expansion of their
fleet, Lufthansa urgently needed to achieve
a better operating margin (see Exhibit 3 and 4).
CO-OPERATION AND ACQUISITIONS
In order to survive in the new competitive environm
ent that emerged following liberalization, Lufthansa
stepped up its search for partnerships
and in 1997 founded the first airlin
e alliance, named Star Alliance,
with partners United Airlines, Air Canada, Scandina
vian Airlines and Thai Airways. Each day, the
alliance members operated 21,230 flights in 189 countri
es, which made Star Alliance the largest strategic
alliance in the market.
5
By 2012, the alliance comprised 27 member airlines. In 1999, the European
competitors followed suit, with British Airways an
d its global partners establishing the One World
alliance. Shortly afterwards, in 2000, a third globa
l alliance, named Skyteam, was formed by Air France
and its partners Delta Airlines, Korean Air and Aeromexico.
Authorized for use only by calvin chu in MGT 4090 at University of Lethbridge from Sep 09, 2015 to Dec 15, 2015.
Use outside these parameters is a copyright violation.