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Analysis - Lufthansa

Introduction

This paper describes the way Lufthansa has undergone fundamental change - its approach relying
on people. As opposed to a top down planned approach, Lufthansa has put emphasis on managing
the process and creating conditions that activate a critical mass of change actors. Human resource
management has played a crucial role in the transformation as well as in the management of the
process of strategic renewal.
Core elements of this strategy involve providing space for reflection and dialogue despite
the crisis pressure, building networks of change actions and creating durable platforms for
emotional mobilisation and reflection on action.

Background

Lufthansa was founded in 1926 as the German national airline company. During the 1980s,
under the leadership of Heinz Ruhnau, Lufthansa followed a policy of growth through own
strength, trying to win market share to survive under hard competition. In 1991 Lufthansa
airlines went almost bankrupt. An impressive strategic leadership and human resource
management played an important role in the transformation and in the process of strategic
renewal. The implementation of an integrated cost leadership/differentiation strategy and a
related diversification corporate-level strategy also contributed to Lufthansa's success. The
evolutionary patterns of strategy and structure and the strategic leadership and German culture
contributed to the turnaround.

Lufthansa's change management during its crisis was outstanding. Its management was able to
identify the signals for the potential problems, showed great strategic leadership through CEO
Weber and transformed the organization into a profitable company. This experience in strategic
change management is very valuable and will surely help the organization with any challenges in
the future

Having had major involvement in the creation of the Star Alliance also played an important role
in Lufthansa's transformation into a successful company that operates in a quite difficult industry
environment. In 1997, Lufthansa, Air Canada, SAS, Thai Airways und United Airlines create the
"Star Alliance", the worlds first multilateral airline grouping, later to be joined by other carriers.
In 1999 the company already announced record results in its 70-year history, helped to found the
Star Alliance, the industry's largest network, and is now looking to become one of the leading
airlines in the world.

Lufthansa established the Lufthansa School of Business to keep the sense of urgency for change
and transformation alive.

Current Situation

Lufthansa has come a long way. They no longer sell the tickets as an act of state but as a skill that
they do better than the competitors. Lufthansa has developed and preserved its identity. With the
goal to increase the market proximity, transparency of the cost & processes and to reduce the
fragmentation of decision making, Lufthansa was restructured. There are seven SBU under
Lufthansa Group Passenger service, Logistics, Tourism, Technical services, Catering, Ground
services, and Information technology.
The Lufthansa Passenger Service, the original core of the former airline industry Lufthansa was
restructured as Profit Center.
The Lufthansa Aviation Group is considered to be one of the world's leading air transport
corporations. It includes a number of independent group and affiliated companies with business
segments in passenger airlines, logistics, aircraft maintenance, catering, tourism and IT services.
Lufthansa's headquarter is located in Cologne, Germany and its operational centre for passenger
and cargo services is situated in Frankfurt.

Corporate-level strategy of Lufthansa

Lufthansa Group consists of seven independent SBU that include Passenger service, Logistics,
Tourism, Technical services, Catering, Ground services, and Information technology. The
individual Lufthansa companies are quite successful. LH Technical services and LH Ground
Services are number one in their market.
Each of the seven main companies was supposed to aim at achieving profitable, sustainable
growth and leaving positions in world market segment. Lufthansa centrally coordinates their
strategy development process. Lufthansa's motives for such a corporate level strategy are likely
to be issues such as taking advantage of economies of scope, sharing activities, transfer of
core competencies, and an increase in market power as well as blocking competitors
through multipoint competition.

Business-level strategy of Lufthansa

A business-level strategy is an integrated and coordinated set of commitments and actions the
firm used to gain a competitive advantage by exploiting core competencies in specific product
markets.
I feel that Lufthansa uses integrated cost leadership/differentiation strategies as Lufthansa
operates globally and it is vital for them to implement cost leadership strategies as well as
differentiation strategies in order to develop competitive advantages.
Lufthansa's "Program 15" is a good example of a cost leadership strategy. After Lufthansa had
undergone privatization they implemented this extensive strategic costs management program
with the goal of reducing overall unit cost by 20% within five years.
In terms of a differentiation strategy, Lufthansa constantly tries to come up with a range of
innovative ideas to stay ahead of the competition. It can be concluded that Lufthansa has made
the right decision to implement an integrated cost leadership/differentiation strategy.

Strategic Leader and German Culture


Strategic leadership, which has the ability to anticipate, envision, maintain flexibility and
empower others to create strategic change as necessary was extremely important in Lufthansa's
turnaround. The main responsibility for effective strategic leadership generally rests at the top,
especially with the CEO, but also with other recognized strategic leaders like members of the
board of directors and the top management team. In the case of Lufthansa, the formulation and
implementation of strategies was also in the hands of the top-level management, in particular
Jurgen Weber, who was Lufthansa's CEO at the time.

In 1992 Weber realized the extent of Lufthansa's problems and called for a "crisis management
meeting" with 20 selected senior managers. The Seeheim workshop was repeated three times with
different groups to 50 people. This was done in order to let them feel the threat and urgency and
not just inform them the facts and the appropriate strategy which they had to implement. The
outcome of this meeting was "Program 93", 131 key actions aimed at drastically cutting about
8,000 jobs, lowering non-personnel costs, reducing the aircraft fleet as well as increasing
revenues by DM 700 million to reduce the losses of DM 1.3 billions.

The Executive Board then appointed a number of different teams that had the task to achieve the
implementation of these 131 projects. Line management was responsible for the implementation
of the staff cuts. It was seen as important for the success of "Program 93 that line managers took
that responsibility to realize the unavoidable cuts and motivates the remaining employees. Weber
also created the OPS team as a forceful team in the process of implementing the 131 projects.
They constantly monitored, advised and supported the line managers who had ultimate
responsibility for the implementation process. Weber showed his total support for the OPS team
and personally supported them in many ways. He also implemented visible actions like a 10%
reduction of the salaries of all Executive board members.

To convey and spread these actions, Lufthansa implemented Town Meeting. A typical agenda of
a Town Meeting would mainly involve a talk with the particular Lufthansa unit's management
about problems and plans. An extensive dialogue then follows with the employees where the top-
management explains latest plans and also listens to the concerns and suggestions of staff
members. Weber decided to hold as many of those meetings himself as possible when visiting the
different Lufthansa units. By 1999, he had taken part in more than 200 Town Meetings.

It was important for the turnaround of Lufthansa that the management told the employees openly
what the situation was. This allowed for the development of common goals between employees,
management, work councils and unions. Even issues such as staff reduction and productivity
could be discussed more openly and personally. Weber was able to win people personally by his
open and authentic communication. He told those unvarnished figures and explains to them how
he felt about them. During the turnaround phase, he informed them that he felt an overwhelming
responsibility for all his employees and family members. People were taken by his leadership
emotionally and were happy to go where he pointed them because they simply understood what
he said.

It can be said that Weber's leadership contributed significantly to the successful turnaround of
Lufthansa. German culture had a substantial impact on Lufthansa's successful turnaround.
Lufthansa still represents German values such as precision, technical reliability, high quality and
expertise, which are crucial positive indicators of their business. These typical German traits of
Lufthansa are of direct use to their image. However, another German trait worked against them.
Germans are not known to be very friendly and open, so the organization had to work very hard
to create a customer service oriented organization.

Evolutionary Pattern of Strategy and Structure

Lufthansa's evolutionary patterns of strategy and structure can be divided into four parts.
1. Turnaround
2. Corporate restructuring and Privatization
3. Strategic cost savings
4. Building alliance

Turnaround
In 1991, despite the increase of passenger by 11 % because of reunification, Lufthansa had an
after-tax loss of DM 444million. Although an awareness of serious crises began to spread in
1992, Lufthansa was so programmed on the growth and immortality was taken for granted
being state owned. In1992 Lufthansa had only 14 days of operating cash requirements in hand.
Only a single state owned German bank had faith in Lufthansa and agreed to give money to pay
the employees. The mental starting point of the turnaround was a Lufthansa-specific four-week
management program about change management at Seeheim. This was also where a group called
'Samurai of Change' was created. This group discussed the outcome of the change-management
program and created awareness for the necessities to redevelop the organization.

The redevelopment process was started with 'Program 93', 131 key actions aimed at drastically
cutting jobs, lowering non-personnel costs, reducing the aircraft fleet and losses. By summer of
1994, non-personnel costs had been reduced as well as staff numbers and management positions
had been reduced. Lufthansa knew that the superficial recovery would not assure sustained
success and that another major change had to follow.

Corporate restructuring and Privatization


Before the turnaround, Lufthansa's structure included six departments (finance, personnel,
maintenance, sales, marketing and flight operations), which were all headed by a member of the
Executive Board. This structure proved to be inefficient, as there was high involvement of top
management in operational problems, slow decision processes, low transparency, lack of
accountability and also insufficient market proximity. Lufthansa recognized that with its existing
functional structure it could not successfully respond to emerging competitive challenges.
Lufthansa realized that it would be more successful as a group of co-dependent smaller units than
as a massive functional block. Finally, they created the seven economically independent
subsidiaries. In order to achieve further operational independence, Lufthansa became fully
privatized in 1997 after negotiations with the German government.

Strategic cost savings - Program 15


After having been privatized, they realized the pressure to be competitive and strategically cost
effective even more. Consequently Lufthansa continued its transformation process by
implementing the strategic cost-management program 15, which aimed to reduce overall unit cost
by 20% within five years

Building Alliance
In 1997 Lufthansa was one of the key-founding members of the Star Alliance, the world's best
airline network worldwide with the purpose of realizing higher revenues and decreasing costs by
exploiting synergy effects as well as offering more customer benefits.
While concentrating on internal costs and structural redevelopment, Lufthansa also worked on its
external relationships by implementing the strategy: 'growth through partnerships. While in other
industries globalization triggered a wave of mergers of companies that operate internationally;
airlines had to look for alternatives because national ownership regulations do not allow cross-
border mergers. No airline worldwide has the infrastructure capacity to offer a suitable
network by itself. Only through cooperating and alliances can the industry cater for the mobility
requirements of the world economy. Therefore, founding the Star Alliance was a logical
consequence and Lufthansa was one of the key-founding members of the first airline network in
the world.
The purpose of the Star Alliance is to realize higher revenues and decrease costs by exploiting
synergy effects. The synergies range from shared use of ground facilities like check-in-counters.
Other advantages include common frequent flyer programs, joint travel agency contracts
collective market research and joint purchasing of materials and equipment (Economic effects for
the airlines).
Alliance members can also use code sharing - a system by which two or more airlines agree to
use the same flight number for a flight in order to attract more business by means of extending
their networks through partner airlines.
Besides cost-saving synergies, the combined networks of Star Alliance members also offer many
customer benefits. In comparison with other industry alliances, the Star Alliance is the
recognized market leader (see Appendix 6). Other fundamentals of its brand value include the
presence of its members in important home markets and large international hubs, a high degree of
customer recognition, excellent service and good cooperation between the frequent-flyer
programs of the individual airlines. Furthermore each airline has its individual strengths with a
strong market position in its home bases and regional hubs like Lufthansa in Germany. Due to the
good cooperation, a whole network of these hubs was established and regional strengths
complement each other. Additionally, most members also have regional alliances with smaller
airlines, which improve the Star Alliance network even further

Key Success Factor

The key success factor in the air line industry is characterized by:

1. Economies of scale: because the cost for a flight is very expensive so airplane utilization
and load factors are very important for an airline company to make profit.
2. Strong brand and reputation is also important for airline companies to success.
3. Managing their operations and aircraft utilization. Airlines need to be able to manage
their aircraft efficiently, from fuel operations to ground management. Technological
development needs be taken into account to offer the best, safest and most reliable
aircrafts to the customers.
4. Managing human resources. The nature of the service business relied on human resources
in providing the best service for their customer.
5. Manage financial resources. Airline companies, aside from requiring a high capital
investment for establishment, requires the ability of financial management in managing
fleets, fuel cost, airport costs, services, labor cost etc.
6. Providing the best service to the customers. Airline customers are sensitive to services
and price offered by airlines, and in order to succeed airlines must compete against one
another and offer the best service to their targeted market segment.

Environment Analysis

PESTEL

The PESTEL analysis is a framework used to scan the external macro-environment in which a
company operates and identify which factors influence the industry in general. I have deployed
the PESTEL framework to analyze external factors outside the company and industry that affects
the airline industry and consequently affecting Lufthansa

Political
In 1991, the German reunification had increase in passenger (Lufthansa) when overall traffic
dropped by 9 percent.
Economic
In late 80s there was steep fall of air traffic during the Gulf War and the subsequent recession led
to a serious over capacity for the airline industry on global basis and severe market slump in
Europe.

Technological
The development of internet led to a faster, cheaper, more convenient method of marketing and a
wider distribution for the airlines customers. This created a closer buyer-seller relationship, value
added and excellent services and performance, and increase in revenue for the airline

Legal
Privatization of Lufthansa in 1999 opened up the opportunities for Lufthansa and become a core
element of the strongest world-wide alliance
The deregulation triggered the intensive price competition.
Being a member of the Star Alliance meant abiding by the National Laws and regulation of
countries covered by the operations of the alliance
A breach of the contract will have different legal repercussion, interpretation and consequences.

Porter Five Forces

Competitive factor and industry attractiveness: analysis using Porters Five Forces Model
The Porter Five Forces Model is used to examine the external environment in which a company
is operating. Structural analysis of an industry is a useful way of determining a company's long-
term profitability. Comprehending the dynamics of the competitive forces in an industry can give
an insight of attractiveness of industry structure and the competitive power within the industry
and whether there are any chances for returns on capital. Porter identified five competitive forces
that form the external environment of every industry. This force determines the concentration of
competition and attractiveness of an industry. The model is used for analyzing forces influencing
the Lufthansa in the airlines businesses.

Bargaining Power of the Supplier

The bargaining power of suppliers includes the threat of forward integration as well as the
concentration of suppliers in the industry. The supplier has not been mentioned here but from my
point of view, the main suppliers within the airline industry are the manufacturers of aircrafts and
fuel suppliers and materials suppliers.

(Manufacturer of Aircraft) supplier High

The concentration of suppliers (Boeing and Airbus) makes it difficult for the airlines to influence
over the two manufacturers and negotiate lower prices or play one supplier against the other. The
aircrafts for long distance travel cannot be substituted by any other transport alternative, which
strengthens the bargaining power of the suppliers.

Fuel Supplier- Low

There are many fuel suppliers like Shell, British Petroleum and Chevron Texaco. The airlines can
easily to the other suppliers and the switching cost is not very high.

Bank- High
The bargaining power of the bank is high. There is only one bank which agreed to give Lufthansa
the money when Lufthansa was about to get bankrupt.

Airport- High
Airports and airports facilities management supply gates, terminal etc. They have a high
bargaining power because the unique service they offer, which resulted in the high switching cost.
Airport facilities cost is also part oh the high fixed cost for airlines. There are many airlines which
will be landing on the airport and they airport could be concentrated so the bargaining power of
the supplier is high. It depends on the location of the airport too. More concentrated and
accessible airport has more bargaining power.

Since Lufthansa Group has LH technical and IT services, catering services, Ground services they
can be treated as the supplier of the Passenger service.

Bargaining Power of Buyers

Lufthansa passenger - Buyer power is determined by relative volume of purchase, switching cost,
standardization of the product, brand identity. Switching costs are quite low as customer has a
range of choices when selecting an airline. The customers have high power due to stiff
competition in the airlines. The customers are more prices sensitive have ability to access and to
choose the airline which has low price than Lufthansa regardless of Reputation and Brand. The
bargaining power is high

Technical Services the bargaining power of the buyer is high as there is other supplier which
has strong market presence.

Threat of New Entrants

The threat of new entrants can raise the level of competition in an industry which increases the
cost of competition. There are barriers of entry, such as the high set up cost, economics of scale,
product differentiation, access to distribution channels, switching costs as well as brand value. It
is difficult for the new entrant to form new alliances and to compete with existing alliances.
Additionally, entering the aviation industry requires very high capital investments because
aircrafts, technical support and IT services need to be purchased or leased.
After deregulation there are many companies who entered the airline industry and posed threat to
the existing airline industry. The threat of new entrant is high.

Threat of Substitutes

Lufthansa Passage - There is threat of substitutes because there are other transport alternatives.
The airline industry is threatened by a number of substitutes like high speed trains, automobiles
buses, Telecommunications and video conferencing are eliminating much of the need for business
travel. The threat of substitutes is high as substitutes increased dramatically. The threat of
substitutes increases in the short-haul as compared to the long-haul air transport. There are
sufficient means of transport in which the customers can decide to use instead of airlines
including high speed trains, cars and sea transports. For the long haul the threat of substitution is
reduced because in some cases, substitution by using other means of transport is rarely possible.
Lufthansa Cargo AG there are other substitutes like ships.
Extend of competitive rivalry

The competition within the industry is high because there are many competitors in the industry
with each of them are roughly equal size. Highly competitive industries are generally less
profitable as the cost of competition is high or customers are receiving the benefits of lower
prices.

Four Link Analysis

The Four Links Model is used to study the co-operation linkages between Lufthansa and others
parties in its environment. This analysis is carried out for in-depth study of the various linkages
that are missing in Porter Five Forces Model.
.

Formal Linkages

Lufthansa worked on its external relationships by implementing the strategy: growth


through partnerships. The purpose of the Star Alliance is to realize higher revenues and
decrease costs by exploiting synergy effects. Alliance members used code sharing - a
system by which two or more airlines agree to use the same flight number for a flight in
order to attract more business by means of extending their networks through partner
airlines .The important synergies were also realized through joint sales activities,
collective market research, shared facilities such as lounges and staff exchanges. This
will have economic benefits for the airlines.
Besides cost-saving synergies, the combined networks of Star Alliance members also
offer many customer benefits. In comparison with other industry alliances, the Star
Alliance is the market leader (from Appendix 6). In 1999 the Star Alliance approached
the much more demanding challenges of coordinating and integrating strategic activities
such as establishing a common global brand, developing a shared technology platform,
joint training and personal development
International alliance with some STAR ALLIANCE member, vertical integration through
networking with forwarders in order to offer customers a complete door-to- door logistic
chain, and finally, acquisitions. These strategies were linked to a fundamental change
within the cargo business from a traditionally unintegrated transport provider (as low as
involvement standard services) to an individual complex solution supplier. Beyond pure
freight transport, Lufthansa Cargo intended to offer solutions for complex global logistics
requirements. This was an answer to increasing demand for full service (door-to-door
logistics) and the fast growth of the supply chain management market.
Contract Air, Augsburg Airways, Cimber Air and Air Littoral had cooperative
agreements which is led them to fly under brand name Team Lufthansa on a franchise
base
Lufthansa School Business build close relationship with some well selected academic
Instructions like London Business School, INSEAD, Mc Grill in Montreal, Indian
Institute of Management in Bangalore and Hitots Hubashi University of management
Tokyo have academic relationship and build a net work of leading business schools and
universities.
Informal Links

Airliance material co. give a trade and service center for spare parts to Lufthansa
Technical together with united air lines and air Canada. It aimed at setting a
counterweight against the increasing market presence of aircraft manufacturing
corporations, which were trying to ties customers closer to themselves by providing
maintenance and reconditioning services.

Government Link

May 1996 The US Dept of Transport (DOT) frees Lufthansa and United Air Lines from
the American competition low (Antitrust-immunity) and after 6 month they receive the
trilateral Antitrust-immunity from DOT.

Internal Analysis

Mckinsey 7S Model

This is the diagnostic model for organizational effectiveness and used for internal analysis for a
company
The 7S model can be used in two ways. Considering the links between each of the Ss can identify
strengths and weaknesses of an organization. The model highlights how a change made in any
one of the Ss will have an impact on all the others. This is valuable tool to initiate change
processes and to give them direction. Determine the current state of each element and to compare
this with the ideal state

Shared Values
Employees have a commitment to go under change momentum and rose up.

Employees are motivated to implement the strategy and achieve the firms goals and objectives
and to serve more fully the needs of the customers.
The consent of all the constituents lead to the restructuring of pension scheme, modernization of
company structure, drastic decrease in work force without their consent that wasnt going to be
achieved.

Strategy
The change momentum- Core elements of this strategy involve providing space for reflection and
dialogue despite the crisis pressure, building networks of change actors and creating durable
platforms for emotional mobilization and reflection on action.

Lufthansa want to strengthen their effectiveness through interdepartmental partnership, alliances


with regional business, public agencies and governmental units.
Cost Saving strategies
Lufthansa implemented Program 15, which was a wide ranging strategic cost management
program. This program was designed to make Lufthansa more competitive through cost
management and cultural change. The goals of this program included an improvement of the
competitive position through a reduction in cost, internationalization of cost-structure and making
staff conscious of reducing costs in their daily work. This cost management contributed
substantially to Lufthansa making profits again in 1999

Structure
Lufthansa has seven SBU. Lufthansa, its subsidiaries work more individually than collectively
and these subsidiaries can set their own business strategies. As a result, they can just focus on
achieving their own target. Also, because Lufthansa recognized that it is very difficult for all
employees and managers to gather and discuss together to make decisions. If people in each
subsidiary act and are treated as separate individuals, it is much clear for managers to supervise
which part of the organization is successful and what must be changed. However, this kind of
strategy can also emerge risks to some extent. Firstly, if each subsidiary works individually,
managers in other branches may not know what another subsidiary's goal and decision are.

Diversified structure, covering a lot of areas


The old structure was inefficient and the new restructuring process ended with
independent small units as follows
LH cargo, AG (air freight), LH technique (technical maintenance services, LH systems
GMBH (IT services), these joined existing subsidiaries city line (domestic flights) condor
(charter flights and LCG sky chiefs (catering)
The group management board directed the activities through 3 central functions
-Chairmans office
-Finance
-Human Resources management functions

Systems
In 1998 the star alliance formed a focus management team to lead the alliance on day to day
basses until then the alliance activities were coordinated by a set of comities and project teams,
the presidents of the airlines decided to bundle responsibilities for strategic issues.
Involvement of people: because the employees involvement in strategic big processes and
networks employees are much more concerned with what happens in the organization because
they also have improved customer orientation, cost consciousness and thinking in big term

Staff
There was pool of people that need to be developed and encouraged. Era before the war,
Lufthansas organization and culture represented an amalgam of a strong technical orientation,
dominated by engineers, together with the bureaucratic values of public administration.
At each level after it was privatized decisions were made at various levels. Eg: the line managers
were responsible for staff cuts. The mangers also had personal relationship with Jurgen Weber.

The staffs are committed and dedicated that way the implementation of crisis management came
to pass. The output of Seeheim meeting was a drastic cut in staff members (8000 positions)
Staffs were decreased from 64000 in 1992 to 55000 in 1998.
Mostly technical staff (qualified, educated employees)
Committed staff

Style
Leadership quality of Weber: Authentic communication and emotional involvement.
In 1992 Weber invited about 20 senior managers in the training center at Seeheim meeting and
wanted a mental change. Being a state owned company, immortality was taken for granted.
Involved a larger group of managers to repeat the Seeheim work shop three times to let them live
through the same process and letting them feel the threat and urgency and not just inform them
The managers communicated openly with the employees about the situation ( staff reduction and
productivity). Specific combination of conciseness orientation and persistence

The employees were taken by his leadership emotionally and willing to go the way he pointed,
they understood what he said.
He was tactical in the way he handled issues he showed unconditional commitment to the OPS
team, he demonstrated involvement of the change process, about 70% of the 131 project were
successfully completed, the remaining 30% he put for later implementation in order not to risk the
consensus with the union.

Skills
Systematic planning and open & transparent communication
Cost consciousness

Core Competences:

One thing to be aware of is that there are two different ways to look at the competences and other
aspects of this case. One is by looking at JUST Lufthansa, which means looking at Lufthansa
group and what it gets out of the STAR ALLIANCE, or the other way is look at Lufthansa and
STAR ALLIANCE as two separate focuses. Because what might have been a core competence of
Lufthansa might not have been for the alliance even though at some point in the case, Lufthansa
was trying to implement the core mentality into other members of the alliance.

Anyway, you determine them for yourselves whether you think they belong to both or to one of
the other.

Lufthansa

Open and transparent communication


Informal relationships
Monitoring and Benchmarking encouraged (both in the business and in the school as well)
Systematic planning
Employee loyalty

ACTIVE Management having the ability to setting challenging and realistic goals and
achieving them through persistence and no compromising
Mental core culture (growth through alliances as opposed to growth through strengths)
Structure within the Group and within the ALLIANCE
STAR ALLIANCE

Initially code sharing


Synergies (programs, facilities, market research etc)

Sustainable Competitive Advantage

This analysis enables to identify the sustainable competitive advantage for Lufthansa

The Business School of Lufthansa supports their business and strategic objectives. It creates
value by building intellectual capital that is difficult to imitate.
Economies of scale by owning diversified subsidiaries

Tangible SCA Reputation: Global Brand


Economies of scale Innovative ability|
Use of the state of the art Combine resources
Human Resource SCA
technology With Star Alliance
Motivated employees SCA of
Core competency: Skilled R& D
Intangible SCA Lufthansa: High
Professionalism Service or Product Skilled Employee,
Building intellectual capital
Innovation Economies of
Organizational capacity SCA:
scale, intellectual
Strong leadership capital

SWOT
Situation analysis carried out will involve the critical evaluation of Lufthansas internal and
external environment with respect to its objectives, strategy and performance, allocation of
resources, structural characteristic and political situation.

I use this model as it helps organizations evaluate the environmental factors and internal situation
facing a company. I have been motivated to use the SWOT analysis to analyze the Lufthansas
situation because this model is simple to use and can be easily be understood by managers and
encouraging then to collaborate towards common goals.

Strengths

Star Alliance, most comprehensive and competitive network in the airline industry
Brand and reputation
A very strong brand name, quality and innovation, safety and reliability are some of the
major strengths of the Deutsche Lufthansa AG. This is strength as the customer considers it
as reliable.
Dedicated staff during the crisis management
High level of communication dialogue and network establishing a monitoring and
controlling system to monitor progress. But this was only during the change process.
Good negotiation skill (specially with government) and Entrepreneurial skills
Lufthansa's School of Business
It creates value by building intellectual capital that is difficult to imitate by others. The
school was established to keep the sense of urgency for change and transformation
alive. This school was to create better links between strategy, corporate culture and
organizational and individual development in order to support the priorities for
transformation and future performance.
Lufthansa implemented Program 15, which was a wide ranging strategic cost
management program. This program was designed to make Lufthansa more competitive
through cost management and cultural change. The goals of this program included an
improvement of the competitive position through a reduction in cost, internationalization
of cost-structure and making staff conscious of reducing costs in their daily work. This
cost management contributed substantially to Lufthansa making profits again in 1999
Strong Leadership.
Lufthansa's change management during its crisis was excellent. The management was able to
recognize the signs of problems, which showed great strategic leadership by CEO Jurgen
Weber and transformed the organization into a profitable company. This experience in
strategic change management is very valuable and will surely help the organization with any
challenges in the future.

Weaknesses

The Lufthansa group consists of seven independent SBU. Lufthansa centrally coordinates
their strategy development process. The core element of the Lufthansa group is clear
customer-supplier-relationships between the companies within the group. Lufthansa has
not reached the required relationships for a market-based internal coordination. Lack of
relation management with in the Lufthansa group.
Growth strategies of Lufthansa varied and differences could be seen in degree of
internationalization. Each SBU has their own strategies and goals and they could be
conflicting.
Not being able to sustain the change process
Challenges in improving operational areas such as punctuality, luggage safety, waiting
period, technical reliability.
Formal and rule driven (before crisis)

Opportunities
Reunification of Germany
Relaxation in regulations in Europe
Operational synergies
Lufthansa has a good opportunity to reduce a number of their costs. These cost reductions
can be achieved with synergy effects that result from partnerships and alliances as well as
from efficiency improvement programs.
The Lufthansa group also has the opportunity to engage in other diversified areas. For
example Lufthansa's Sky Chef and Lufthansa IT services have the opportunity to conduct
business in the areas of catering and maybe IT consulting that is not directly linked to the
airline industry.

Threats
The specialization within the Star Alliance (planned extension of joint procurement could
cause serious economic problems for some of Lufthansa subsidiaries.
Threat of sticks and disagreement with the labor union
Airlines were more confronted with time bass competition, price competition and a need
for transparency of product and services
Fall in the air traffic due to recession plus sever market slump in Europe
The deregulations triggered intensive price competition.
Competition from airline based on network competition.
Common network synergy and a cultural integration were inevitably connected to the
critical issue concerning branding and identity within the Lufthansa Group. There is a
threat of Lufthansa losing its identity.
The management board of STAR Alliance signed a memorandum of intent concerning
the formation of a central STAR Alliance IT organization. The main task of this
organization would be to develop a common information system for the STAR alliance
partner ship. For LH IT services this STAR Alliance IT organization is transit for their
main market.
Any of the other companies inside the Lufthansa group considering business ties with a
competitor of Lufthansa Passage had to obtain prior approval from the Executive Board.
Alliance was not considered the appropriate growth strategy for all the LH subsidiaries.
Strength Weakness
Star Alliance Lack of relationship
Brand and Reputation between the Lufthansa
Dedicated staff groups.
Strong leadership Not being able to sustain
Intellectual the change process.
Serious challenge in
punctuality, luggage safety,
technical reliability.

Opportunity Strategy 1 (S-O) Strategy 2 (W-O)


Reunification in
Germany Expand internationally in Focus on expanding on its
Operational Synergies non related segments. non related airline business
Relaxation of to get more professional
regulation in Europe business relationship

Threats Strategy 3 (S-T) Strategy 4 (W-T)


Deregulation Improvement of the Provide staff training.
Fall in air traffic competitive position
Price Competition through a reduction in cost,
internationalization of cost-
structure and making staff
conscious of reducing costs
in their daily work

Strategy 1

Lufthansa should focus on equipping it with innovative to set themselves apart from its
competitors. Lufthansa can expand internationally by exploiting other business opportunities in
non-airline related segments with its strong brand name and its core competencies in innovation
and customer service under strong leadership.

Strategy 2

Lufthansa independent subsidiaries could focus on expanding its non-airline related business.
This way they would get used to more professional business relationships, which will hopefully
improve the relationships and communication between the Lufthansa subsidiaries.

Strategy 3

Improvement of the competitive position through a reduction in cost, internationalization of cost-


structure and making staff conscious of reducing costs in their daily work

Strategy 4

Lufthansa should try to improve things like punctuality, luggage safety, technical reliability etc.
Some of these areas could be improved through more staff training. To minimize the weaknesses
and avoid some of the threats Lufthansa should probably get involved in the low-fare market in
Europe under different brand name.
Vision (From the Lufthansa Website)

Lufthansa is characterized by its open culture. We fly all over the world. We connect people and
countries. We are a transparent company that places great value on communication. Our aim was
for all that to find expression in the new Lufthansa Aviation Center and that has also succeeded.

Mission Statement of the Lufthansa Group

Flying is an age-old dream of mankind. That dream has today become commonplace, but not
without the endeavours of airlines which have spurred the development of aviation since its infant
days. Proud to be among them since its founding is Lufthansa, which has carved its own special
niche in the industry from Day One to its present pre-eminence in the global economy. The
success of our Group is driven by a talent for developing pioneering ideas and translating
them into practice. That gift will continue to shape its future. In more recent decades, Lufthansa
has successfully evolved into a global enterprise. It is now re-positioning as a focused aviation
group with the passenger airline at its core supported by other business segments operating
as airline service providers. The prime objective of the Group is long-term profitable growth.
To that end, its efforts are directed at strengthening and expanding the leading position of the
airline and its partners in Europe. At the global level, Lufthansa operates the world's biggest route
network in harness with its Star Alliance partner airlines.

Our corporate values are the foundations which underpin the Group's efforts towards
attainment of its goals:

Focus on customer benefits


The customer is central to our business activities. We tailor our services to customers' needs and
offer a wide range of products for different target groups. All our efforts are service-oriented and
synonymous with quality, innovation, competence and reliability.

Accent on core skills


Our core skills determine our activities. They enable us to manage our flight networks, nurture
partnerships, streamline operative processes on the ground and in the air, and also provide and
maintain infrastructure and production factors.

System integration sets the pace


Intensive system integration strengthens our competitiveness over other locations, other airlines
and airline alliances. We cooperate closely with major partners, suppliers and infrastructure
providers in integrating and optimising our core processes.

Attractive working environment


Our staff are integral to our success. We offer them good working conditions, commensurate
incentives for personal development and an energising, international corporate culture. That
makes us an attractive employer for qualified, motivated and service-minded personnel.

Long-term profitability
In the interests of our investors, we strive for sustainable and pace-setting value creation in the
aviation business. That goal is furthered by sound risk and financial management.

Social responsibility
We are committed to keeping a balance between business and social prerogatives. Environmental
protection and sustainable development are the overriding objectives of corporate policy. Active
engagement in social projects is ingrained in our corporate culture.

nach oben

At your service again

That was the slogan which Lufthansa used 50 years ago to present itself and advertise its new
flights. The young airline took off in the tradition of the original Lufthansa, retaining the reputed
name and the brand identity of the pre-war airline. To mark the new beginning the logo was given
a contemporary look, with a parabolic curve and capital letters, as shown on the cover of our
Annual Report. In the 1960s, by which time the company was financially secure and no longer
needed state subsidies, Lufthansa commissioned none less than Otl Aicher and the Ulmer School
of Design to develop a more modern corporate identity. Until his death in 1991 Aicher was one of
Germany's leading designers, and his corporate design is still in evidence at Lufthansa today.

Even back then, quality, competence, innovation, reliability and safety were the hallmarks of
Lufthansa. In the regulated market at the time, those were the key factors determining
competitiveness. Prices were fixed by IATA and required official approval. Lufthansa soon
gained a reputation for reliability and technical expertise - and combined with its first-rate inflight
service, it offered a quality product. Time and again the company's innovations caused a
sensation. Lufthansa was the first airline to deploy the Boeing 747 as a freighter aircraft. In the
1960s it developed the "Airbus", a shuttle service with simple check-in procedures, and for eleven
years it operated the Lufthansa Airport Express train service as an alternative to short-haul flights
between Cologne and Frankfurt. Lufthansa also persuaded Boeing to build the Boeing 737 - a
twin-engine jet aircraft for short- and medium-haul routes. The 737 became the world's best-
selling commercial jetliner. Even today, innovation remains a high priority at Lufthansa. The
HON Circle programme launched at the end of 2004, for example, brought Lufthansa to the
forefront of the competition. With the introduction of FlyNet, Lufthansa became the first airline
to provide Internet access on board, enabling passengers to surf the web at the speeds to which
they are accustomed on the ground.

Our services are provided by individuals. Their expertise, dedication, creativity and attention to
the customer shape the Lufthansa image. But it is not only the staff who have direct contact with
customers who ensure the quality of the Lufthansa product. This responsibility is shared by the
countless other employees who perform their duties behind the scenes with great care and
enthusiasm. In this Annual Report we have selected a number of staff members - including an
LSG buyer, an IT specialist and a flight crew trainer - to represent the range of activities in the
Lufthansa Group. Services of which our customers may not be aware, but which determine the
quality of the Lufthansa product.

Generating Options

Environmental Based Options


1. Cost Leadership
2. Service Differentiation
Resource Based Options
1. Use strong leadership to innovate and lead the company through the changing
environment.
2. Safety, reliability and punctuality.