Posted: April 7th, 2022

Anti-competitive behavior in the air-freight market

Lufthansa

 

Structure and Governance.

 

Performance and Competition.

 

Five-force analysis.

 

Lufthansa is one of the oldest and most successful commercial airlines in the world, and is the fourth-largest in terms of passengers. However, the company has not always been so successful, and in fact was teetering on the brink of bankruptcy just a short while ago. By examining Lufthansa’s history, structure, governance, and contemporary strategies and goals, one is able to see how the company has weathered the ups and downs of political and economic history while increasing its market share to become a dominant force in the air transport market. Furthermore, by applying a SWOT and TOWS analysis to the company, one is able to effectively determine the best course going forward so that the company may retain its historical dominance while preparing itself for the unprecedented technological and social growth expected over the next decade.

 

History

 

The German airline Lufthansa offers an ideal case study of what it takes to succeed in the international transport business, and not only because the airline has been in business, in one form or another, for almost a hundred years. The company has managed to survive a world war, the partitioning of Germany, reunification, and advent of the euro, all while steadily growing its market share to become the fourth-largest airline in the world, carrying over fifty-six million passengers each year.

 

By examining each area of Lufthansa’s business, from its history to its current management, alongside more detailed analyses of its role within the airline sector as a whole, one is able to see how Lufthansa has managed to succeed even when success was far from a guarantee. Although there have been ups and downs in Lufthansa’s history, including some recent, well-publicized blunders, over the long-term the company has demonstrated an ability to react and respond to new challenges.

 

The name Lufthansa did not appear until after the second world war, when Germany required a new “flag carrier” airline in the wake of its defeat; all of its previous transport operations had been shut down as part of that defeat. However, the company can actually trace its history back a few decades, to the beginnings of commercial flight, when Deutsche Luft-Reederei became the first German airline to use planes instead of zeppelins, and introduced the same crane logo that adorns Lufthansa’s planes to this day.

 

Thus, while the organization named Lufthansa did not come into existence until 1953, the beginnings of Lufthansa’s business can be found much earlier. In 1926 Deutsche Luft-Reederei became Deutsche Luft-Hansa, which served as Germany’s flag carrier until the end of World War II in 1945, and in 1953 Lufthansa was created in West Germany, beginning the growth of the airline well-known today.

 

During the nineteen-fifties there were actually two companies named Lufthansa, with East and West Germany each claiming their own. The West German Lufthansa was the actually organization that was born out of the remnants of Deutsche Luft-Hansa, while the East German Lufthansa was a new company of its own creation. However, after a few years of legal conflict, East Germany ultimately rolled its Lufthansa into the larger East German flag carrier airline, Interflug.

 

In the context of Lufthansa’s growth as a business, perhaps the most important feature of this era was the fact that the West German Lufthansa was not allowed to fly through East German airspace, meaning that it was not allowed to service Berlin’s Tempelhof or Tegel airports, and instead had to center its business around more western cities like Hamburg and Cologne.

 

As air travel picked up in the nineteen-fifties, Lufthansa began to grow rapidly, although this growth was in a decidedly western direction, as the airline serviced western Europe and the United States.

 

In some ways one may view the trajectory of Lufthansa over the course of the latter half of the twentieth century as a kind of arc or wave, rising during the nineteen-fifties, cresting during the nineteen-sixties, and, beginning in the seventies, beginning to fall until reaching a low point at the beginning of the nineteen-nineties, after which dramatic actions served to turn around the airlines’ fortunes, so that by the new millennium the airline was once again a global leader. Lufthansa’s rise, fall, and subsequent rise is especially instructive because it helps to demonstrate how larger political, social, and technological developments have shaped the air transport sector, and seeing how Lufthansa succeeded where other airlines failed will be crucial to understanding the company’s success. Furthermore, as will be seen, Lufthansa’s economic history is deeply entwined with the political history of Europe and the Middle East, and understanding how these connections have influenced Lufthansa’s management will offer some insight into the company’s future.

 

The nineteen-sixties saw Lufthansa’s business transform once again, as jet engines rapidly replaced the propellers that Lufthansa’s trademark Super Constellation had made famous.

 

The introduction of jet engines transformed not only Lufthansa’s business, but the airline and transport industry as a whole, because all of a sudden passengers and cargo could travel faster and at much larger capacities. The ability to carry more, further meant that transport channels had to be entirely remapped, leading to the beginnings of the so-called “hub-spoke” networks that characterize contemporary airline services.

 

Although these hub-spoke transport networks would not truly arise until further deregulation opened up the airline market, the introduction of jet engine technology is the advancement that made these kinds of networks possible by reducing the legs of any given long-distance journey, allowing a few large airports to service a distance that previously required multiple stops and planes.

 

If the fifties and sixties were a heady era of growth and optimism, as new technologies and a post-war excitement spurred the airline industry, then the nineteen-seventies were a harsh does of reality forcing airlines to confront the realities of a new, decidedly global economy. Even as the introduction of “jumbo jets” meant that Lufthansa could carry even more passengers, with the possibility of the same kind of fare reductions that occurred as a result of the transition from propellers to jets, the political and economic crises of the nineteen-seventies nearly crippled the company. In particular, dual oil crises in 1973 and later in 1979 made the price of oil skyrocket, and although Lufthansa made important advances in fuel-conservation technology, the effects of these crises would hamper the airline’s attempts to remain profitable for the next decade.

 

The damage that the fuel crises of the nineteen-seventies wreaked on the airline industry cannot be understated, and to get an idea of how serious the impacts were, one need only consider the numerous regional airlines that went bankrupt in the next few years; in the United States alone, twenty-four regional airlines went under between the years of 1979-1982. Larger companies, such as Lufthansa and Pan-Am, would not feel the full brunt until some time later. Although some of these bankruptcies were likely the result of more than an increase in fuel prices, the oil crises essentially served as a coup de grace for companies that had thus far managed to get by during what might be called the boom era of commercial air transport. Lufthansa managed to survive the oil crises, but by the end of the nineteen-eighties the company was on the verge of bankruptcy, and likely would have gone under were it not saved by a serious internal shakeup coupled with an unprecedented change in international affairs.

 

Perhaps the most well-known collapse of an airline is that of Pan-Am, which occurred in 1991. The airline, like Lufthansa and others, had suffered serious drawbacks as a result of the oil crises of the nineteen-seventies, such that by the end of the eighties it was already in a weakened state, subject to increased competition. With the advent of the first Gulf War, oil prices once again went up, and this served as the final nail in the coffin of an airline that had existed since 1927, just a year after Deutsche Luft-Hansa’s founding. Lufthansa could well have suffered the same fate, except just as the Gulf War was winding up, the partition of Germany was winding down, so that by the end of 1990, the airline once again had access to the city of its birth, Berlin.

 

The reunification of Berlin (and Germany) meant that Lufthansa was once again Germany’s premier airline, and having access to Berlin meant that the company could finally service one of the most important economic and political hubs in Europe.

 

However, while the reunification of Germany was an important psychological and long-sought for boost, Lufthansa was still suffering from many of the same problems that had been plaguing it for years. Thus, less than a year after the reunification of Germany, the company was literally on the verge of bankruptcy, having seen “an after-tax loss of more than $250 million (U.S.).”

 

To understand just how dire Lufthansa’s financial situation was at the beginning of the nineteen-nineties, one need only consider what happened in 1992, when, “with only 14 days of operating cash requirements in hand, [then chairman] Jurgen Weber went to all the major German banks asking them for money to pay employee salaries.”

 

No commercial banks would lend Lufthansa the money, and only one state-owned bank stepped up, allowing the airline to hobble along for a little bit longer. Because for all of its history to that point Lufthansa had been a state-owned company, observers both inside and out the organization had never truly considered the possibility that it might go under, and as a result serious, systemic problems were allowed to go unchecked. Without the threat of failure posed to private companies, Lufthansa essentially “got soft,” and acted as if it need not worry about the political and economic factors influencing its competitors.

 

However, all was not lost, and the newly elected Weber recognized the severity of the situation. Together with Lufthansa’s Executive and Supervisory boards, Weber took rapid action, first organizing “a Lufthansa-specific, four-week change management program,” and, after taking the advice of the attendees, set up a meeting between twenty of Lufthansa’s senior managers at their training center in Seeheim, Germany.

 

The meeting quickly evolved from a general change management seminar into planning for crisis response, and the result was “Program 93,” a set of dramatic changes set to be instituted at every level, from reducing staff and fleet sizes to cutting waste wherever possible.

 

In addition to these shorter-term, emergency measures, Weber and his associates also instituted longer-term changes, including, most notably, the privatization of Lufthansa in 1997. Although the privatization would have been practically unimaginable only a few years earlier, the drastic financial situation that the airline found itself in coupled with the dedication of its management team was enough to make the transition a successful one, to the point that by 2001, Lufthansa was once again one of the most profitable airlines in the world. The transition is practically unprecedented, and it is a testament to Weber’s skill as a leader that he was able to organize the process so effectively.

 

Since the nineteen-nineties up until today Lufthansa’s efforts have largely been towards implementing the changes and modifications first instigated by the crisis of the early nineties. Part of the reason Lufthansa was able to recover from near-destruction was that the changes implemented by Weber and his associates were never intended to be short-term, emergency measures, but rather a complete overhaul of how the company does business. Thus, while there were short-term measures taken to ensure that the company could continue operating, these were aided by more fundamental changes that would preclude the need for another crisis management scramble.

 

Structure and Governance

 

Aside from privatization, the biggest change Weber made to Lufthansa was to the structure of the organization as a whole, and a look at the structural changes Weber instituted will provide instructive insight into how important it is for an organization’s structure and governance to adapt to contemporary challenges in order to more effectively achieve its mission and goals. Prior to the near-bankruptcy crisis of 1991-1992, Lufthansa was governed by an Executive Board and a Supervisory Board. The entire company was organized into six largely discrete divisions “(finance, personnel, maintenance, sales, marketing, and flight operations), each headed by a member of the Executive Board.”

 

The problems with this set-up were manifold.

 

Firstly, the separation between each division was so strong that each Executive Board member was essentially the head of a small fiefdom, a situation that encouraged bad behavior throughout simply because accountability and transparency were practically non-existent. As a result, top-level management of each division frequently inserted itself into the lower-level operational decisions of that division, rather than allowing managers at each level to coordinate among themselves, resulting in micromanaged divisions that nevertheless failed to address issues that affected more than one division.

 

At the same time, the company was exceedingly slow to respond to problems, because systemic issues within divisions would rarely come to the knowledge of other board members, meaning that those individuals responsible for governing the organization at a whole were largely unaware of the goings on of that company.

 

This faulty organizational style helps to explain why Lufthansa’s financial situation was able to deteriorate so far. Aside from the false sense of security offered by its being a state-owned corporation, the stark separation between divisions meant that bloat, waste, and inefficiency could build up within each division, and so long as the board members responsible kept these problems from reaching the ears of their peers, they could continue on largely unmolested. Thus, as part of the larger movement towards privatization, Weber began a process of reorganization that saw:

 

three business sectors […] formally separated as legally autonomous and economically independent subsidiaries: LH Cargo AG (airfreight), LH Technik AG (technical maintenance service), and LH Systems GmbH (IT services). These joined the existing subsidiaries Cutyline (regional flights), Condor (charter flights), and LSG Sky (catering).

 

By splitting of these divisions of the company, Weber was able to make the main organization more agile and efficient while allowing those divisions that did not need such central oversight, such as maintenance and IT services, to become their own entities. This allowed management to have greater control over areas like sales, marketing, finance, and personnel that were more susceptible to inefficiency and bloat while freeing Lufthansa from the direct financial responsibility for those divisions that could largely support themselves. This plan was exceedingly successful, and now Lufthansa has expanded to include over twelve different airline subsidiaries, including wholly-owned subsidiaries and airlines in which Lufthansa hold a plurality of shares.

 

The break-up of the nineteen-nineties and the separation of Lufthansa’s different businesses into separate entities was a continuing process that has culminated in the organizational structure and governance that exists today. As of 2012, Deutsche Lufthansa continues to have an Executive and Supervisory Board, but each member of the Executive Board is no longer responsible for a single division. Instead, the Advisory Board selects the members of the Executive Board, which oversees the entire company, while subordinate executives oversee specific areas of the operation, including its subsidiaries.

 

Currently Christoph Hanz is Chairman of the Board and CEO of Deutsche Lufthansa, while Carsten Sporh overseas Lufthansa’s passenger airlines as CEO of Lufthansa German Airlines. Meanwhile, the Chief Office Group Airlines and Human Resources Stefan Lauer oversees Lufthansa’s subsidiary airlines, which include SWISS, Austrian Airlines, Germanwings, Brussels Airlines, and Sun Express. Finally, the Chief Financial Officer Simone Menne overseas the rest of Lufthansa’s businesses that are not directly related to passenger travel, including its cargo, maintenance, IT, and catering subsidiaries.

 

The current organization structure and governance has shown itself to be far more effective than the old model, as evidenced by the organization’s success. Although Lufthansa once found itself on the brink of bankruptcy, by 1997 it had become a founding member of the STAR Alliance, the world’s first global airline alliance, which as of this writing has expanded to include twenty-eight different airlines.

 

The alliance serves to coordinate operations between member airlines, including (but not limited to) shared marketing, coordinated customer reward programs, and other special certifications and events that might arise as needed.

 

Furthermore, the current upper-level management appears well suited to its task, as each of the chief officers are longtime Lufthansa veterans, having worked their up from within the company. In many ways the current executives represent the direct successors to Jurgen Weber’s team of transformational leaders, because they all began working for Lufthansa around 1990, and thus began their tenure at the company just as it was in the throes of a potential collapse.

 

Thus, they are a natural fit for the project of ongoing development and streamlining that has been Weber’s legacy, and the recent

 

One sign of Lufthansa’s growth is the degree to which it maintains robust accounting and performance metrics. Not only do its annual reports contain the usual information required, but the company’s investor resources section of its website includes robust analysis tools, allowing investors and researchers alike to compare crucial data points over time.

 

Thus, in addition to the somewhat optimistic language that tends to be used in investor reports, both external and internal observers can easily see the effects of any given decision or external event, a sea change from the lack of transparency and accountability that characterized the company’s operations prior to its privatization.

 

Aside from the robust tools available for examining the company’s financial data, in the wake of its near-collapse Lufthansa was careful to institute more robust internal controls, and in particularity instituted an Origin and Destination revenue management system in order to better manage its “inventory,” meaning available seats.

 

Although ideally all seats on any given flight will be sold, for an airline such as Lufthansa the most profitable seats are those in first and business class, and thus a crucial part of managing the business involves maximizing the sale of these seats without unwittingly ignoring or otherwise losing those “economy” passengers that still make up the bulk of travelers, if not the bulk of profits.

 

By carefully instituting an O&D revenue management system in such a way that all key employees and stakeholders were fully educated about its function and functioning, Lufthansa helped to streamline its business while instituting another set of checks and oversight.

 

Performance and Competition

 

In addition to recovering from the brink, Lufthansa has expanded its business and profits, to the point that as of 2011 it controlled 46% of the market for passenger travel in Europe, 20.5% for travel to and from North America, 19.8% in Asia and the Pacific, and roughly 4.5% of the markets in South America, Africa, and the Middle East.

 

Lufthansa’s stock value has increased steadily since 1992, reaching €12.87 a share as of November 2012.

 

However, its stock value is admittedly lower than the one-time high of €22 a share in 2000, although some of these price swings may be attributed to factors affecting the airline industry as a whole. For example, like many other airlines, Lufthansa saw a substantial drop in its share price following the terrorist attacks of September 11th, 2001, going from a high of €12 per share to a low of roughly €7 a share in a little over a month, a fall from which Lufthansa did not fully recover until 2004.

 

Similarly, following the financial crash of 2007, Lufthansa saw its stock price fall from roughly €20 a share to just around €9 within a year, a drop from which it has yet to fully recover.

 

Lufthansa’s profits and earnings over the last five years similarly reflect the global downturn as a result of the financial crisis, but it has nevertheless managed to expand its market share and income, and ofttimes more successfully than its competitors.

 

However, external factors have countered these positive effects, such that Lufthansa has posted losses twice in the last five years; in 2009 the company posted a loss of €34 million, and in 2011 a loss of €13 million.

 

One may compare these results to 2007, when the full effects of the downturn had yet to be felt and Lufthansa posted a net gain of €1,655 million. Increased fuel prices have also contributed to Lufthansa’s losses, to the point that even in a year like 2011, when the company increased incomes and market share, it could still end up posting a net loss. While some of this fluctuation has likely also been the result of certain changes in management and offerings, the effect of the economic downturn has been so pronounced and so widespread that other variables appear as so much noise in comparison, particularly when one realizes that all of Lufthansa’s major competitors have suffered largely the same effects.

 

However, this is not to suggest that all airlines have suffered equally. Lufthansa, based as it is in Germany, has had something of an economic buffer not afforded to those airlines based in countries more closely tied to the United States’ financial system.

 

Furthermore, Lufthansa (along with Swiss International Airlines) managed to escape a serious fine by turning “whistleblower” and providing evidence of “anti-competitive behavior in the air-freight market.”

 

After being granted immunity from prosecution or punishment, Lufthansa was instrumental in a ruling that ultimately fined eleven of its competitors a total of €800 million.

 

However, just as Lufthansa was spared some small part of the fallout from the financial crisis as a result of its relatively stable home country, its competitors in China and the Middle East fared even better, with organizations such as Qatar Airways managing to expand their market share and profitability in western countries even as western airlines struggle to establish themselves in these emerging markets.

 

Deals that might have aided in Lufthansa’s expansion into these areas have not always panned out, as in the case of a potential deal between Lufthansa and Qantas, the Australian flag carrier.

 

Finally, it is worth noting that Lufthansa has also been the victim of cyber-attacks and online “protests” that, while not necessarily affecting its bottom line due to the fact that the extent of these protests are a temporarily downed website, has resulted in bad press for the company that may have negatively affected its business; the protests arose in order to express opposition to Lufthansa’s participation in a German deportation program that sees the company benefiting monetarily from the deportation of some 30,000 people a year.

 

Five-force analysis

 

A useful way of considering Lufthansa’s global standing is Michael Porter’s five-forces model of industry “attractiveness,” which attempts to analyze the relatively competitive intensity of any given market.

 

The five forces are the bargaining power of customers, the bargaining power of suppliers, the threat of new competition in the market, the threat of substitute products, and the preexisting competitive rivalry of the market.

 

In the case of Lufthansa, there is fairly little risk of substitute products arising, because there are no legitimate threats to air travel on the horizon. Although sub-orbital flights, which could theoretically travel from Sydney to London in around two hours, thus relegating traditional airplanes to smaller, regional flights, will likely prove a serious threat in the mid- to long-range, the technology is still in its infancy. Furthermore, making the leap from take-off and landing at a single spaceport to point-to-point travel will require even moire substantial research and development, and those companies already working on sub-orbital travel, such as Virgin Galactic, have expressed the intention of leasing vehicles and launch sites to preexisting travel companies rather than attempt to seize the market for itself.

 

New competition in the market is a more serious threat, as the aforementioned expansion of airlines from emerging markets such as the United Arab Emirates, China, and even India and Brazil threatens to encroach on Lufthansa’s market share at the same time that Lufthansa is clearly struggle to break into their native markets. A major risk of maintaining practically half of the entire passenger market in Europe is that the majority of international competitors will likely end up eating into Lufthansa’s market share before they seriously affect the rest of the industry. This is arguably the greatest threat, because the entry of new competitors into the market subsequently increases the customer’s bargaining power, as more options means greater competition.

 

However, this new competition is balanced somewhat by decreasing competition amongst established airlines, as each new financial crises or event tends to weed out lower-performing companies, while those remaining tend to organize themselves into various alliances in order to ensure their permanency; this is essentially what was at stake in the anti-competitive practices prosecution, as the airlines were conspiring to keep prices high while diminishing competition with each other. Furthermore, in addition to the larger STAR Alliance, Lufthansa has made alliances with competitors in key regions; for example, Lufthansa has an alliance with United Airlines in North America, and has partnered with a variety of companies in Mexico in order to open up South America for exploitation by its cargo division.

 

These alliances, coupled with the advantages afforded by the STAR Alliance, have served to diminish the threat posed by preexisting competition by coordinating with competitors such that Lufthansa and the airlines with which it has an alliance serve to complement each others offerings, rather than compete with them.

 

There is relatively little threat from suppliers’ bargaining power, because for the most part Lufthansa gets its supplies and parts from the same manufactures as its competitors. In fact, because no major airlines simultaneously produce their own aircraft or parts, the only real, potential threats in this arena will arise when sub-orbital flights become standard, because at this point the manufacturers and operators of sub-orbital vehicles are one in the same. In other areas, such as maintenance and catering, Lufthansa is even more insulated, as it has its own dedicated subsidiaries that simultaneously minimize reliance on suppliers while absorbing any increases that the suppliers in these sectors might attempt.

 

SWOT and TOWS

 

In addition to the five-forces model of analysis, one may conduct both a SWOT and TOWS analysis in order to determine Lufthansa’s contemporary strategies as well as the effectiveness of those strategies. SWOT stands for Strengths-Weaknesses-Opportunities-Threats, and by making a simple grid outlining these factors one can easily visualize the utility of any given strategy. Strengths and weaknesses are internal to the organization, while opportunities and threats are those external variables affecting the chance of success.

 

In the case of Lufthansa, strengths include its dominant market share in Europe, its long history and name recognition, and its strategic alliances.

 

Weaknesses include limited market penetration in emerging markets, negative brand associations due to anti-competitive practices and participation in deportation schemes, and the decreasing relevance of “flag carrier” status in an increasingly transnational world. Opportunities include rapidly-developing fuel and materials technology, aforementioned emerging markets, and ever-increasing needs for human and cargo transport. Threats include rising fuel prices, competitors in emerging markets, and the threat of a continued economic downturn.

 

Having performed a SWOT analysis one can then enter this same information into a TOWS matrix, which is a means of developing strategies based on the information revealed in the SWOT analysis by combining each square. Thus, one is left with SO, WO, ST, and WT strategies; SO strategies use the organization’s strengths to take advantage of opportunities, WO strategies use opportunities to overcome weakness, ST strategies use strengths to avoid threats, and WT strategies attempt to minimize weakness in order to minimize threats. In terms of SO strategies Lufthansa has already shown itself capable, particularly when it comes to leveraging emerging technologies.

 

As mentioned above, Lufthansa developed important fuel-saving technologies during the oil crises of the nineteen-seventies, and the same kind of strategy will be crucial going forward as oil prices continue to climb with no end in sight. Furthermore, Lufthansa should be able to leverage its long history and name recognition in certain emerging markets, and particularly those where a serious competitor has yet to establish itself, such as South America.

 

For WO strategies, Lufthansa would do well to leverage emerging technologies in order to mitigate some of the public relations damage caused by previous decisions. As climate change becomes an increasingly relevant topic, organizations seen as being at the forefront of conservation and efficiency efforts receive a natural boost in addition to the very real economic benefits of “going green.” Furthermore, because many of the emerging markets Lufthansa is attempting to break into are suffering disproportionately from climate change caused by western countries (including Germany), being seen as an early-adopter of new “green” technologies could help Lufthansa overcome some of the stigma of colonialism and exploitation that still accompanies western companies as they attempt to establish themselves in emerging markets.

 

Obviously, adopting new fuel-saving technologies could be considered both an SO and an ST strategy, but Lufthansa has other strategies available to it to counter threats. In particular, its penchant for securing useful alliances would prove especially helpful in emerging markets that are currently dominated by one or two competitors. This strategy would be particularly useful because Lufthansa could leverage its status as a well-established entity in order to entice more recently emerged competitors into alliances, thus granting these new competitors access to Lufthansa’s reach and expertise while opening up entrances into emerging markets for Lufthansa to exploit. In general within the BCG Growth Share Matrix Lufthansa may be considered a “cash cow,” because its relative longevity coupled with its steady growth in a slow-moving market means that, aside from disasters like what nearly occurred in the early nineties, Lufthansa can be considered a relatively safe bet. The company can leverage this “cash cow” status to attract other, less secure airlines to alliances.

 

The biggest threat for Lufthansa is these emerging competitors, because, as discussed above, Lufthansa has developed a kind of competitive equilibrium with its more established competitors. If the company does not make serious inroads into emerging markets soon, it runs the risk of losing those markets for decades to come as local airlines expand. Thus, one of its biggest opportunities is also one of its biggest weaknesses, and the threat of continued economic troubles for the west only increases the likelihood that these emerging competitors will rise up to pick up the slack left by struggling western companies.

 

Going forward Lufthansa’s strategic focus is on its passenger airline service, with its secondary focus being its freight services.

 

In order to ensure the continued success of these divisions, the company intends to continued consolidating its control over Europe while expanding its international freight business, having ceded some ground in international passenger travel. However, there is more the company could be doing to ensure its profitability going forward, and by formulating a GANTT chart for the next few years one can suggest some changes in strategic emphasis that would likely benefit the company.

 

To begin, Lufthansa must engage in a more concerted effort to utilize fuel-saving technologies, both to reduce its overall expenditures and to generate public goodwill. Thus, it would be useful to project a goal going forward to either reduce fuel usage or transition to cheaper and cleaner fuels (or both). On the GANTT chart attached to this study, a goal for encouraging the adoption of bio-fuels for at least a percentage of the fuel consumed is set for 2020, taking a page from the U.S. Navy’s well-publicized intention to make at least half of its fuel bio-fuels by that date. Obviously that kind of transition would require the kind of resources only available to the world’s largest military, but even a small goal would serve to adapt Lufthansa to new modes of fuel production and use while portraying the company as forward looking. Thus, a more modest goal of 15% has been set.

 

It is important to note that this goal does not even necessarily need to be met, because even initiating the first steps will serve to benefit the company. Furthermore, by 2015 the company should be investing in new, more efficient aircraft, such as recently developed craft made out of composite materials, and looking to expand into the sub-orbital market, either by buying craft of its own or leasing from established sub-orbital companies such as Virgin Galactic. These goals have been extended to 2020 in order to demonstrate the necessity for continued investment and expansion, as composites and sub-orbital craft is very likely the future of air transport.

 

In addition to long-term goals like bio-fuel usage, Lufthansa must also develop alliances with key airlines in emerging markets. These should be accomplished as soon as possible, because once this has occurred Lufthansa may begin to expand its market share in these areas. Thus, the company should immediately begin making inroads with companies in Africa, China, the UAE, and India, with alliances with countries in South America and the South Pacific constituting a second phase of expansion. Making alliances in this order will ensure that Lufthansa gets a foothold in key emerging markets. A time line of six months has been set for these alliances, although even this may be a bit long, considering the fact that the STAR Alliance was organized in relatively little time.

 

Finally, Lufthansa should undergo a process of streamlining and modernization along the lines of what occurred during the nineties, in order to ensure that the company is well situated going forward. The institution of an O&D revenue management system proved extremely beneficial, and the company would do well to automate and make electronic as much of its operations as possible in order to cut down on personnel and waste. While ideally modernization should be an ongoing project, more concrete goals are needed in order ensure accountability.

 

Thus, the company should set a goal of going effectively “paperless” by the end of next year, with more extreme modernization projects (such as the automation of roles currently performed by people) beginning afterward. This should include at least a ten percent reduction in staff; while the number is somewhat arbitrary, Lufthansa is already cutting staff in order to make up for its posted losses, and by setting a distinct number, it is easier for planners and technologists to find ways to improve, because a clear goal means that they will have an easier time choosing who and what is most economical to automate and replace. This will cut down on expenditures while helping to ensure that Lufthansa has the money and flexibility necessary for whenever the next game-changing technology arises, allowing for those investments slated for 2015.

 

GANTT

 

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from http://search.proquest.com/docview/197125880

 

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Knowles, V. (2012, July 26). Job losses after qantas-lufthansa deal falls through. Retrieved from http://www.airport-int.com/news/job-loses-after-qantas-lufthansa-deal-falls-through.html

 

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The case of global legacy airlines. Journal of Strategy and Management 4, (3): 215-237,

 

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global industry attractiveness through the eyes of M.E. porter. Journal of Management

 

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airlines: A supply chain perspective. Journal of Services Research, 10(2), 63-77.

 

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22. Retrieved from http://search.proquest.com/docview/225426387

 

Figure 1. Template via Wikicommons

 

Figure 2.

 

Lufthansa, (2012), Retrieved from http://www.lufthansa.com.

 

Davies, R., (1991), Lufthansa: An airline and its aircraft (London: Paladwr Press) p. 1.

 

Davies, 1991, p. 1.

 

Lufthansa, 2012.

 

Lufthansa, 2012.

 

Lufthansa, 2012.

 

Adler, N, (2005), Hub-spoke network choice under competition with an application to western europe, Transportation Science,39(1), 58-72, Retrieved from http://search.proquest.com/docview/203507606.

 

Lufthansa, 2012.

 

Lufthansa, 2012.

 

Bruch, H., & Sattelberger, T., (2001), Lufthansa’s transformation marathon: Process of liberating and focusing change energy, Human Resource Management, 40(3), Retrieved from ?

 

http://search.proquest.com/docview/222065439

 

Bruch & Sattelberger, 2001, p. 250.

 

Bruch & Sattelberger, 2001, p. 250.

 

Bruch & Sattelberger, 2001, p. 251.

 

Bruch & Sattelberger, 2001, p. 251.

 

Bruch & Sattelberger, 2001, p. 251.

 

Lufthansa, 2012.

 

Lufthansa, 2012.

 

Lufthansa, 2012.

 

Lufthansa, 2012.

 

Lufthansa, 2012.

 

Cutshall, C., & Weisbrodt, J, (2006), Implementing an O&D revenue management solution. Journal of Revenue and Pricing Management, 5(2), Retrieved from http://search.proquest.com/docview/214491451.

 

Schulz, P, (2007), Customer relationship management: Lufthansa (Berlin: Druck and Bindung), p. 17.

 

Lufthansa, 2012.

 

Lufthansa stock performance, (November 12, 2012), Retrieved from http://finance.yahoo.com/q?s=LHA.DE

 

Lufthansa stock performance, 2012.

 

Lawton, T, T. Rajwani, and C. O’Kane, (2011), Strategic reorientation and business turnaround: The case of global legacy airlines. Journal of Strategy and Management 4, (3), ?

 

http://search.proquest.com/docview/88136895

 

Singh, A.K., & Das, D., (2010), Forecasting the passenger traffic movement in lufthansa airlines: A supply chain perspective, Journal of Services Research, 10(2), Retrieved from ?

 

http://search.proquest.com/docview/759597837

 

Kaminski-Morrow, D, (2010, November 10), Eleven airlines fined in european cargo cartel investigation. Retrieved from ?

 

http://www.flightglobal.com/news/articles/eleven-airlines-fined-in-european-cargo-cartel-investigation-349520/.

 

Lufthansa, 2012.

 

Knowles, V., (2012, July 26), Job losses after qantas-lufthansa deal falls through, Retrieved from ?

 

http://www.airport-int.com/news/job-loses-after-qantas-lufthansa-deal-falls-

 

Norman, J, (2001), Cyber activists target lufthansa, Information Management & Computer Security, 9(5), Retrieved from http://search.proquest.com/docview/212349870.

 

Prasad, A, (2011), The impact of non-market forces on competitive positioning: Understanding global industry attractiveness through the eyes of M.E. porter, Journal of Management Research, 11(3), Retrieved from http://search.proquest.com/docview/1010057218.

 

Georgopoulos, N., & Nikolopoulos, K. (2005). Fathoming porter’s five forces model in the internet era. Info: The Journal of Policy, Regulation and Strategy for Telecommunications, Information and Media, 7(6), Retrieved from http://search.proquest.com/docview/274905530.

 

Park, J., & Zhang, A., (2000), An empirical analysis of global airline alliances: Cases in north atlantic markets. Review of Industrial Organization, 16(4), Retrieved from ?

 

http://search.proquest.com/docview/209861499

 

Herbert, M., (1992), German investment in mexico, Business Mexico, 2(1), Retrieved from ?

 

http://search.proquest.com/docview/197125880

 

Lobo, I., & Zairi, M., (1999), Competitive benchmarking in the air cargo industry: Part I, Benchmarking, 6(2), Retrieved from ?

 

http://search.proquest.com/docview/217378137

 

Holtbrugge, D., (2004), Management of international strategic business cooperation: Situational conditions, performance criteria, and success factors, Thunderbird International Business Review, 46(3), Retrieved from ?

 

http://search.proquest.com/docview/202786161

 

Helms, M.M., & Nixon, J., (2010), Exploring SWOT analysis – where are we now? Journal of Strategy and Management, 3(3), doi:

 

http://dx.doi.org/10.1108/17554251011064837

 

Weihrich, H. (1999). Analyzing the competitive advantages and disadvantages of germany with the TOWS matrix – an alternative to porter’s model. European Business Review, 99(1), 9- 22. Retrieved from http://search.proquest.com/docview/225426387

 

Lufthansa, 2012.

 

Figure 2.

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