Prepared for Bus 497a with Don Fujitani

Prepared by Amiel Traynum, Elin Ghadimian,

Josh Sherriff, Ross Zalavsky, Ryan Neal

Case Analysis

External Environment

Global

• Burdens– Gulf War– Recession

SocioCultural/Demographic

• Increased globalization leads to increase in air travel

Legal/Political

• Before 1978– Government in US tightly regulated air travel– European governments owned most airlines– Lufthansa was state-owned– German government had strict control over

flight routes and landing slots

• In1997, Lufthansa became a publicly held company

Economic

• Recession resulted in reduction of seat load factor– Sales could be affected by a recession in any

of the countries in which Lufthansa does business

• Oil price fluctuations

• New trade networks opening (ie. China) or closing affect sales

Technological

• Planes, Navigation equipment, Aircraft engines, Onboard computers

• Lufthansa develops IT for transport, travel, and tourism– External users and internal IS

• Technik offers aircraft maintenance and VIP cabin outfitting– 47 percent of revenue derived from other

companies

Industry

Product Substitutes• Passage

– Buses, trains, cars, and taxis• Cargo

– E-mail, telephone, and fax • C&N

– None• LH Technik

– None

• Sky Chefs– Vending Machines and Restaurants

• GlobeGround– E-mail, telephone, and Fax

• Systems GmbH– In-house IT

Power of Buyers

• Buyers are general public and other businesses

• Many alternatives available for buyers

• Not likely to backward integrate

• Buyers have a lot of power

Power of Suppliers

• Boeing and Airbus supply aircraft– Limited suppliers for aircraft and freight

• Oil is essential– Lufthansa has no control over oil prices and

no substitutes

• Suppliers have a lot of power

Threats and Barriers

• Barriers High, Threats Low– Passage, Cargo, LH Technik, GlobalGround,

IT

• Barriers Low, Threats High– Sky Chefs, C&N

Competitive Environmental Analysis

• Star Alliance competes with other alliances– One World

• Most Competitive• Shares common ideals• Competes for revenues• Almost identical in size to Star Alliance

– Qualiflyer– Wings

Lufthansa’s Resources

Tangible Resources: Physical

• Lufthansa owns 326 aircrafts and has 271 destinations in which they can fly their aircrafts to.

• The STAR ALLIANCE has a combined number of 720 destinations to fly to in 110 countries and 27 key airport faculty hubs.

Tangible Resources: Financial

• By early 1990 Lufthansa had a hard time getting loans from banks and only one state owned bank lent them the loan.

• By 1998 Lufthansa became financially more stable and revenues reached DM22.8 billion

• Profit-Revenue ratio was raised to 11 percent compared to -4.3 percent in 1992.

Tangible Resources: Organizational• Lufthansa restructured their organization

– federative group of independent small units

– multi-dimensional structure • Lufthansa has renewal at 3 levels:

– Operational– Structural– Strategic

• “town meeting”-managing crisis

• Programm 93- changing company • Programm 15 - cost saving and internationalizing the cost

structure

Intangible Resources: Human Resources

• Jurgen Weber CEO oversees– Executive board, called Vorstand– Supervisory Board, called Aufsichstrat

• Operation team– Angelica Jakob, head of cabin Services– Wolfgang Mayrhuber, technical director of

Lufthansa Maintenance– Matthias Molleney, senior manager of

personnel– Dieter Heinen, chief of sales in Germany– Dr. Christoph Frank, an internal consultant

Human Resources Cont’• “the Lufthansa School for business.”

– teaches “mental cultural core” – It builds and ties intellectual capital to the company– Links academic expertise and experiences of partner

companies to Lufthansa business practice and its needs

• learning partnerships – offers masters degrees to non-degree top management

programs. – Their Explorers 21 and Climb programs also get people to

become “change leaders” early in their careers or create transformational platforms for developed employees

Intangible Resources: Innovation• Lufthansa has created many innovative

programs.– Programm 83 – Programm 93 – Programm 15

• Lufthansa created an innovative alliance– STAR ALLIANCE.

• keeping a sense of urgency with the employees– that way the company never falls back into a slump.– Lufthansa School of Business

Intangible Resources: Reputation• Lufthansa has a very good reputation for:

– quality – excellence

• Lufthansa stands for German values such as:– preciseness– technical reliability– high quality or expertise

• The company logo symbolizes:– independence– permanence– sovereign dignity

Intangible Resources:Technological Resources

• Lufthansa has its own IT producing subsidiary. – Lufthansa Systems GmbH, produces IT-based

products for airlines and other transport companies, as well as travel and tourism industries.

• Lufthansa has its own aircraft maintenance subsidiary.– LH Technik AG, performs routine maintenance on

aircraft inside and out of the company.

Value Chain AnalysisValue Chain Analysis• Primary

–Operations:• Lufthansa was the founding member of the STAR alliance

and this alliance created a way for members to share resources such as airport facilities and service

• One member is responsible for a specific location and in charge of all of the employees that work at that location. This centralizes employees and operations and makes them easier to manage.

• Improves:– Punctuality – Quality

Value Chain AnalysisValue Chain Analysis–Marketing and Sales:

• The airline industry mostly focuses on cost competition when it comes to passenger service and tourism.

• Lufthansa describes itself “as reliable company with technical excellence.”

• Lufthansa Airline (1998)– Revenues in Billion DM $22.8– Employees 58,000– Passengers 44.5 million (No. 2 in the Alliance)

Value Chain Analysis-ServiceValue Chain Analysis-Service

Value Chain AnalysisValue Chain Analysis• Support

– Human Resource Management:• In 1992, the executive board waived 10 percent of their annual salaries. • Weber was also able to convince the union to accept a plan that included lay

offs and no pay raise. • Organized “town meetings” which lead to drastic corporate change.• The STAR alliance brought in the idea of a common training and development

of staff

– Procurement:• The product that Lufthansa has is a service to transport their customers or

certain freight from A to B for a price; however, this price is set by a market price.

– Technological Development• Lufthansa Systems GmbH offers innovative IT-based products and services for

airlines and companies in the transport industry. – Integrated IT activities.

• LH Technik AG, develops aircraft maintenance ideas and VIP cabin outfitting.

Core competencies:Core competencies:

Core competencies:Core competencies:

Business Level Strategies

• Integrated Cost Leadership/Differentiation– Focus on cutting costs and reducing prices to keep

competitive– Focus on working as Efficiently as possible so that

they maintain great quality while reducing costs.– Give full package in several different areas

• Passenger Service, Logistics, Tourism, Technical Services, Catering, Ground Services, Information Technology.

– Use STAR ALLIANCE to position themselves

STAR ALLIANCE

• Lufthansa becomes an aviation group rather than an airline company.

• Broadens full capacity of the company– More services in more locations that are

easily available for consumers

SWOT ANALYSIS

Strengths

Powerful management and employee teams– helped make dramatic changes– Jurgen Weber was able to turn a downward

spiraling company around and create a profitable and competitive firm

– Thomas Sattelberger is credited with creating the Lufthansa School of Business

– Dr. Michael Heuse who is in charge of Lufthansa School of Business

Strengths Cont.

Star Alliance–The alliance brought huge market

expanding opportunities.–The alliance members operate in

720 destinations in 120 countries. –The Alliance created abilities to

service its own planes and form its own IT through its subsidiaries

Weaknesses

Reduced workforce, compel the company to rely upon efficiency – Past layoffs cause some “high potential

employees” to not want to work for the company because of their career aspirations.

The Star alliance is not being used to its

full potential.

Opportunities

• Increasing the Star Alliance to include more than eight members.

• Lufthansa Cargo AG can expand to provide complex global logistics requirements along with development of new sales cannels( Internet/ virtual mall)

• C&N- Tourisms can establish a high performance travel group

Opportunities Cont.

• Technical Services can continue to hedge maintenance and reconditioning service by expanding trade service centre for spare parts

• LSG Sky Chefs can get into a non-airline catering business such as services for petrol stations and service areas, and going public

Threats

• EXTERNAL ENVIRONMENT

-Terror Attacks

-Wars

-Worldwide epidemics

-Recession

Competitive Advantage

What do we recommend for Lufthansa?

• Strengthen the STAR ALLIANCE.

• Merge similar tasks in different parts of the company.

• Merge identical tasks with STAR ALLIANCE members.

• Maintain different goals with different parts of the Lufthansa Group.

Groups and Alliances

Lufthansa Cargo AG

• Expand services– Provide complex global logistics requirements

• Work with Lufthansa IT– Create a better system for transport

• Create online services– Trackers thru internet– Ordering thru internet or email

C&N Tourism

• Use STAR ALLIANCE members to increase tourism locations

• Special deals with STAR ALLIANCE members for cheaper ticket prices

LH Technik AG

• Secure contracts with members of STAR ALLIANCE– Strong ties/loyalty with customers

Lufthansa LSG SkyChefs

• Get away from negative image of “Airline Food”– Perhaps only use “SkyChefs” as the company

name

• Use Lufthansa to market– In Airplanes– At Airport– “Use SkyChefs to cater your businesses next

big meeting!”

GlobalGround

• Concentrate on expanding locations through procurement– Fastest and most efficient way to secure new

locations and clientele.

Lufthansa Systems GmbH

• Expand Sales force

• Concentrate new sales force members on customers outside of lufthansa

• Expand outside of Germany– Perhaps through the STAR ALLIANCE– Partnerships

In All Areas

• Combining resources to achieve same goals– Accounting– R&D– Brand Imaging

Epilogue

Nine Years Later…

Lufthansa Now

• Expanded Alliances to more than 1– AiRUnion in Russia being their latest– SWISS– Strategic partnership with Egypt Air

• Now have 192 destinations worldwide

• Now employ over 100,000 people worldwide in 165 different nations

Lufthansa 2007

• A particularly good year for Lufthansa– Expecting 1.3 billion Euros in revenue– Operating profits increased by 57%

• Thanks in part to new fleet that was purchased the previous year.

Lufthansa Groups• SkyChefs

– Expanded to ground catering industry– Received “caterer of the year award in 2006

• Catering Inside Magazine

• Lufthansa Technik– Expanded technical services outside of Lufthansa Group

• Lufthansa Cargo AG– Used strategic partnerships to expand growth– Helping to develop Frankfurt Airport

• Lufthansa Systems– Leading IT service providers in the aviation industry

worldwide

Strategic Alliances

• Good or bad for Lufthansa?– Most Lufthansa Group areas benefited greatly

from alliances– Antitrust law accusations