Being one of the largest airlines in Europe, Lufthansa had gone through tough times before resurfacing to be one of the most profitable airlines in the world. Industry Outlook
Globalisation is the main driver of the changes in the airline industry. The increasing need for international travelling has formed high market convergence where customers demand for quality service. Applying the PESTLE framework for political/legal and economic environment, the worldwide deregulation since 1978 has spurred the liberalisation of aviation policies and opened up the doors for new entrants and increased rivalry among firms. Lufthansa’s Strategy and Mode of Entry
Due to increased local competition, there is a need for Lufthansa to go global. However, in Europe, Lufthansa has created “Lufthansa Regional” to cater to its domestic market. With availability of substitutes such as high speed trains, it is essential for Lufthansa to capture demand through shorter travelling time, customisation and higher quality standards, thus adopting a multi-domestic strategy. Out of Europe, there are no substitutes for air travel. All airline industries are competing on an equal basis and there is higher standardisation of providing commodity-like products across different markets; thus a global strategy is adopted. Therefore, we see that Lufthansa is seeking to achieve both global efficiency and local responsiveness and has chosen a transnational strategy. An appropriate mode of entry would have to be chosen by Lufthansa. Mergers and acquisitions are not possible due to restrictions in many countries and high costs. The airline industry is characterised by strong supplier power as the result of the duopoly of Boeing and Airbus. Together with high rivalry due to low cost carriers, Lufthansa has adopted a cooperative strategy via a non-equity strategic alliance. Star Alliance was therefore born. Benefits of Being in the Star Alliance
Currently there are three alliances in the world. Star Alliance, being the largest alliance, allows Lufthansa to gain a competitive advantage over other airlines in SkyTeam and Oneworld. However, alliance members also compete with one another due to overlapping routes. Inter Alliance
Passengers500 million428 million318.6 million
Participants24 Airlines14 Airlines10 Airlines
Being in the largest alliance allows Lufthansa to achieve a higher bargaining power and reduce supplier power. There are also potential economies of scale through joint purchasing in other areas. With the integration of ticketing, baggage handling and other shared facilities, Lufthansa can cut down on its operating costs and increase its profit margin. Moreover with Star Alliance, Lufthansa has access to the key competencies of a greater number of airlines. Lufthansa would be able to benefit from the Star Alliance’s value chain by outsourcing activities that other airlines can provide at a greater value. Furthermore, Star Alliance has dedicated agencies that cater to the advertising, marketing, ticketing and booking system. Having common IT infrastructure allows data aggregation and sharing of information, which Lufthansa is able to tap on to and obtain valuable details of the alliance’s 500 million customers. One important aspect that Lufthansa can gain in the alliance is the code sharing system, whereby two partner airlines are able to list the same physical flight as their own. Through this, Lufthansa can gain maximum exposure to the market even though they do not travel the entire route. The Alliance provides extensive global coverage for Lufthansa, with its 24 members around 900 locations. These include places like the Middle East and Oceania which are weaknesses of the other two alliances. Intra Alliance
Being the dominant member of the Star Alliance, Lufthansa is able to gain a greater bargaining power in the alliance as...