Lufthansa is the largest airline in Europe in terms of passengers carried. By 2002, Lufthansa had become of the strongest airlines and top aviations groups in the world. Lufthansa had undergone a decade of fundamental change. Lufthansa was transformed from a state-owned, unprofitable national airline into one of the most profitable, privately owned aviation groups in the industry. The group turned a record loss of €350 million in 1992 into a pre-tax profit of €952 million in 2002. This financial result reflected Lufthansa’s major competitive advantage-its ability to respond rapidly, act flexibly, and withstand crises. Lufthansa proved its unique change management competence when it coped with September 11th, the most serious crisis in the airline industry since World War II. The aviation group pulled ahead of its competitors and reversed a loss of €744 million in 2001 into an operating profit of €718 million in 2002. In 2003, the war in Iraq and the SARS disease demanded that, more than ever before, Lufthansa draw on its ability to cope with crises. Overcoming change-tiredness and continuous re-energizing were seen as the key management challenges in 2003.
How to maintain sustainable success and secure its future as the leader in the airline industry while:
1) Restructuring the organization to increase cost and revenue transparency and to reduce fragmentation
in decision processes.
2) Focusing on continuing strategic cost savings in terms of creating Asian alliances.
3) Combating exhaustion, change-tiredness, or even organizational burnout in an industry that requires
maintaining constant change momentum.
Potential Business Impact:
From autumn 2003, Lufthansa planned to offer its passengers new business class accommodations; it intended to invest around €30million in a program that was to be implemented. The new CEO also calls for a high level of company innovation which will cost additional resources. Assuming a conservative average increase in sales of 20% and a fall through profit rate of 6%, the company looks to lose €5,876 million if the business strategic issues are not resolved.
Assume 20% increase in NSR Y-O-Y
200220032004200520062007 200820092010Total 3 Years % Change in Net Sales Revenue Year Over Year -7.3%5.8%-3.5%9.9%13.0% 20.0%20.0%20.0% Net Sales Revenue 19,073 17,685 18,718 18,065 19,849 22,420 26,904 32,285 38,742 Percent of Net Income that Becomes Fall-Through Profit 118.7%139.9%-9.7%17.1%29.1%6.0%1,614 1,937 2,325 5,876
General Environment: Europe (Lufthansa is the largest airline.) (See global segment for international impact.
In 2005, the population of Europe was 728 million or 11% of the world population. It has been growing from 500 million after World War II, peaked in the early 2000s at more than 700 million and has since then begun a decline. Perhaps mirroring its declining population growth, European countries tend to have older populations overall. European countries had nine of the top ten highest median ages in national populations in 2005. Only Japan had an older population. The largest ethnic group in Europe is probably the Russians with some 90 million settling in the European parts of Russia, followed by the Germans (76 million), Italians (58 million), French (49 million), English (45 million), Spanish (42 million), Ukrainians (40 million) and the Poles (38 million).
1. Opportunity to take advantage of the aging population by offering senior discounts. 2. Ability to hit many different markets in Europe; reach many different customer segments.
1. Older and declining populations may have a negative affect on total sales. 2. Several different cultures are being targeted; this could cause problems with implementing business strategies and marketing strategies. 3. Need for a...