Lufthansa Austrian Airlines Takeover

Topics: Airline, Austrian Airlines, Lufthansa Pages: 7 (2505 words) Published: May 14, 2013
Business Overview
Taking a brief look on the economic development in Europe up to the year 2008 reveals high GDP growth rates and reminds us about the times of prosperity that we almost all so nostalgically recall. But Austrian Airlines have never seen any boom in revenues, profits and the number of transported passengers. This alone is a reason for big concern as airlines have never been a counter-cyclical business. If the company is unable to sustain itself in the times of prosperity what loss will they carry in the books in the times of economic downswing? Finding a powerful strategic partner seems like inevitable for the Austrian company. In 2008 Austrian Airlines was the 11th biggest airlines in Europe with 10,7 million passengers and 2,5€ billion in revenues. On the other side Lufthansa has 7 times more passengers and makes 10 times more money in revenues. Putting these two categories into relation shows how company´s size creates numerous benefits, particularly financial ones. In 2008 Austrian Airlines had revenue of 233€ per passenger while Lufthansa attained 357€ per passenger. Now it is obvious how size matters and that synergies create great cost-cutting potential and increase profitability. If Lufthansa manages to bring Austrian Airlines to its own level of profitability they would have EBIT of 140€ million if the expenses and passenger number stay on 2008 levels. Not to mention the strategic benefits of this acquisition, and probable Lufthansa´s ability to make use of synergy effects i.e. to cut costs and sell even more flight tickets thanks to wide-spread sales offices all over the world. Acquiring Austrian Airlines proves as lucrative for a Lufthansa if they transform the company and as a good deal for current shareholders who can count on even more losses if Austrian Airlines decide to pursue stand-alone strategy which means that they will eventually lose all the capital they put up . This simple analysis show why did consolidation wave in airlines industry pick up on speed. It really seems that main task for carriers is to get big as fast as they can or to face with a demise of their business. Immediate recapitalization of Austrian Airlines in the amount of 500€ million just supports above statement as even the biggest European airline would be unable to cover such a huge accumulated loss if it weren´t for the help of the Austrian government and the European Union. Lufthansa plans to take advantage of the Austrian Airlines´ geographic location and their know-how and expertise in CEE and Middle East. After the fall of communism in Europe Austria has played a crucial role as a gateway to Eastern and Southeastern Europe. Austrian Airlines took its business one step further and established new core market in the Middle East. For an international company like Lufthansa Austrian Airlines represents a cornerstone in the expansion towards Middle Eastern and Asian markets. Austrian Airlines is a first mover in CEE and Middle East and a market leader with 61 destinations in the region whose expertise in the Eastern markets will be of a great use ones Lufthansa decides to go East more aggressively as Austrian Airlines will share their core competence with the group. Cutting overlapping flights and optimization of its joint offer and sales activities will improve Austrian Airlines business activity right away. Further developing of Austrian´s successful hub system at Vienna airport will also bring positive effects in the long run. Since Lufthansa and Austrian Airlines are old partners within the framework of the Star Alliance and they know each other very well integration in the Lufthansa Group should play out without major obstacles. Companies cooperated within the context of a bilateral joint venture for Austrian-German flight traffic as well as in the important foreign markets of Switzerland and Brussels. Even their technical services have been cooperating closely and that is also one of the reasons why...
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