Lufthansa: Going Global, but How to Manage Complexity
Business Administration Capstone – BUS 499 #004016
September 5, 2010
Describe the type of international strategy the company has chosen.
An international strategy is a strategy through which the firm sells its goods or services outside its domestic market (Hitt, Ireland & Hoskisson, 2009). Lufthansa tends to follow a transnational strategy that will help grow the company internationally and in their own country. Since the September 11 terrorist attacks airlines have been struggling to stay in business. The fear that passengers have is slowing diminishing but it is still affecting the airlines. Airlines have been forced to enforce many regulations and fees adding to their financial struggle. With any international strategy comes a risk. Lufthansa seems to have managed to survive many risks all while being one of three airlines where their debt is to the point of bankruptcy if they have not started it already. Since mergers are illegal across country boarders the response from Lufthansa was an alliance with Star Alliance (Hitt, Ireland & Hoskisson). Star Alliance is an alliance that is made up of a partnership amongst several airlines, in an effort to offset costs and create value. The alliance has been a constant balancing act. The alliance was done to help reduce Lufthansa’s debt but has come with many challenges in managing the alliance with Star Alliance. The plan was to increase the revenue side of Star Alliance by keeping passengers’ loyalty to fly with them. Since the late 1999, Lufthansa has been running according to the value –based management. The aim of the value-based management approach applies to all planning, steering and monitoring processes in order to achieve a purposeful, long-term and continuous increase in enterprise value in investor’ and lenders interest (Lufthansa Investor Relations). Explain what means the company has used to expand internationally
The biggest move that Lufthansa has done to expand internationally and help reduce their debt and increase revenue was to join with Star Alliance. Star Alliance is a group alliance with Lufthansa and airlines like Air Canada, United and SAS Scandinavian Airlines, just to name a few. They are a good option for intercontinental business travel. The alliance helps to reduce costs by coordinated flight schedules, have common lounges and baggage handling. Lufthansa has a few more cost saving strategies in place. While it does affect their employees, they have a cost saving structure resulting from slightly lower wages, they have smaller planes adjusted to the traffic density a reduced services level, an operating base in second-tier airports, and point-to-point-services so that the on time in the air is greater for “network” airplanes (Hitt, Ireland & Hoskisson, 2009). They have also restored antique planes. Lufthansa has some of the newest built planes in their fleet but the rebuilt airplane is for the airplane enthusiast. Enthusiasts wait months and pay C259 ($400.00) for a bumpy hour long ride on a 1936 Junkers-52 propeller plane (Lufthansa’s Labor of Love). To ensure safety of the passengers the planes are re-built every winter. Identify and describe the elements and objectives of Lufthansa’s cooperative strategy A cooperative strategy is a strategy in which firms work together to achieve a shared objective (Hitt, Ireland & Hoskisson, 2009). The alliance that Lufthansa has with Star Alliance is almost by definition a cooperative strategy. The airlines that are in the alliance are all working together to cut costs and develop and grow each of their own airlines. The alliance is a partnership that works for all involved to include the right to leave the alliance. Lufthansa is the leading member in the Star Alliance (Hitt, Ireland & Hoskisson). Lufthansa’s value-based management adds viable recognition of cooperative strategy. Lufthansa has a joint...
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