Lufthansa is one of the three airline companies world-wide, whose debt is rated as investment-grade. Since the World War II the industry has never earned its cost of capital over the business cycle and after the deregulation which increasing replaced the government-organized IATA cartel the situation got worse. The airline’s response to that and to globalization was to form alliances.
Lufthansa join to the Star Alliance, and is the leading probably pivotal member of the largest alliance. Alliances are even more complex to manage than individual companies because they lack the hierarchical conflict resolutions mechanisms that individual companies can employ. The globalization of the airline industry move full speed ahead, and Lufthansa since the early 1980s have a global expansion strategy, but was not economically viable as we can see into the fowling exhibits.
The fixed cost were too high, and on the other hand, strong reasons supported the belief that the “network effect” and economies of scale were leading to a global airline industry, dominated buy the key players. But the deregulation process had not gone far enough to allow major mergers. Deregulation and the erosion of the IATA cartel went far enough to allow sources of new competitors, low cost airlines spread from the United States, to Europe and Asia. Using this new opens in the market Lufthansa grow and expand was we can see in the exhibits