Lufthansa Austrian Airlines Takeover
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
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