Lufthansa: Going Global, but How to Manage Complexity

Topics: Airline, Lufthansa, Star Alliance Pages: 8 (2435 words) Published: August 25, 2010
Lufthansa Aviation group has become a worldwide leader in the airline industry with several powerful business segments, inclusive of a passenger airline component, business component, logistics, MRO catering and IT services. The aviation success has been largely due to their focus on quality, innovation, safety and reliability. Head quartered in Germany, Lufthansa has lead the pack with regard to international airline business. The Aviation Groups’ International Business Strategy has evolved to that of a corporate level transnational strategy, whereas there is a shared vision to achieve global efficiency yet effort to strengthen its local responsiveness in Germany (Hitt, 2009). Evident with the strategic alliance with Star Alliance, the development of Lufthansa Regional serves as a local response provision of a low- cost carrier, in addition to the modernizations of various traveler hubs and welcome lounges throughout the major key traffic hubs located in Germany.

This international business strategy is considered a combination of multi –domestic and global strategies (Hitt, 2009). A transnational strategy uniquely offers the benefits inherent in both global and multi-domestic strategies; under this strategy each business component of Lufthansa can successfully exercise independent innovation given its decentralized structure.

Lufthansa understood early, the benefits and advantages of international expansion evident through post WWII with travels to various countries (Lufthansa, 2010) later the formation of an strategic alliance with Star Alliance, which serves a global airline network. Star Alliance was established in 1997 with Lufthansa being one of its core founding members. Despite industry ups and downs related to international travel through the early 1980’s with the Iraq war, and then the frightening threat of terrorism post September 11, 2001, Lufthansa remained optimistic as did the rest of the airline industry, and responded to globalization appropriately. The majority responded in a like manner forming alliances in an effort to compete with the newly entered No-frills and lower cost competitive airline flights offerings. Competition of this kind, along with slow recovery of international travelers, increase in gas prices; the constant pressure to reduce pricing order to remain competitive has taken a toll on the entire industry over the last decade. Lufthansa’s also crafted Lufthansa Regional which accounts for 50 percent of the Aviation group’s German and European flights. This Wholly owned subsidiary is entirely owned and controlled by Lufthansa the parent company, and was established to meet the need of low-cost carriers. Within Lufthansa Regional, exist Eurrowings and the partly owned City line. Through this development Lufthansa can offer a lower cost airline and reap the benefits of passengers opting for this Intercontinental airline versus going to a larger hub. Lufthansa used an acquisition strategy with the accumulation of SWISS AIR in 2005, a strategic move to prevent the competition British Airways and One World Alliance to seize the opportunity.

The strategic alliance with Star Alliance was a concerted cooperative strategy to provide customers worldwide reach and a smooth travel experience (StarAlliance,2010). This remains as a shared objective for Star Alliance, Lufthansa and the other members of this alliance. It is understood that it is relatively impossible to survive in a global network outside of an alliance. This cooperative strategy serves as a mechanism for the Aviation Group to enter the market swiftly, and with greater impact with the support of the alliance. The airline industry has historically been a standard –cycle market, the same is true with this alliance thus allowing for savings and benefits to extend across its members (Hitt, 2009). The addition of Air China and Shanghai Airlines added as members, serves as a solid example of Star Alliance’s capability to...
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