LUFTHANSA – SHORT RUN INCENTIVES AND PRICING STRATEGIES
Lufthansa is the flagship carrier of Germany and the world's fourth-largest airline in terms of overall passengers carried. It operates services in 18 domestic destinations in Germany, 197 international destinations, and in 78 countries across Africa, the Americas, Asia, and Europe. With over 870 aircraft, it has the largest passenger airline fleet in the world when combined with its subsidiaries. The brand is strong and highly respected especially in Germany and Europe, with unaided brand awareness in the high 90s in most European markets. The company is regularly voted to be one of the most attractive employers in Germany. The current brand image reflects that Lufthansa is considered to be a high-quality, very safe, and professional airline but is also an expensive solution primarily aimed towards corporate travelers. So it should be no surprise that Lufthansa’s most important revenue generator always was and still is the corporate business. Lufthansa operates the most First and Business Class seats worldwide (on average 65 and up to 98 Business Class seats on the A380 fleet). The share of corporate customers is said to be the highest in the industry. This is important, as an average corporate ticket results in 2.5 times higher revenues than an average private ticket.
Keeping up with average industry growth rates is essential in order to constantly lower unit costs and stay competitive in the market. As nearly all industry growth comes from the price-sensitive, private segment (corporate segments are relatively stable), this can only be achieved by attracting more private or individual leisure travelers. For many years, Lufthansa has already been advertising low prices in order to change the image of being “too expensive for private travelers”. While, in fact, this image was true in the 90s, it does not reflect reality anymore. Lufthansa’s all-in prices are often cheaper or at least equivalent to the low-cost airlines with all their extra fees; the campaigns have resulted in slow traction so far. So again, when launching a new marketing campaign in 2011/12, the company concentrated on private traveler target groups to continue sending their low-cost message. (See Exhibit 1 for examples of advertisements and TV commercials.) Unfortunately, at roughly the same time as they launched their campaign for leisure travelers, Lufthansa restructured the highly-successful frequent-flier program “Miles & More”. Many corporate travelers (many of them status customers) complained that important features were taken away including: miles required for award tickets and upgrades were higher than before; customers felt betrayed. In combination with the new campaign, which clearly addressed private travelers and low prices, the conclusion of the corporate travelers was that Lufthansa was changing strategy and now would value private travelers more than their most important and loyal corporate travelers. STRUCTURE STRATEGY IMPLEMENTATION
In essence, by focusing communication on price and private travelers, Lufthansa has negatively affected the perception of its business/corporate traveler segment. By advertising low prices to the leisure traveler, the perception of exclusivity held by business consumers has been declining. This perception has been compounded by the loss of certain benefits previously offered within their Miles & More frequent traveler program. Lufthansa cannot afford to lose its most profitable target audience and needs to maintain its strengths in the corporate business segment. At the same time the company needs to reposition its brand image in order to become more attractive for private travelers and keep up with industry growth. The big communication challenge is how to make sure the corporate community understands this and continues to feel valued while in turn Lufthansa remains a “premium” brand....
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