National University

of Computer and Emerging Sciences

Chiniot-Faisalabad Campus

ENTREPRENEURSHIP
CASE STUDY
“Lufthansa”
Spring 2020

Maximum Marks: 10 Due Date:24th April 2020

Submitted By
Group M.UsmanSarwar, GulamM.Abubakar,
Members: Abubakar

Roll No: 16F-8388, 16F-8371, 16F-8411

Section: BS-EE(A)

Submitted To
Ahmed Hassan
Lecturer – EE Department

Submission Date
24th April2020
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QUESTION#1: What are the key challenges for Lufthansa in 2012?

ANSWER: The key challenges for Lufthansa in 2012 are to find the ways to increase the
profitability of the group, especially within the main business of passenger transportation. There
loomed the threat of the commodification of air transportation service. The tremendous growth
of competitors from the Middle East, as well as an announcement by primary competitor,
Emirates, of its plans to further expand the Dubai airport into an international hub, also caused
increasing concern at the group’s headquarters. The press reported that at the beginning of 2012,
Lufthansa even demanded government intervention against further expansion by the Gulf
carriers in Europe. Franz urgently needed fresh ideas and a strategy to sustain and strengthen
Lufthansa’s competitive position. Its management had to make sure that the airlines from the
Middle East would not damage its hold on the profitable long-haul sector as the low-cost airlines
had done to the European short-haul sector only a few years before.

QUESTION#2: What were the challenges and major milestones for Lufthansa
over the last 30 years?
ANSWER: In an industry characterized by growth, Lufthansa did manage to increase its
revenue in 2011, though its operating margin fell short of expectations and profitability was a
major concern. Lufthansa AG, with its seven affiliated passenger airlines, was the largest airline
group in Europe, operating a fleet of 696 aircraft and employing 119,084 employees business
area of passenger transportation, primarily through the acquisition of other European airlines. In
2011, the Lufthansa Group carried 106 million passengers. With a turnover of 28.7 billion euros
in 2011, it was the world leader, just ahead of the United-Continental Holdings group, which was
formed in 2010 through the merger of two large American airlines. In 2007, Lufthansa generated
its strongest results ever, with an annual net profit of more than 1 billion euros.

During the privatization process in the nineties, alongside its core business of flight operations,
the Lufthansa Group set up further independent divisions for air cargo, maintenance, repair and
overhaul (MRO) and catering, as well as its own IT. Lufthansa became the market leader in the
catering industry and, with the technical expertise of Lufthansa Technik, the leader in aircraft
maintenance and repair.The transition into the 21st century seemed smooth for Lufthansa, as it
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was able to further expand its competitive position while preparing for global competition in a
myriad of ways including, for example, an order for the new Airbus 380 further expand its
position as a competitive contender.

QUESTION#3: What are the environmental influences affecting the

European airline industry in 2012?
ANSWER: The complex challenges which they faced were as; Lufthansa’s brand was
generally related to top quality. They’d a powerful reputation within the business travel segment.
40 per cent share of sales from corporate travel business in 2012. They were forming the leaders
worldwide. A number one member of the Star Alliance, Lufthansa invested within the co-
operation and strengthened links between the partners within the alliance. Numerous acquisitions
and investments, Lufthansa insisted on a particular degree of independence for the partner
airlines within the group. With over 20 million customers, Miles & More was the world leader in
customer loyalty programs for airlines in 2012.
Lufthansa was unable to make British Midland profitable and announced at the end of 2011 that
it would the sale to International Airlines Group (IAG), the parent company of British Airways
and Iberia formed in 2011, was completed in spring 2012. In 2011, Lufthansa also stopped the
operation of Lufthansa Italia. The young subsidiary, which had only been founded in 2009,
succumbed to fierce competition from low-cost airlines in the North Italian market. As a leading
member of the Star Alliance, Lufthansa invested in the co-operation and strengthened links
between the partners within the alliance. Lufthansa even started operating a joint venture on
certain routes with its partners in the United States, Canada and Japan, including A++ on North
Atlantic routes with alliance partners United Airlines and Air Canada, as well as the joint venture
“Japan+” on routes to Japan with its Japanese alliance partner All Nippon Airways. These joint
ventures went far beyond previous agreements and were a successful addition to the co-
operation. In the face of such intense competition, airlines placed a greater emphasis on co-
operation within the alliances.
Following the numerous acquisitions and investments, Lufthansa insisted on a certain degree of
independence for the partner airlines within the group and left synergy potential mostly
untapped. The co-operation with partners in close geographical proximity, such as Austria,
Switzerland or the United Kingdom, carried the risk of flight offerings being in direct
competition with each other. An optimal control of flight prices and contingents of one airline,
however, could have had a negative effect on the profitability of another group airline and, as a
result, on the group’s results.
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QUESTION#4: How attractive is the European airline industry in 2012?

ANSWER: The European Airline industry airline industry, the mergers of chronically
underfunded airlines were long overdue and by 2012 there remains potential for added mergers.
However, high losses within the industry perceived to be a controversy unique to airlines. Other
market participants, like the aircraft manufacturers Airbus and Boeing, had a combined market
share of over 90 per cent. The increase in direct selling via the net had, however, weakened the
position distribution systems. The airports and traffic control centers can be described as local
monopolies. European Airlines were also sufferings from the fact that the control of airspace in
Europe was held by national borders. So, the airlines couldn’t approach the airport using the
short routes as fuel consumption was very high.

Lufthansa took over the troubled Austrian Airlines as well as British Midland, and integrated
both companies into the Lufthansa Group. In 2009, Lufthansa also acquired a 45 per cent stake
of Belgium’s Brussels Airlines. Through these acquisitions, Lufthansa was able to merge the
markets of strong export nations and, as a result, could benefit from an excellent customer base
and a necessary increase in volume, particularly in the very important business travel sector

QUESTION#5: Extract VRIO characteristics and how they are helpful to

Lufthansa in capitalizing its strengths?

ANSWER: Following are the VIRO explanation of Lufthansa:

(1) VALUE

Lufthansa is valuable and has competitive advantage because Lufthansa is known for its great
services that are provided in-flight. Lufthansa is the leading airline group between Europe and
Asia Pacific. It is leading aviation group across the world. They have sustainability and security
program to drive strategic growth. They allow their shareholders to participate sustainably in the
group’s future success.

(2) Inimitability
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It is hard to imitate because of their strategic plans. The airline continues to be amongst the
higher cost European airlines, in terms of cost per available seat kilometer, when accounted in
terms of the average trip length. Lufthansa Technik can play a key role in the growth of Asian
MRO market. They are providing best cargo services.

(3) Rare

Lufthansa is one of the largest passenger airline fleet in the world with over 870 aircrafts and
also having subsidiaries. New segmentation with Germanwings for Lufthansa’s short-haul
network plays an important role. Lufthansa has some strong brands under it like the Swiss and
Austrian airlines. Lufthansa is also trying to become Europe only five star rated airlines.
Lufthansa has coverage in Europe with multiple hubs all over the region and this ensures
complete coverage in the region and it gives a competitive advantage to it.

(4) Organization

Lufthansa management has favored a more conservative approach to its balance sheet than most
other airlines. This means that it has lower levels of debt and a strong cash balance. Lufthansa’s
set courses and objectives are sustainable, profitable growth. This principle of sustainability to
strategic decisions regarding financial stability, value-based management, business development,
expansion, competitive advantage, and value to customers all encompass the viable recognition
of a cooperative strategy in many of the areas.

QUESTION#6: What are the internal strengths and weaknesses of the

passenger’s airline segment of Lufthansa in 2012?

ANSWER:

Strengths of Lufthansa:

The following are the strengths of Lufthansa:

(1) Lufthansa Group developed Swiss Airlines into one of the most profitable. Lufthansa is also
trying to become Europe only five star rated airlines.
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(2) The Lufthansa Group set up further independent divisions for air cargo, maintenance, repair
and overhaul (MRO) and catering, as well as its own IT company.
(3) Lufthansa offers passengers a number of excellent in-flight services.Some of these services
include in-flight meals, free check-in, frequent flier points etc.
(4) Lufthansa has coverage in Europe with multiple hubs all over the region and this ensures
complete coverage in the region.
(5) Lufthansa has brands under its umbrella which cater to almost all segments as well as permit
the airline to cover all its segments and economy. The airline owns luxury and economy
cabins, long haul and short haul and offers an entire spectrum of services.
(6) Lufthansa has some strong brands under it like the Swiss and Austrian airlines. Lufthansa is
also trying to become Europe only five star rated airlines.
(7) From the days of its inception, Lufthansa has been showcasing a more traditional perspective
to its balance sheet in comparison to other airlines. The debt is low and the cash balance is
higher. The ratio of cost of equity to the cost of debt is also low.
(8) Lufthansa is known for its services that are provided in-flight. Some of these services include
in-flight meals, free check-in, frequent flier points etc.

Weakness of Lufthansa:

Weaknesses of Lufthansa are following:

(1) The Company has been notorious for numerous issues regarding its human resource policies.
(2) There have been a number of pilot strikes which continued to 2015 and both parties are
trying their best to iron out their differences.
(3) There have also been numerous debates with respect to pay differences and pension schemes.
(4) As more low-cost carriers entered the market Lufthansa started losing face rapidly. However,
its response to the low-cost carriers has been lukewarm.
(5) Lufthansa has been taking numerous efforts for cost savings which accounted for more than
EUR2.5 billion savings in the airline’s bottom line between 2012 and 2014.
(6) The airline continues to be amongst the higher cost European airlines, in terms of cost per
available seat kilometer, when accounted in terms of the average trip length.
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QUESTION#7: Which strategic options are available to Lufthansa and how

could they be implemented?

ANSWER: Sustainable and profitable growth enhances with the assist in their super schooling
and experienced leadership group, they're in a position to set up resources efficaciously and
optimize them continuously. They are notably gifted inside the middle approaches of air travel
which include working approaches on the floor and within the air and objective is continually to
improve nice costs and versatility constantly even as maintaining very excessive safety tiers.

The strategy of Lufthansa is focused at profitable growth, and follows a route toward sustainable
corporate development and value creation. Lufthansa’s uses an organizational structure and
controls to operate a highly diverse and decentralized segment. This structure consists of separate
businesses and profits centers that a separate management and supervisory structures. Lufthansa
operates in five business segments. The Executive Board is responsible for managing the
Company; it defines its strategic directions and aims for sustainable growth in its value. The four
areas of responsibility are a reflection of Lufthansa’s goal towards a group of largely
independent airlines. Each individual business segment runs as a separate Group company with
their own profit and loss and operating responsibilities. This structure is audited and contains a
centralized financial reporting system that allows information between the segments and
financial planning between the Groups

The improvement of the Group and its organizational structure stays a fundamental factor of
approach and a success element, which lets in us to rise to the demanding situations set by means
of continuously changing environmental and marketplace conditions. Since Lufthansa made the
quantity of its vertical integration more bendy and sharpened its airline profile within the 1990s,
the Group has evolved into an alliance of operationally impartial airways. In this multi-airline
and multi-provider group all the companions enjoy the mutual exchange of fine practices in
addition to from wide-ranging cost and sales.

The strategic business unit form is used by Lufthansa regarding how they operate their Group
and acquisitions. The segments with Lufthansa are related in terms of shared products and
markets and help to develop economies of scope and scale. They are financially controlled by
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headquarters and evaluated consistently to ensure performance and profitability within the
Group. Lufthansa’s financial strategy is aimed at securing a freedom of action for the Group in
regards to its operations, finances, and strategic performance. The acquisitions of Lufthansa are
managed as largely autonomous companies within the group. This allows for the airlines to keep
their identity and brand. The structure allows synergies to be realized and the companies support
from Lufthansa in regards to stability and resources.

The monetary strategy is an vital a part of the general method for the Lufthansa Group. Its
primary aspects are incorporated into all of the Company’s critical selections. The monetary
method is carried out via a number of truely described targets. In 2010 they added an additional
target indicator. The overall performance indicator “debt repayment ratio” turned into introduced
to evaluate and plan for a sustainable level of debt for the Group.

Lufthansa was once known for its strong culture, based on pride and a positive image within the
industry pertaining to engineering competencies. But in 2001, the pilots strike showed the
changes within the company and the dissatisfaction of the employees toward the company’s way
that they appreciated their employees. Lufthansa’s organizational structure has changed the
firm’s culture and is vital that continued actions and changes are implemented to reinforce a new
culture as needed. Strategic leadership in top management must drive a positive outlook on
internal changes and communicate to their employees what objectives and goals are be
implemented. The leadership should be aware of the diversity within the firms segments and
establish tailored messages that will fit the different the different cultures within the firm.

Summary
Lufthansa is known for its great services that are provided in-flight. Lufthansa is the leading
airline group between Europe and Asia Pacific. It is leading aviation group across the world.
They have sustainability and security program to drive strategic growth. They allow their
shareholders to participate sustainably in the group’s future success. The airline continues to be
amongst the higher cost European airlines, in terms of cost per available seat kilometer, when
accounted in terms of the average trip length. Lufthansa Technik can play a key role in the
growth of Asian MRO market. They are providing best cargo services. Lufthansa management
 Page |8

has favored a more conservative approach to its balance sheet than most other airlines. This
means that it has lower levels of debt and a strong cash balance. Lufthansa’s set courses and
objectives are sustainable, profitable growth. This principle of sustainability to strategic
decisions regarding financial stability, value-based management, business development,
expansion, competitive advantage, and value to customers all encompass the viable recognition
of a cooperative strategy in many of the areas.

Lufthansa is one of the largest passenger airline fleet in the world with over 870 aircrafts and
also having subsidiaries. New segmentation with Germanwings for Lufthansa’s short-haul
network plays an important role. Lufthansa has some strong brands under it like the Swiss and
Austrian airlines. Lufthansa is also trying to become Europe only five star rated airlines.
Lufthansa has coverage in Europe with multiple hubs all over the region and this ensures
complete coverage in the region and it gives a competitive advantage to it.

The key challenges for Lufthansa in 2012 are to find the ways to increase the profitability of the
group, especially within the main business of passenger transportation. There loomed the threat
of the commodification of air transportation service. The tremendous growth of competitors from
the Middle East, as well as an announcement by primary competitor, Emirates, of its plans to
further expand the Dubai airport into an international hub, also caused increasing concern at the
group’s headquarters. The press reported that at the beginning of 2012, Lufthansa even
demanded government intervention against further expansion by the Gulf carriers in Europe.
Franz urgently needed fresh ideas and a strategy to sustain and strengthen Lufthansa’s
competitive position. Its management had to make sure that the airlines from the Middle East
would not damage its hold on the profitable long-haul sector as the low-cost airlines had done to
the European short-haul sector only a few years before. In an industry characterized by growth,
Lufthansa did manage to increase its revenue in 2011, though its operating margin fell short of
expectations and profitability was a major concern. Lufthansa AG, with its seven affiliated
passenger airlines, was the largest airline group in Europe, operating a fleet of 696 aircraft and
employing 119,084 employees business area of passenger transportation, primarily through the
acquisition of other European airlines. In 2011, the Lufthansa Group carried 106 million
passengers. With a turnover of 28.7 billion euros in 2011, it was the world leader, just ahead of
the United-Continental Holdings group, which was formed in 2010 through the merger of two
 Page |9

large American airlines. In 2007, Lufthansa generated its strongest results ever, with an annual
net profit of more than 1 billion euros.

The complex challenges which they faced were as; Lufthansa’s brand was generally related to
top quality. They’d a powerful reputation within the business travel segment. 40 per cent share of
sales from corporate travel business in 2012. They were forming the leaders worldwide. A
number one member of the Star Alliance, Lufthansa invested within the co-operation and
strengthened links between the partners within the alliance. Numerous acquisitions and
investments, Lufthansa insisted on a particular degree of independence for the partner airlines
within the group. With over 20 million customers, Miles & More was the world leader in
customer loyalty programs for airlines in 2012.

Lufthansa was unable to make British Midland profitable and announced at the end of 2011 that
it would the sale to International Airlines Group (IAG), the parent company of British Airways
and Iberia formed in 2011, was completed in spring 2012. In 2011, Lufthansa also stopped the
operation of Lufthansa Italia. The young subsidiary, which had only been founded in 2009,
succumbed to fierce competition from low-cost airlines in the North Italian market. As a leading
member of the Star Alliance, Lufthansa invested in the co-operation and strengthened links
between the partners within the alliance. Lufthansa even started operating a joint venture on
certain routes with its partners in the United States, Canada and Japan, including A++ on North
Atlantic routes with alliance partners United Airlines and Air Canada, as well as the joint venture
“Japan+” on routes to Japan with its Japanese alliance partner All Nippon Airways. These joint
ventures went far beyond previous agreements and were a successful addition to the co-
operation. In the face of such intense competition, airlines placed a greater emphasis on co-
operation within the alliances.