SWOT analysis for Lufthansa case

SWOT analysis for Lufthansa case Paper details: Need to do a SWOT analysis for Lufthansa (Strengths, Weaknesses, Opportunities, Threats and so on). Lastly, I need write a recommendation for Lufthansa on how they can perform better. In this writing, I will need to focus more on the SWOT analysis, therefore, half to one page for the recommendation is good enough - Do not use point form and everything has to be in paragraph. - Source is not necessary, but if your writing needs it, cite it. 9B15M027 LUFTHANSA 2012 Heike C. Wörner wrote this case solely to provide material fo r class discussion. The author does not intend to illustrate eithe r effective or ineffective handling of a managerial situation. Th e author may have disguised certai n names and other identifying information to protect confidentiality. This publication may not be transmitted, photoc opied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproducti on of this material is not covered under authorization by any reproduction rights organization. To order copies or request per mission to reproduce materials, contact Iv ey Publishing, Ivey Business School, West ern University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2015, Richard Ivey School of Business Foundation Version: 2015-06-29 On January 1, 2011, Christoph Franz succeeded Wolf gang Mayrhuber as the chairman of the executive board and chief executive officer (CEO) of Deutsche Lufthansa AG (Lufthansa). He began his career at Lufthansa in 1990 as a management trainee under for mer CEO Jürgen Weber, where he was involved with the implementation of a restructuring program that followed Lufthansa’s privatization. Shortly after, he moved on to Deutsche Bahn, the public German rail company, where he eventually became the CEO of the passenger and transport division. Ten year s later, he took up the position of CEO at Swiss International Airlines and successfully implemented its turnaround as well as its integration into the Lufthansa Group. Having developed Swiss Airlines into one of the mo st profitable carriers within the Lufthansa Group, Franz moved to his next challenge. In an industry characterized by growth, Lufthansa did manage to increase its revenue in 2011, though its operating margin fell short of e xpectations and profitability was a major concern. Between 2007 and 2011, the price of Lu fthansa shares fell by half. In 2012, Franz had to find ways to increase the profitability of the gr oup, especially within the main business of passenger transportation. Along with the insufficient profitability of the Lu fthansa Group, 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 competito r, 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, Luft hansa even demanded government intervention against further expansion by the Gulf carriers in Europe. Fr anz urgently needed fresh ideas and a strategy to sustain and strengthen Lufthansa’s competitive positi on. 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. THE RISE TO AN INTERNATIONAL AVIATION GROUP In 2011, Cologne-based Deutsche 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 worldwide. In the first decade of the 21 st century, Lufthansa had enjoye d steady growth in its core Authorized for use only by calvin chu in MGT 4090 at University of Lethbridge from Sep 09, 2015 to Dec 15, 2015. Use outside these parameters is a copyright violation. Page 2 9B15M027 business area of passenger transportation, primarily thr ough 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-C ontinental Holdings group, which was formed in 2010 through the merger of two large American airlines (see Exhibit 1). In 2007, Lufthansa generated its strongest results ever, with an annual net profit of more than 1 billion euros. 1 In the years that followed, however, they were unable to match these results. In 2011, the main source of Deutsche Lufthansa’s revenue was passenger transportation, which acc ounted for 75 per cent of the group’s results. 2 In 1994, shortly after German reunification, Deutsche Lufthansa experienced the biggest upheaval in the history of the company. The liberalization of the tran satlantic aviation market as well as the complete liberalization of air transport within the European Union meant that Lufthansa was faced with increased competition. In response, major restructuring was ca rried out. Following serious financial problems, the German government-owned airline was privatized, partially at first, and then completely in 1997. During the privatization process in the nineties, alongside it s core business of flight operations, the Lufthansa Group set up further independent divisions for air car go, maintenance, repair and overhaul (MRO) and catering, as well as its own IT company (see Exhibit 2) . They chose this portfo lio approach to partly counter extreme market fluctuations. With its subs idiary Lufthansa Sky Chefs, Lufthansa became the market leader in the catering industry and, with the t echnical expertise of Lufthansa Technik, the leader in aircraft maintenance and repair. The transition into the 21 st century seemed smooth for Lufthansa, as it 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. Numerous globa l issues emerged during the beginning of the new millennium, including the attacks of September 11 in th e United States, the outbreak of SARS in Asia and the war in Iraq. These all took their toll on airlines wo rldwide, including Deutsche Lufthansa, and steadily diminished operating results. Despite these complex issues, Lufthansa’s brand was generally associated with high quality. In addition, it had a strong reputation in the business travel segment. With a 40 per cent share of sales from corporate travel business in 2012, Lufthansa was the market lead er worldwide. The revenue from first and business class made up 39 per cent of company results, and fo r long-haul flights, the premium share was 50 per cent. 3 Only Singapore airlines, its Star Alliance part ner, could boast a similar share of 40 per cent. 4 This seemingly positive position enjoyed by Lufthansa c ould not hide the fact that, for a firm of its size and turnover, the profits of the last few years were relatively low. In order to be able to invest in innovations, such as Internet on board, the flat business class seat, or the renewal and expansion of their fleet, Lufthansa urgently needed to achieve a better operating margin (see Exhibit 3 and 4). CO-OPERATION AND ACQUISITIONS In order to survive in the new competitive environm ent that emerged following liberalization, Lufthansa stepped up its search for partnerships and in 1997 founded the first airlin e alliance, named Star Alliance, with partners United Airlines, Air Canada, Scandina vian Airlines and Thai Airways. Each day, the alliance members operated 21,230 flights in 189 countri es, which made Star Alliance the largest strategic alliance in the market. 5 By 2012, the alliance comprised 27 member airlines. In 1999, the European competitors followed suit, with British Airways an d its global partners establishing the One World alliance. Shortly afterwards, in 2000, a third globa l alliance, named Skyteam, was formed by Air France and its partners Delta Airlines, Korean Air and Aeromexico. Authorized for use only by calvin chu in MGT 4090 at University of Lethbridge from Sep 09, 2015 to Dec 15, 2015. Use outside these parameters is a copyright violation.