Deutsche Lufthansa, also known as Lufthansa was founded in 1926 with the formation of Deutsche Luft Hansa A.G in Germany. It remained the countrys official Airline before it suspended its services in 1945 after the crushing defeat of the Nazi German. The Aktiengesellschaft furLuftverkehrsbedarf came in to replace the Deutsche Lufthansa in 1953. In 1954, Luftag took over and continued the tradition with the logo and the name of the Deutsche Lufthansa as it continued and maintained as the countrys flag carrier with the name Lufthansa. It began its international flights in the year 1955, to Madrid, Paris, New York, and London. Later in 1958, the airline started weekly flights to South America, Canada, Baghdad, and Tehran. Gradually, as the country stabilized politically, it moved its headquarters to Frankfurt Airport.
The airline continued its expansion and acquisition of jet lines such as the Boeing 707s, Boeing 720 as it expanded its flights to South Africa, Tokyo, Lagos, Hongkong, and Nigeria. The company realized its largest and biggest expansion between the years 1900 to 2000 in which it increased its fleet, introduced new routes, and modified its operations. It acquired Swiss International Air Lines in 2005, although they the two airlines run separately. In 2008, it again acquired the Brussels Airline (Barrett, 2009, p 14). The partnership increased the companys operations and flights with the introduction of services such as flights between Tokyo and Frankfurt. Despite economic recessions, pilot disputes, and minor restructure logistics; the Airline has continued its operations successfully over the years. The figure below shows the Airlines destinations, in addition to the group airlines and traffic revenue globally.
Strategic Issues facing the Airline
Restructuring and Acquisition Strategies
According to Dombrowski (2011, p 34), since its inception, Lufthansa has embarked on an acquisition strategy to buy out and increase its stake in various airlines and business segments. For example, in 2005, the group acquired Swiss International Airline, fully that included a provision for its majority shareholders be paid out if at all the share price surpass the airline index (Hatty & Hollmeier, 2003, p 56). Additionally, in 2008, the airline acquired a major stake in Brussels Airlines with a goal of acquiring 100 percent stake in the company by the end of 2017. It acquired the Australian Airline in 2009, which received the endorsement of the European Commission. A quick look at the corporate structure of the company shows a group made of several portfolios comprising of network airlines, aviation service, Passenger Airline, Logistics, IT services, Catering, MRO, and equity investments with over 540 subsidiaries (Barrett, 2009, p 18). The restructuring strategy of including all the units into one business has reinforced the companys financial portfolio and corporate management. The strategy further focused on expanding its services to remote regions of the globe such as Southern Asia, with Geopolitical occasions helping the Airline strengthen its regional presence and expansion of its services to new markets. For instance, the Flight Training segment has positioned the Airline as a dominant player in the aviation industry as it focuses its business prospects away from passenger and cargo services. The strategy has played a vital part in reinforcing the companys dominance in Europe with expansion and focus on equity acquisition and profit realization (Thompson & Martin, 2010, p 15).
The IT segment has remained a dominant player in the companys strategic role in digitizing its operations, reducing expenses in key areas of operations such as online bookings, business travel operations, and insurance policies. The strategies have remained and remain key players in the maintenance of the Airline's competitive advantage as it continues to reinforce its presence and business activities within and outside Europe (Figures & Sept 2009, p 3). A key component of the Airlines restructuring strategy includes the introduction of the long haul on the standard approach. The plan aimed at positioning the airline to compete effectively with Airlines including Etihad, Emirates, and Qatar that had introduced cheap flights under the economy class (Daft & Alber, 2015, p 4). The move by its key competitors resulted into Lufthansa abandoning some of its major routes such as Abu Dhabi as its core competitors increased their dominance with the cheap economy tickets. It re-branded its Eurowings as a long-haul low-cost carrier. The airline focused on serving tourist destinations including Africa, Florida, and the Indian Ocean among other hubs (Button 2009, p 150).
The formation of the Star Alliance, a first of its kind in the airline industry, has helped the airline to position its self as a strategic partner with other regional air players in the aviation sector. Made up of United Airlines, Air Canada, Scandinavian Airlines, and the Thai Airways International, the Airline has opened and expanded its destination routes as it aligns itself with its Star Alliance partners. Since 2001, the airline has increased its profit realization (Dobson & Piga, 2013, p 1216). Although the 9/11 bombing in the United States did not affect its operations, other Airlines laid off its workers. The strategy enabled Lufthansa to increase its fleet to cover new destinations such as a direct connecting flight between Tokyo and Frankfurt. Its acquisition of Brussels Airlines further allowed it to expand its presence in new and potential markets within and outside the European market. According to Oum and Yu (2012), despite losses in the first quarter of the year 2010, the company has remained optimistic as it launched the SCORE restructuring program aimed at improving its operating profits. The restructuring plan saw the company transfer most of its flights to other hubs including Dusseldorf, Munich, and Frankfurt a move that saw the company increase its flights to cater for the low-cost carriers. The restructuring and under the international strategy has enabled the airline to remain afloat despite global financial challenges. Under its international strategy, the airline has increased its ownership of the leading airlines such as AeroLogic, Air Dolomiti, Swiss Global Air, Edelweiss Air, and Austrian Airlines among others (Oum & Yu, 2012).
However, the continued acquisition and mergers led to increased government limitations and regulations that saw the Airline focus more on operating in regions with less control and increased investment opportunities (Dombrowski 2011, p 34). By emphasizing on the company's global strategy, the airline has increased its focus on customer satisfaction in all its segments of operation. The international policy has remained an essential component of the Airlines competitive strategy to increasing opportunities for investment and increased profits by operating in sustainable business environments. For example, the introduction of the Lufthansa Regional is aimed at adding to the companys economies of scale in addition to expanding its market size in the European market and beyond (Grimme 2009, p 335).
Organizational Structure and Controls
The primary controls with the organizations management structure remain a fundamental component of aligning the body with its key strategies of dominating and increasing its market share within and outside Europe. The primary controls and strategy aimed at key areas that included the elimination of intermediaries and cost cutting for both regional and international markets. The strategy aims at focusing on establishing a strong financial performance in addition to maintaining a low credit rating, and little debits. As of Dec 2016, the company had a debt free fleet of over 70 percent (Helms & Nixon 2010, p 217). Additionally, the aim focused on avoiding duplication of functions within and among the different segments and focusing more on corporate strategy. The organizational structure remains a firm foundation for the airlines, corporate management and the overall objective of the company that aims at maintaining its dominance within and outside Europe (Figures & Sept 2009, p 3). In attempts to streamline its operations and management aspects, the airline has streamlined its personnel all over the globe with an emphasis on diversification, employee training, and empowerment, in addition to safety measures. As the company continues with its competitive strategy, organizational structure and controls stand out as the key drive to accomplishing its goals and dominance in Europe and beyond (Reggiani et al., 2010, p 452).
Competition within the aviation industry has gone a notch higher as different Airline companys consolidated and rebrand their ventures. Key competitors within the European airline industry include Qatar Airways, Emirates, and Etihad Airways. Within the European market, its key competitors include Easyjet and Air Berlin (Daft & Alber 2015, p 6). The most common methodology to reorganizing its operations towards countering competition includes joint ventures, franchising, and core-share agreements. As international airlines continue to extend and grow in tier services, competition and aggression within the marketplace have intensified with many airline companies employing different tactics and strategies to gain a competitive advantage over its key competitors (Oum & Yu 2012). The measures include increased cities served, joint scheduling, cost cutting measures, re-branding, aggressive marketing, combined utilization of infrastructure and purchasing services.
Lufthansa's competitive advantage arises from its initial emphasis on creating a global alliance network that saw it set up and join the Star Alliance. The Star Alliance, one of its kind globally, consists of 19 airlines all with a leading position in both the domestic market and the international market (Barros & Peypoch 2009, p 537). The Alliance boasts of over 30 percent of worldwide passengers, accounting for approximately 55 percent of passenger traffic globally as shown in the figure below.
Lufthansa, together with its Star Alliance members have emphasized on reducing connecting time, working on joint flier programs and bookings. Additionally, the Star Alliance has positioned the Airlines and more so Lufthansa as the giant Airline in its travel routes increasing its dominance and activities. Lufthansa is further protected by from mergers as it has positioned itself and focused on portraying its image as a symbol of national prestige, offering aid and support to many international organizations (Iatrou & Oretti 2016, p 34). The mergers, Star Alliance, and standing out as a national prestige has enabled the Airline to strategically position itself as the airline to beat in both regional and international markets. The airline's cost synergies represent a well crafted competitive advantage that has made it stand out in the European and Asian market for more than six decades (Bel & Fageda 2010, p 145). The harmonization of its services and products, the multi-hub policy has continued to offer its customers added value and flexibility in traveling. The many hubs including Frankfurt, Munich, and Zurich played a vital role in adding value to customer service in increasing accessibility and strategic positioning within and around the major European countries (Alkaabi 2014, p 46). As a group, each carrier focuses on playing on its strength within i...
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