Lufthansa 2000: Maintaining the Change Momentum
Professor Don Fujitani
Section # 15663
Worldwide events such as the Gulf War, followed by a recession, put a burden on the airline industry and on Lufthansa as a company. These events caused a major decrease in the amount of seats filled in the airline industry. In 1991 the Seat Factor decreased to about 57 percent in Europe, compared to 65 percent worldwide.
You can infer from the case that the growing alliances ...view middle of the document...
In general, technology available in the industry includes planes, navigation equipment, aircraft engines, and onboard computers. Lufthansa developed IT systems which integrated numerous business activities. These systems presented IT based products and services for airlines and companies in transport, travel, and tourism industries. In 1999 this IT system was called “Lufthansa IT Services” and it became the core for all Lufthansa related companies. LH Technik, a subsidiary company, was a global market leader in aircraft maintenance and VIP cabin outfitting. This subsidiary provided services to Lufthansa and also 47 percent of its revenues were earned from external companies.
Threats and Barriers:
For most of the industries in which Lufthansa Group operates the threat of a new competitor entering is low and the barriers are high. Huge amounts of capital and marketing investment is required. The only exceptions are with C&N’s tourism and Sky Chefs catering which would require less capital investment and therefore be easier to enter.
Power of buyers:
Travelers are the major buyers. According to the case the number of passengers increased from 33.7 million in 1992 to 40.5 million in 1998. Buyers have many choices when it comes to an airline carrier. Because of the Internet, pricing information is not secret and people can easily compare. Since there is no product differentiation and everyone arrives to their destination, the threat of switching to low cost carrier is always present.
Power of Suppliers:
Two most important inputs for airline industry are airplanes and fuel. There is not any substitute for either one of them. Suppliers such as aircraft manufacturers and fuel companies are crucial for Lufthansa and other airlines to operate. Since there are not many aircraft manufacturers and most fuels are the same, airlines do not have too many options. However, even with high supplier power, the risk of suppliers forward integrating to offer flight service to travelers is very low. Lufthansa attempts to backward integrate by the creation of LH Technik. This would decrease the power of the aircraft manufacturers because it decreases the tie between maintenance and reconditioning services.
Lufthansa has seven distinct companies in operation. Each has its own product substitutes associated with it. For the Passage (passenger airline service), some product substitutes are buses, trains, cars, and taxis. For the Lufthansa cargo AG, other options include e-mail, telephone, and fax. C&N tourism does not have any viable substitutes. LH Technik AG is responsible for aircraft maintenance and VIP cabin outfitting. There are no real substitutes. Lufthansa LSG Sky Chefs catering could be leaves options such as vending machines and restaurants. GlobeGround ground services can be spelled by the same industries that would replace the cargo service. Lufthansa Systems GmbH (information technology) can...