Eddielogic

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Lufthansa starts to change its strategy

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Lufthansa starts to change its strategy was a headline of a German business newspaper today. So let us take a brief look behind this headline.
To respond to the increasing competition in the German aviation market the German airline Lufthansa will change some parts of its strategy. So far, the airline focused their long distance flights on the airports of Frankfurt, Munich and Düsseldorf. Now Lufhansa has announced its plans to offer those flights from other German cities, too. Hamburg, Stuttgart and Berlin are potential candidates for those ideas. In recent years other competitors were able to win market share, e.g. the airline Emirates offers flights from Hamburg to New York; furthermore this airline started to evaluate the option to extend their flight plans to Berlin and Stuttgart. Quatar Airlines, Continental and Delta (that is not more under chapter 11 since 2007) have been successful as well.

This idea offers some major benefits for Lufthansa:

  • It reduces their dependency from the Frankfurt airport, which capacities can not extended quickly enough.
  • It enables the airline to respond to an increasing demand for intercontinental flights. Due to the high ratio of first class and business class travellers these flights are more profitable than other routes.
  • It enables the airline to keep track of their competitors that have demonstrated higher growth rates recently

 

Disadvantages of this idea have to be considered as well:

  • The long term existence of a stable demand for long distance flights has still to be proofed for those cities. Berlin sounds fine for me, since it has become the German capital (that caused that many organizations did move their headquarters to Berlin) and can operate as a magnet for eastern parts of Germany.
  • As we know from research, Mega-hubs are more cost efficient compared to multi-hub systems, therefore this new concept might also offer some major cost-disadvantages for Lufthansa.
  • Furthermore it might be possible that Lufthansa will take off its own customers form the Mega-hubs to the new airports and therefore cannibalizes its own network. (However, we have to consider that otherwise competitors (would) do this. 

Despite the above mentioned benefits I would be careful to describe those changes as a strategy change in general. Lufthansa offers the same type of services in the same market; therefore it can be argued that the airline just responds to an increasing demand and starts to penetrate the market with some “service modifications”. Basically it is more a modification of its competition strategy and highlights the importance of strategy tools and concepts, e.g. environmental analysis and scenario planning. It can be called “strategy change” if the focus on Mega-hubs (e.g. Frankfurt) has been a crucial element in their former (“old”) business concept.

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