Lufthansa Structure and Governance. Performance and Competition. Essay

Lufthansa

Structure and Governance.

Performance and Competition.

Five-force analysis.

Lufthansa is one of the oldest and most successful commercial airlines in the world, and is the fourth-largest in terms of passengers. However, the company has not always been so successful, and in fact was teetering on the brink of bankruptcy just a short while ago. By examining Lufthansa's history, structure, governance, and contemporary strategies and goals, one is able to see how the company has weathered the ups and downs of political and economic history while increasing its market share to become a dominant force in the air transport market. Furthermore, by applying a SWOT and TOWS analysis to the company, one is able to effectively determine the best course going forward so that the company may retain its historical dominance while preparing itself for the unprecedented technological and social growth expected over the next decade.

History

The German airline Lufthansa offers an ideal case study of what it takes to succeed in the international transport business, and not only because the airline has been in business, in one form or another, for almost a hundred years. The company has managed to survive a world war, the partitioning of Germany, reunification, and advent of the euro, all while steadily growing its market share to become the fourth-largest airline in the world, carrying over fifty-six million passengers each year.

By examining each area of Lufthansa's business, from its history to its current management, alongside more detailed analyses of its role within the airline sector as a whole, one is able to see how Lufthansa has managed to succeed even when success was far from a guarantee. Although there have been ups and downs in Lufthansa's history, including some recent, well-publicized blunders, over the long-term the company has demonstrated an ability to react and respond to new challenges.

The name Lufthansa did not appear until after the second world war, when Germany required a new "flag carrier" airline in the wake of its defeat; all of its previous transport operations had been shut down as part of that defeat. However, the company can actually trace its history back a few decades, to the beginnings of commercial flight, when Deutsche Luft-Reederei became the first German airline to use planes instead of zeppelins, and introduced the same crane logo that adorns Lufthansa's planes to this day.

Thus, while the organization named Lufthansa did not come into existence until 1953, the beginnings of Lufthansa's business can be found much earlier. In 1926 Deutsche Luft-Reederei became Deutsche Luft-Hansa, which served as Germany's flag carrier until the end of World War II in 1945, and in 1953 Lufthansa was created in West Germany, beginning the growth of the airline well-known today.

During the nineteen-fifties there were actually two companies named Lufthansa, with East and West Germany each claiming their own. The West German Lufthansa was the actually organization that was born out of the remnants of Deutsche Luft-Hansa, while the East German Lufthansa was a new company of its own creation. However, after a few years of legal conflict, East Germany ultimately rolled its Lufthansa into the larger East German flag carrier airline, Interflug.

In the context of Lufthansa's growth as a business, perhaps the most important feature of this era was the fact that the West German Lufthansa was not allowed to fly through East German airspace, meaning that it was not allowed to service Berlin's Tempelhof or Tegel airports, and instead had to center its business around more western cities like Hamburg and Cologne.

As air travel picked up in the nineteen-fifties, Lufthansa began to grow rapidly, although this growth was in a decidedly western direction, as the airline serviced western Europe and the United States.

In some ways one may view the trajectory of Lufthansa over the course of the latter half of the twentieth century as a kind of arc or wave, rising during the nineteen-fifties, cresting during the nineteen-sixties, and, beginning in the seventies, beginning to fall until reaching a low point at the beginning of the nineteen-nineties, after which dramatic actions served to turn around the airlines' fortunes, so that by the new millennium the airline was once again a global leader. Lufthansa's rise, fall, and subsequent rise is especially instructive because it helps to demonstrate how larger political, social, and technological developments have shaped the air transport sector, and seeing how Lufthansa succeeded where other airlines failed will be crucial to understanding the company's success.Furthermore, as will be seen, Lufthansa's economic history is deeply entwined with the political history of Europe and the Middle East, and understanding how these connections have influenced Lufthansa's management will offer some insight into the company's future.

The nineteen-sixties saw Lufthansa's business transform once again, as jet engines rapidly replaced the propellers that Lufthansa's trademark Super Constellation had made famous.

The introduction of jet engines transformed not only Lufthansa's business, but the airline and transport industry as a whole, because all of a sudden passengers and cargo could travel faster and at much larger capacities. The ability to carry more, further meant that transport channels had to be entirely remapped, leading to the beginnings of the so-called "hub-spoke" networks that characterize contemporary airline services.

Although these hub-spoke transport networks would not truly arise until further deregulation opened up the airline market, the introduction of jet engine technology is the advancement that made these kinds of networks possible by reducing the legs of any given long-distance journey, allowing a few large airports to service a distance that previously required multiple stops and planes.

If the fifties and sixties were a heady era of growth and optimism, as new technologies and a post-war excitement spurred the airline industry, then the nineteen-seventies were a harsh does of reality forcing airlines to confront the realities of a new, decidedly global economy. Even as the introduction of "jumbo jets" meant that Lufthansa could carry even more passengers, with the possibility of the same kind of fare reductions that occurred as a result of the transition from propellers to jets, the political and economic crises of the nineteen-seventies nearly crippled the company. In particular, dual oil crises in 1973 and later in 1979 made the price of oil skyrocket, and although Lufthansa made important advances in fuel-conservation technology, the effects of these crises would hamper the airline's attempts to remain profitable for the next decade.

The damage that the fuel crises of the nineteen-seventies wreaked on the airline industry cannot be understated, and to get an idea of how serious the impacts were, one need only consider the numerous regional airlines that went bankrupt in the next few years; in the United States alone, twenty-four regional airlines went under between the years of 1979-1982. Larger companies, such as Lufthansa and Pan-Am, would not feel the full brunt until some time later. Although some of these bankruptcies were likely the result of more than an increase in fuel prices, the oil crises essentially served as a coup de grace for companies that had thus far managed to get by during what might be called the boom era of commercial air transport. Lufthansa managed to survive the oil crises, but by the end of the nineteen-eighties the company was on the verge of bankruptcy, and likely would have gone under were it not saved by a serious internal shakeup coupled with an unprecedented change in international affairs.

Perhaps the most well-known collapse of an airline is that of Pan-Am, which occurred in 1991. The airline, like Lufthansa and others, had suffered serious drawbacks as a result of the oil crises of the nineteen-seventies, such that by the end of the eighties it was already in a weakened state, subject to increased competition. With the advent of the first Gulf War, oil prices once again went up, and this served as the final nail in the coffin of an airline that had existed since 1927, just a year after Deutsche Luft-Hansa's founding. Lufthansa could well have suffered the same fate, except just as the Gulf War was winding up, the partition of Germany was winding down, so that by the end of 1990, the airline once again had access to the city of its birth, Berlin.

The reunification of Berlin (and Germany) meant that Lufthansa was once again Germany's premier airline, and having access to Berlin meant that the company could finally service one of the most important economic and political hubs in Europe.

However, while the reunification of Germany was an important psychological and long-sought for boost, Lufthansa was still suffering from many of the same problems that had been plaguing it for years. Thus, less than a year after the reunification of Germany, the company was literally on the verge of bankruptcy, having seen "an after-tax loss of more than $250 million (U.S.)."

To understand just how dire Lufthansa's financial situation was at the beginning of the nineteen-nineties, one need only.....