Strategic Analysis of Lufthansa: Business Environment and Strategies

This report provides a comprehensive analysis of Deutsche Lufthansa AG's business strategy. It begins by examining the macro-environment using PESTEL analysis, evaluating political, economic, social, technological, legal, and environmental factors influencing the airline's operations. The report then delves into Lufthansa's internal environment, utilizing VRIO analysis to assess its resources and capabilities, identifying strengths and weaknesses. Furthermore, it applies Porter's Five Forces model to evaluate the competitive forces within the airline industry. The analysis extends to the application of generic competitive strategies, including cost leadership, differentiation, and focus strategies, as well as the Ansoff matrix, to understand Lufthansa's strategic positioning and growth strategies. The report concludes by summarizing the key findings and insights into Lufthansa's strategic approach to maintain its competitive edge within the aviation sector.

Business
Strategy
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Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Applying frameworks which can have a influence and impact on macro environment on a
organisation and its strategies......................................................................................................3
TASK 2 ...........................................................................................................................................7
Internal environment and capabilities on a organisation using appropriate frameworks............7
VRIO ANALYSIS:..........................................................................................................................8
TASK 3..........................................................................................................................................10
P3 Applying porter's five force model to evaluate various competitive forces in a given market
sector..........................................................................................................................................10
TASK 4..........................................................................................................................................13
P4 Applying theories, concepts, models and strategic planning for a particular organisation. 13
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18
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INTRODUCTION
Business strategy is one of most important used by the organisation to gain the
competitive edge to enchant potential consumers. It is very much significant for an organisation
to build strategies and tactics to ensure about the survival of the organisation by evaluating each
and every aspect related to the organisation and its business environment. Before building
strategies organisation have to evaluate the scenario of the business by accessing their internal as
well as external factors which affect on their business activities in both positive and negative
way. This report is based on the Deutsche Lufthansa AG, which known as Lufthansa is the
largest German airline industry by combining their subsidiaries. It is the largest airline in the
European marketplace in regards of passengers carried out. This report is based on the
significance of business strategies by evaluating the Micro environment to combat in effective
manner for achieving effective results. Further it elaborates internal factors with the help of
VRIO and SWOT analysis in order to acknowledge their areas of strength and weaknesses. It
also includes the Porter five force model and Ans-off matrix in order to evaluate the competitors
strategies to remain always competitive in marketplace.
About Lufthansa
Respective company is founded in year 1953 they are operating their business operations
and function at aviation industry. It is one of the largest German Airline and second largest
airline in Europe location in respect of carried passengers. Lufthansa have numbers of
subsidiaries firm such as Air Dolomiti, Brussels Airlines, Lufthansa Cargo, Lufthansa City Line
and many more. Its head office is located at Cologne, Germany.
TASK 1
Applying frameworks which can have a influence and impact on macro environment on a
organisation and its strategies.
External factors:
External business environment affects the business activities in both positive and
negative manner, it is very much potential for an organisation to examine each and every factor
before building strategies and tactics to gain important insights with the help of PESTEL analysis
which examine surroundings of the business in proper manner that are as follows:
Political factors:
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Lufthansa which is a leading organisation in the aviation sector which regulated in
highly regulated political environment in which consumers favoured the airlines. The safety and
comfortability is one of most significant factor and political establishments one of the weary
factor and strict regulations on their operations (Akter and et.al ., 2016). In the 21st century
marked as an high losses and consolidation so that industry highly rely on the external business
environment in order to build policies and strategies accordingly. The terrorist attack on the
September 11th 2011 poor economic conditions in the most countries that directly affect on the
business of respective organisation adversely so it can be said that as an international country the
political instability affect business activities on their business (Albers and et. al., 2017) . Due to
earlier implications of various kinds of inclinations and regulations passengers are in position to
influence for lower prices and amenities which hinders the interest area of respective
organisation. So with the help of analysis of whole environment organisation can gain potential
outcomes.
Economic factors:
In economic factors consist of the bank rates, inflation, credit terms and conditions and
many other factors. In context of Lufthansa 9/11 attacks affect on their profitability and
sustainability in order to remain competitive in business environment as they are yet to recover
from it (Evans and et.al ., 2017). The long recession in the economy and fluctuations in prices of
oil and sluggishly slow down in the economy are one of most deliberating factor which directly
affect on their profitability level. They have to build strategies and tactics to cope up with
reduction in the interest of consumers, hike in prices of fuel and fierce competition in between
low cost airline industry, high labour demand and maintenance cost of infrastructure affects on
their activities. Hence it is very much potential for a business to evaluate each factor in proper
way to plan in strategic manner to combat with emerging challenges.
Social factors:
Over the years, the consumer taste and preferences are changes at rapid pace majorly in
terms of services as they demands innovation in products and services to remain competitive in
the marketplace (Wagner and Walton, 2016). The social perception of air travel has changed
previously it being seen as safer and convenient. Due to change in taste and preference people
become more aware about technological advancement drawn towards air travel in large numbers.
The no. of professional travellers increased which needed strong relationship in between the
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society and industry. In context of respective organisation they spend lot of money and time on
the improvement in the services for enhancing consumers experiences positively.
Technological factors:
Technological factors is one of most important factor for the aviation industry from the
heavy uses of technology as technology does not mean speed but also convenience and safety.
Whether it is air traffic or safety of passengers the role of technology is very much critical. The
world wide web also been successful in capturing the higher profits and revenues as most of the
bookings take place by online mode. In context of Lufthansa, they by providing services by
using both online and offline able to reach at large no. of consumer base. With the fierce
competition in the aviation sector as more and more fleets come into market that are provide
advance services at relatively low cost (Grayson and Hodges, 2017).
Legal factors:
In the beginning, many nations work on the bilateral agreements to share the air
technology, expertise and services. In the year 1980 which is the era of deregulation in context
of airline industry with the deregulations of airline laws in market of UK. Subsequently the
route specific, regional and global alliances helps to enjoy the yields of industry by counterparts
in order to harmonise by regulating and sharing time and space (Johnson, 2016). The health
and safety hazards brings new regulation for the aviation industry such as changes occurs in the
regulations of quality of airlines with crashing and Boeing aircraft.
Environmental factors:
It is one of the most significant factors for safe air travel by providing climate and
conditions of atmosphere. There are some key hazards in aviation industry that are lightening,
hailing and altitude of the cloud (Higgins, Omer and Phillips, 2015). Some unavoidable and
unpredictable components such as metrological and geographical complexities majorly in hilly
areas. The safety hazards one of the most challenging aspect for airline industries, despite of
reason it seriously hamper the demand side of the consumers that discourage brand value and
proposition of respective organisation. Air planes generate the 43 Gigatonnes of planet warming
pollution through the 2050 that is 5% of the world's remaining carbon budget that is one of fierce
problem in front of the whole world. In that regards it is very much potential for Lufthansa to
take care of the pollution and ozone omission by using best quality of fuel and pay attention on
the protection of environment.
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For an organisation it is very much potential to evaluate the competitors strategies and
factors which directly influence on their works and activities that are as follows:
Porter's Generic model:
Porter generic model was introduced by the Michael Porter in year 1980s which
elaborates about the ways by which organisation can gain competitive advantage by selecting
right kind of strategies (Van, 2015). Respective model focus on the majorly three strategies that
are Cost leadership, differentiation and focus.
Cost leadership:
Cost leadership strategy involves the gaining the competitive edge with the help of
lowering cost. To bring practice into respective strategy Lufthansa expand and target majorly the
middle class people that are the larger portion of overall consumer market mix in the whole
country (Johnson, 2016). As for middle class price is very first priority so by using cost
leadership strategy they cater the needs of consumers. By focusing on the affordability and
accessibility to produce services at large scale they gain brand value and sales growth to gain
competitive advantages. Also they bring into practice by charging lowering production cost and
efficiency of supply chain by offering discount offer and coupons to achieve their sales targets.
Differentiation strategy:
Differentiation is one of most commonly used generic strategies for gaining sustainability
and competitive advantage (Zhou and et. al., 2016). They adopt differentiation as second generic
strategy by bringing innovation and by referring consumer growing health concerns. By
extending its product line after examining consumer taste and preferences to reduce the pressure
of other brands. In context of Lufthansa by heavily invest on marketing, advertisement and
celebrity endorsement that are one of best effect to remain always competitive in the
marketplace.
Focus strategy:
This is third generic competitive strategy which encourages the organisation to focus on
resources to enlarge narrowly targeted marketplace. They follow the focus strategy in terms of
costs and offering one of best value to their consumers (Linder and Williander , 2017). With
help of low cost strategy they serve to niche market at the lowest price possible. Best value focus
strategy adopted by focusing on taste, size and design of products that meet consumers needs in
proper manner. They enlarge on product attributes to revive their brand strategies and continuous
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changes in designing and comfortability by reading the psychological expectations to maximise
value of money.
At last it has been evaluated that Lufthansa use the cost leadership strategy in order to provide
one of their best services at most lower prices possible for them in order to remain competitive in
the marketplace.
TASK 2
Internal environment and capabilities on a organisation using appropriate frameworks.
For an organisation it is very much potential to evaluate the internal environment that
plays very much crucial role in framing strategies and tactics that are as follows:
Strength Weaknesses
Brand strength: Lufthansa has some strong
brand under it such as Swiss and Australian
airlines and they also aimed to become five
star rated airline in the whole world.
In flight services: Lufthansa is world famous
for their services that are provided in their
flights such as meals, easy check in and check
out, frequent flier points and many more.
Multi passenger branding: Respective
organisation covers various services under one
roof which cater to all segments by covering
economy to business class (Matt, Hess and
Benlian, 2015.). The owned luxury and
economy cabins, long and short haul that
provides entire spectrum of services.
High costs base: in context of Lufthansa
taking huge efforts for saving the cost in
managing each and every aspect related to the
airline, consumers and employees. They are
continuous in among the higher cost European
airlines in terms of every seat kilometre while
considering the trip length.
Poor labour relations: Respective
organisation faces some kinds of issues which
hinders their self interest in giving one of their
best efforts to remain competitive in
marketplace. Many times pilot strikes that
impact largely on their business activities and
various debates also held in against of them in
regards of difference in pay and pension
schemes.
Opportunities Threats
Increase in foreign travel: The consumers
taste and preferences changes continuously and
Competitors: There are lots of competition
existed in the aviation sector and day by day
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their criteria of business also expanded rapidly
into various parts of whole world. Which
increases the international business travels that
enhance profitability (Thompson, Strickland
and Gamble, 2015).
Increased demand in emerging economies:
The no. of travellers increases rapidly in
economies and the need of airlines also
increases. This resulted more airlines
preferred in developing nations.
Increase in overseas vacations: The overseas
vacations increased now a days as families
preferred to travel in foreign countries. Which
resulted more sales from respective segment to
enlarge business opportunities.
the operating cost rises. The major competitors
are Etihad Airlines, Singapore airlines, Air
India and British airways. The innovative steps
also create hazardous effects for respective
country to survive in competitive world easily.
Rising cost: The cost of some factors ever
rising such as fuel cost, operating cost and
maintenance and labour cost that directly
affects on their business functions.
Slow response of competitive threat: As low
service providers enter into the market
Lufthansa started losing their market share and
their labour force are not ready to accept
changes that are potential to remain
competitive in the marketplace .
VRIO ANALYSIS:
VRIO analysis is defined as business framework which is adopted by a company in order
to know their capabilities as well as strength through that they can attain competitive
advancement at marketplace (Bell, Bryman and Harley, 2018). According to this model it is
essential for a firm to understand those resources which are valuable, rare, imitable and
organised. It is essential because through it company able to attain their competitive
advancement at the potential marketplace as well as these resources help firm in surviving at
market effectively. There are various benefits gain by company when they adopt VRIO model
such as it help in decision making, understand effective resources, analyse business situation and
many more. The VRIO model of Lufthansa is given below, through which they can attain
competitive advancement:-
Resource valuable Rare Inimitable Organized
Flight services Yes - - -
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Skilled
Employees
Yes Yes - -
Financial
resources
Yes Yes Yes -
Patents Yes Yes Yes Yes
Valuable: It is considered as those resources which are valuable for the company as well as
through which they can gain competitive advancement at the marketplace. In respect of
respective company there valuable resources are-
 Flight services: It is valuable of Lufthansa airlines because they offer quality services at
the affordable price.
 Patents: This resource is valuable because for every company it is not possible to take
patents on services or products or technology (Brewster, 2017). Through this they able to
gain competitive advancement at market.
 Financial resources: The respective company have huge source of finance which help
them in attaining opportunities at the marketplace as well as through this resources they
also able to adopt technologies and change effectively.
 Skilled Employees: Staffs of Lufthansa are highly skilled, knowledgeable and
experienced which help them in conducting works effectively for attaining objectives and
goal.
Rare: It is considered as those resources which are rare for competitive companies of a
particular firm and by that rare resource them able to achieve competitive advancement
(Cavusgil and et. al., 2014). In respect of Lufthansa their some resource are not rare such as
flight service because these services are also offer by other companies. Rare resources of
respective firm are:
 Patents: It is rare for the company because patents are not easily available as well as
possessed by other companies or competitors.
 Financial resources: It is rare because respective company have strong financial resources
which cannot be copied by others.
 Skilled Employees: The staffs of respective company are highly trained as well as skilled
which is not possible for other companies to copy.
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Imitable: This is considering as those products which cannot be copied by competitive
companies (Chang, 2016). In respect of respective company there some resources which can be
imitable are flight services and skilled employees but some which cannot are:
 Financial resources: These resources of Lufthansa are expensive which cannot be copied
by other companies.
 Patents: The patents which are taken by respective company will not copied because it is
illegal as well as if anyone want to develop same product then it will be costly for them.
Organized: It refers to those resources which need to be organized after a particular duration of
time. In respect of Lufthansa the resources that required to be organized is patents because they
required to be up-dation as well as tends also get change so accordingly company need to
change. Resources which are organised are:
 Financial resources: These resources are very effective as well as they also help
respective company to attain their objective by gaining competitive advancement (Chen
and Jermias, 2014).
By this analysis management of Lufthansa able to know resources which are effective
and appropriate for them in order to gain proper competitive advancement at their potential
marketplace.
TASK 3
P3 Applying porter's five force model to evaluate various competitive forces in a given market
sector.
For an organisation before building strategies and tactics it is very much potential to
conduct through understanding about competitors and other factors in order to remain
competitive in marketplace with help of Porter's five force model that are as follows:
Porter's Five force model:-
It is define as that business model or frameworks which can be adopted by a company in
order to determine its competitive environment. Through this analysis a firm management able to
develop proper strategies and plan which help them in gaining competitive advancement by
enhancing profitability ratio as well as market shares (Davies, 2016). Respective factor analysis
market through five forces and evaluation of all forces in respect of Lufthansa are given below:-
Bargaining power of Supplier power:
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Power of suppliers is very much immense in the airline industry in terms of fuel, aircraft
and labour which directly affect on the external environment. For an example the price of the
fuel is the major subject of fluctuations in the global marketplace for oil. Similarly another major
factor which is labour in union that give them power of bargain and unreasonable and costly
possession for the airline industry. The third but very important factor which impact on the
Airline industry that they have to either outright sale or take to lease for that they rely on two
Biggies such as Airbus and Boeing to comply aircraft needs (Welford, 2016.). From the above
discussion it has summarised that the in terms of three inputs power of suppliers is very high that
should be controlled and coordinated by building strategies and tactics in order to remain
competitive in marketplace.
Bargaining power of Buyer power:
With the advent of online ticketing and strong distribution systems, consumers are not in
any kind of mercy for agents or mediators as well as aviation themselves to fulfil the ticketing
needs (Matt, Hess and Benlian, 2015.). In addition the initiation of the low cost carriers and price
wars in among competitors greatly proved beneficial for fliers which directly enhance their
bargaining power. The tight kind of regulations on both demand and supply side of airline
industry which helps to protect the self interest of the fliers which not balances the tipped in
favour of airline industry.
Threat of Entry and exit barriers:
It is consider as that situation in which it will be determine that how easily a new
company can enter or exit in a particular market. This will be possible when a there are few
barriers in the entry and exit of a firm. The threat of new entry and exit will be high when there is
low capital required for entering into the marketplace, existing firms can conduct little retaliate,
there will be no or less government regulations. Moreover when there is low level of customers
loyalty, economy of scale can be attaining easily and many more. In respect of respective
company the threat of new entrants is low because in respective industry there are high economic
barriers; brand recognition of this airline is high (Lufthansa, 2019). So there will be less chance
that new company can enter into respective industry easily.
Threat of substitute and complementarities:
It is consider as that factor at which a buyer can find substitute or complementarities
products or services easily at the marketplace (Kim, Jo and Shin, 2015). If this situation will
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