Lufthansa: Going Global, But How to Manage Complexity
Lufthansa: going Global, but How to Manage Complexity
Patrice Williams
Professor Smith
Business Administration Capstone-Bus 499
June 13, 2010
“The type of international strategy that Lufthansa has chosen is to form an alliance. Since 1996 Lufthansa has been organized as a holding whit six business lines dissolving the once integrated corporation. Although, Passage is dominant, with approximately two thirds of the turnover, each division is fully responsible for its own financial results and any interactions with other group companies occur on market price terms. However, as in every decentralized organization, the holding company need to unite its business under one strategy roof avoiding silos and any duplication for functions. These goals might have been the drivers at Lufthansa for a more focused corporate strategy, the sale of Ground Globe and several financial divestments. It became obvious that the massive European and global expansion strategy that Lufthansa had been pursuing since the early 1980s was not economically viable. The fixed costs were too high for a cyclical business. On the other hand, strong reasons supported the belief that the network and economies of scale were leading to a global airline industry, dominated by a handful of key players. However, the deregulation process had not gone far enough to allow for major mergers (in the United States, foreigners can own only 25 percent of an airline; in the EU non-European ownership is limited to 40 percent in most of Asia any acquisition of a major airline might not be illegal, but is practically impossible). But deregulation and the erosion of the IATA cartel went far enough to allow for scores of new competitors. No-frills cost airlines spread from the United States to Europe and then Asia, nurtured by the abundance of used aircraft and leasing opportunities. Lufthansa needed to ensure cash flow, especially after 2001, and it needed to reduce cost. Lufthansa transformed fixed
Patrice Williams
Professor Smith
Business Administration Capstone-Bus 499
June 13, 2010
“The type of international strategy that Lufthansa has chosen is to form an alliance. Since 1996 Lufthansa has been organized as a holding whit six business lines dissolving the once integrated corporation. Although, Passage is dominant, with approximately two thirds of the turnover, each division is fully responsible for its own financial results and any interactions with other group companies occur on market price terms. However, as in every decentralized organization, the holding company need to unite its business under one strategy roof avoiding silos and any duplication for functions. These goals might have been the drivers at Lufthansa for a more focused corporate strategy, the sale of Ground Globe and several financial divestments. It became obvious that the massive European and global expansion strategy that Lufthansa had been pursuing since the early 1980s was not economically viable. The fixed costs were too high for a cyclical business. On the other hand, strong reasons supported the belief that the network and economies of scale were leading to a global airline industry, dominated by a handful of key players. However, the deregulation process had not gone far enough to allow for major mergers (in the United States, foreigners can own only 25 percent of an airline; in the EU non-European ownership is limited to 40 percent in most of Asia any acquisition of a major airline might not be illegal, but is practically impossible). But deregulation and the erosion of the IATA cartel went far enough to allow for scores of new competitors. No-frills cost airlines spread from the United States to Europe and then Asia, nurtured by the abundance of used aircraft and leasing opportunities. Lufthansa needed to ensure cash flow, especially after 2001, and it needed to reduce cost. Lufthansa transformed fixed
References: Borrett, S. (2010). Human Capital: The real bottleneck business. Retrieved June 15, 2010, from http:// http://ezinearticles.com/?Human--Capital------The--Real--Bottleneck--in--Business&id=4237958 Hitt, M., Hoskisson, R., & Ireland, R. (2009). Strategic Management: Competitiveness and Globalization, Concepts and Cases. Ohio: Cengage Learning