LUFTHANSA AIRLINES

Lufthansa Airlines



Lufthansa Airlines

Introduction

The Lufthansa Aviation Group is considered to be one of the world's leading air transport corporations. It includes a number of independent group and affiliated companies with business segments in passenger airlines, logistics, aircraft maintenance, catering, tourism and IT services. Lufthansa's headquarter is located in Cologne, Germany and its operational centre for passenger and cargo services is situated in Frankfurt. (Bruch, 2000)

Porter five forces model

Structural analysis of an industry is a useful way of determining a company's long-term profitability. (Capon, 2009) Comprehending the dynamics of the competitive forces in an industry can give an insight whether an industry is attractive and whether there are any chances for returns on capital. Michael Porter, a professor at Harvard Business School, created a framework for understanding the structure of an industry. According to Porter, the five competitive forces that can have an impact on an industry are threat of new entrants, bargaining power of suppliers, bargaining powers of buyers, competitive rivalry, as well as the threat of substitutes

Threat of new entrants

The threat of new entrants offers the possibility that new firms are going to enter the industry, which will consequently lead to a reduction of industry returns by generally passing more value to consumers in terms of lower prices and also increasing the cost of competition. Factors like economies of scale, capital requirements, product differentiation, access to distribution channels, switching costs as well as brand value determine the threat of entry.

Bargaining power of suppliers

Factors that are connected with the bargaining power of suppliers include the threat of forward integration as well as the concentration of suppliers in the industry. Supplier power decreases the ability for competitors in the industry to earn higher profits (Wheelen & Hunger 2000, p. 64).

The main suppliers within the airline industry are the manufacturers of aircrafts like Airbus and Boeing, fuel suppliers such as Shell, British Petroleum and Chevron Texaco. Furthermore there are technical support and IT services as well as the catering services. Suppliers are very concentrated in the airline industry as Boeing and Airbus supply most commercial fixed-wing aircrafts. The concentration of suppliers makes it difficult for the airlines to exercise leverage over the two manufacturers and negotiate lower prices or play one supplier against the other. Moreover, at the current stage, aircrafts for long distance travel cannot be substituted by any other product, which strengthens the bargaining power of the suppliers even more. (Bruch, 2000) Fuel providers have an excellent bargaining position as they can increase fuel prices without regarding the airlines as an important customer group. Forward integration, which is the expansion of a business' products or services to related areas in order to directly satisfy the customer needs, is fairly low. The reason for this is that it can be assumed that neither aircraft manufactures, fuel providers nor technical support companies will purchase an airline and staff it with flight attendants, commercial pilots, a maintenance crew and operate flights across the world (Jacob & Jaksova ...