Lufthansa Historical Background

The Challenge of Globalization

Historical Background1926 • Deutsche Lufthansa AG was formed as a result of a merger between Deutsche Aero Lloyd and Junkers Luftverkehr AG. 1939•  Abandon international flights due to war 1945•  Went into liquidation after Potsdam Treaty prohibited all German Flights 1953•  The Aktiengesellschaft fur Luftverkehrsbedarf (Luftag) was founded in Cologne to establish a new German air transport system 1954•  Changed its name to Deutsche Lufthansa AG

Historical Background1955 - 1980 • 1st scheduled service began• Company grew rapidly with passengers exceeding 10 million for the first time in 20 years  Mid 80’s• Saw a fundamental re-organization to give sales and marketing departments greater flexibility • Began expanding its fleet 1989• Signed the first co-operation agreements with France, Varig (Brazil) and United Airlines (USA) 1990• Resumed its scheduled services to Berlin• Was organized into functional departments, each led by a member of the Vorstand (executive board)

Historical Background1991 • Gulf War and economic recession impacted Lufthansa’s financial performance• Despite rising volumes of service, the company’s yield (revenues per km) was falling at a rate of 7% pa.• Management saw the company was nearing bankruptcy 1992-1993• Jurgen Weber replaced Heinz Ruhnau as chairman• Starts the phase 1 of the turnaround which prioritizes the communication of gravity of the situation to Lufthansa Managers and staff and to stem the losses.• Introduced the Samurai of Change and Sanierungs Workshop (restructuring workshop)• Developed 123 key actions aimed at cutting costs and staff numbers to reduce the company’s losses which is slated at 1.3 billion DM.   

Historical Background1994• Profits started to return for the company• Pay freeze and reduction of 8,500 staff was successfully negotiated with the unions• Phase 2 of the turnaround began, starting on the negotiation with the German Government to become a private company and withdraw from the government pension fund.• Government diluted its holdings to 36% and a new organizational structure was announced 1995•  Five new independent companies were created (Cargo, Technik (maintenance), Systems, Ground Service, and Flight operations).• Lufthansa is determined to be one of the global players that will lead the industry into the 21st century  1996 • Management Environmental protection and sustainable development are high-priority goals of Lufthansa’s corporate policy. The Executive Board approved Group-wide guidelines for environmental care. This made Lufthansa an environmental pioneer in the aviation.

Historical Background1997•  "Star Alliance" was formed. A "new," entirely restructured Lufthansa, fully privatized in 1997, now soared toward success. Lufthansa was fully prepared to take off for the new millennium.• VARIG joined the Star Alliance as the newest member later that year.

Flying in formation on May 14, 1997 to mark the founding of the “Star Alliance” in Frankfurt (Scandinavian Airlines, Thai Airways International, Air Canada, United Airlines, Lufthansa)

Historical Background1998 • Carsten Spohr assumed responsibility for regional and later for the company’s global partnerships including the Star Alliance. 1999 • Lufthansa CityLine has replaced 35 smaller and older aircraft with 24 bigger and more environment–friendly Embraer E190/195 regional jets.

OLD NEW• Ansett Australia and Air New Zealand both became a member of the Alliance   

Historical Background2000• Admission of The Austrian Airlines Group (Austrian Airlines, Tyrolean Airways and Lauda Air) in 26 March. • Singapore Airlines joined on 1 April 2001•  The Lufthansa Aviation Group equips itself for the new millenium, training its focus on innovation and quality. Placement of orders for 15 Airbus A380 megaliners charts the airline‘s path into the future.

• Ansett Australia left the alliance due to bankruptcy

Airbus A380 SpecsThe A380 is the largest and heaviest passenger aircraft in the world. It is 73 meters long, 24 meters high, and has a takeoff weight of up to 560 tons. The Lufthansa A380 seats 526 passengers, and its four Rolls-Royce engines each generate 70000lbs of thrust. That‘s the rough equivalent of what 3500 cars could produce. Ecologically speaking, too, the A380 raises the bar. The megaliner is quieter than other planes, uses less fuel and can even “think” for itself and automatically apply the brakes after landing on the runway.�

Airbus A380-800

Length: 72.7 mWingspan: 79.8 mHeight: 24.1 mCruising Speed: 907 km/hMax. Altitude: 13,100 mMax. takeoff weight: 560,000 kgMax. landing weight: 391,000 kgRange: 12,000 kmCabin width (Main deck / Upper deck): 6.6 m / 5.9 mFirst/Business/Premium Economy/Economy (max.): 8/92/52/336

Historical Background2001-2005• The airline reorganises its regional markets, while gaining new partner airlines to expand the Star Alliance global route network. • Passengers enjoy greater comfort in a completely revamped Business Class with fast broadband Internet connectivity in the aircraft cabin.

2005• Celebrates the 50th anniversary of the new Lufthansa. • SWISS is integrated as an independent airline in the Lufthansa Group. Its integration consolidates Lufthansa‘s position among Europe‘s leading network carriers. 

Historical Background2006• Lufthansa creates future prospects for Germany as center of business by placing the first order for twenty Boeing 747-8 Intercontinental aircraft.

•More than two million foreign visitors come to Germany for the FIFA World Cup. The famous “soccer nose” painted on most Lufthansa aircraft boosts the public’s image of and affinity with the company. • Admission of South African Airways, being Star Alliance's first African member as well as Swiss Air

Historical Background2007-2009• Swiss International Air Lines AG becomes part of the Lufthansa Group. • The Passenger Airline Group is established following the full takeover of British Midland and Austrian Airlines and the acquisition of a 45 percent stake in Brussels Airlines.• Star Alliance and its members celebrated the alliance's 10th anniversary• Investments are also made in infrastructure: builds a high-tech hall for the A380, starts construction on the exclusive Lufthansa A-Plus concourse at Frankfurt Airport and renovates the Lufthansa Training and Conference Center in Seeheim.

Lufthansa Training and Conference Center in Seeheim, Germany

Historical Background2010 - 2011• Lufthansa receives its first Airbus A380. • The start of a new era of flight for Lufthansa passengers, as the A380 also features the new First Class and a more comfortable Business and Economy Class.

ECONOMY BUSINESS 1ST CLASS •Lufthansa embraces “new media” and sets standards in the industry through activity on social networks, mobile boarding passes on cell phones and the launch of in-flight Internet access. 

Historical Background2012• Lufthansa is the first passenger airline to fly the Boeing 747-8, a much quieter and more fuel-efficient enhanced version of the jumbo jet. The aircraft is equipped with the new generation of Business Class, which has seats that recline into comfortable, fully flat beds. • Lufthansa’s exclusive new A-Plus concourse opens at the airline’s hub in Frankfurt. Around 15,000 passengers per day benefit from the new gates and five new lounges with the latest technology.

The New A-Plus ConcourseGeneral facts & figuresEastward extension of Terminal Area A of Terminal 1• New concourse exclusively for Lufthansa and Star Alliance passengers• Length: 790 m, Width: 28 m, Height: 22 m• Floor space: 185,000 m²• Four levels – Level 1: Baggage conveyor system and bus gates; Level 2: Schengenflights; Level 3: Non-Schengen departures; Level 4: Arrival corridor for non-Schengenflights)• Official commissioning: 10 October 2012Operational improvements• Reduction of minimum connection time for many Schengen – USA connecting flightsfrom 60 minutes currently to 45 minutes due to the positioning of all US flights in the AArea• Increase in percentage of flights docking directly at terminal building (boarding andde-boarding via air bridges, reduction in apron parking positions) for intercontinentalflights to almost 100%, and for short and medium-haul flights to about 70%.

Cont. (A-Plus Con Course)• Comfortable and wider moving walkways (up to 70m long, 1.20m wide)• The entire building is barrier free and sanitary facilities are easily accessible• On both Level 2 and Level 3 there are two central marketplaces with a total of 70shops and catering outlets and a floor space of 12,100 m²

Architecture/Infrastructure• Forward-looking, energy-efficient construction, including the use of facade shades• An innovative lighting concept aids orientation and navigation in the building anddivides the concourse into different functional areas; this is supported by a newsignage system• Extension of baggage conveyor system by 7.5km; thanks to state-of-the-arttechnology, the baggage conveyor system can transport up to 5,000 baggage itemsper hour

Historical Background2013• The Lufthansa Group orders 59 ultra-modern wide-body aircraft, making this the largest single private-sector investment in the history of German industry. It consumes an average of just 2.9 liters of kerosene per passenger and 100 kilometers flown and they boast a reduction in noise footprint of at least 30 percent.

• Passengers can choose between the Best, Smart and Basic fare products.

• Lufthansa wins a prestigious award of the travel industry: “The International 5 Star Diamond Award” for its First Class service onboard its intercontinental fleet, first class terminal in Frankfurt and first class lounge at New York’s JFK International Airport.

Historical Background2014 - Present • Lufthansa introduces a new class of travel with its Premium Economy Class for the first time in 35 years.

• The overhaul of the Group fleet continues as well. • Boeing delivers its 1,500th jumbo jet, “Yankee Papa,” to Lufthansa.

List of Schengen Area Member StateAustria Norway (not a European Union Member State) Belgium PolandCzech Republic PortugalDenmark SlovakiaEstonia SloveniaFinland SpainFrance SwedenGermany   Swiss (not a European Union Member State)GreeceHungaryIceland (not a European Union Member State)ItalyLatviaLiechtenstein (not a European Union Member State)LithuaniaLuxembourgMaltaNetherland

French Ministry of Foreign Affairs and International Development - 2015

http://www.diplomatie.gouv.fr/

Statement of the Problem

1. How will Lufthansa sustain its competitiveness (crew, market price fare, service, reliability, dependability), leadership and alliances to remain as one of the innovator and leader in the global airline industry?

Causes of the Problem 1. Agreements on service levels to partner airlines are not properly defined.2. No uniformity in hiring and training of staff3. Cultural differences of local and foreign staff4. Business process5. Differences in individual personality and motivation6. Responsibility for business results are not clearly defined7. Job descriptions and communication process of the organization8. Cost (operations, air fare)9. Global competition10. No trust in hiring foreign management11. Use of International Language which is English12. Flexibility in adapting change and restructuring process13. Customer Service

Analyses of the Problem A. Being global is best achieve through a well-defined business process, continuous

development of strategies, services, business costs, and restructuring of the organization.

B. The company’s alliances bring all sorts of detailed issues to light. This requires firstly an agreement on service levels and secondly, a uniformity in hiring and training staff to ensure that the agreed level of service is maintained.

C. With regards to merging cultures, the key issues for Lufthansa and its partners will be to internationalize training activities and merge corporate cultures.

D. It was also noted that employee’s acceptance to alliances is hard and it was a problem to convince people that Lufthansa cannot survive in this world alone.

E. The company also initiated and implemented a restructuring process to clearly define responsibility for business results. However, the restructuring has affected individuals differently. This is due to differences in role, position and level of seniority and also because of differences in individual personality and motivation.

Analyses of the Problem F. On the other hand, the senior manager of Lufthansa face the challenge of deciding which

costs to internationalize and to what degree, while preserving and improving the existing quality standards, cultural identity, and employee morale.

G. Hiring Heterogeneous management will give Lufthansa advantages that would help broaden and deepen the network, develop service strategies and increase market share. But they give more emphasis on the disadvantage, by throwing their concerns that larger numbers of non-German managers may weaken management cohesion and the company’s culture and image. Also senior managers implies that hiring non-German managers might cause financial mismanagement and corruption. This is simply an indication that trust is still a question with the company.

H. It was also noted that currently, all management training courses are conducted in German and some non-German managers, although fluent in German, are frustrated with the company’s limited acceptance of English. Globalization means company shall compete in the global markets and that English language is also necessary.

I. Finally, the need to develop a more customer-focused service culture has become a major issue for Lufthansa.

Recommendation 1. Re-orientation and review of current business processes including R&D

and policies2. Initiate effective restructuring process3. The company should improve its alliance networks4. Openness to trends and modern culture5. Should establish effective cost control system6. Establish standard hiring process to non-German, and understand their

culture7. Hiring right fit personnel8. Establish effective training activities9. Shall improve its customer services 10.Show flexibility to organizational changes

Conclusion A. Although Lufthansa achieved record profits in 1995, senior management recognized that

there is still a long way to go if the company is to become a successful global airline. Yields continue to fall at 2% pa and deregulation gives rise to ever-increasing competition.

B. Lufthansa does not have a clear positioning, a reputation for customer service, or a seamless alliance network. Coupled with an inherently high cost structure, and a culture traditionally focused on technical excellence, the future is not assured. The change in the company’s culture and mindset will be arguably the hardest to achieve.

C. Many managers have welcomed the changes so far. For them, the freedom and challenged has transformed their attitude to work. But for others, the pressure, risk, and fear of job security has proved difficult.

D. Many employees feel that, given the company’s return to profitability, they are entitled to a pay rise or more training and development. The full implications of the challenges ahead may only be visible to a few and so it may be difficult to maintain momentum.