Lufthansa strategy analysis

*ESG EXECUTIVE MBA B. NELZY M. NDIAYE N. SIE
STRATEGIC ANALYSIS
Determining Industry Attractiveness and
Identifying Strategic Opportunities
Bruno Nelzy
Mountaha Ndiaye
Noufe Sie
ESG Executive MBA, 15 September 2013

Determining Industry Attractiveness and Identifying Strategic Opportunities for Lufthansa
Our Framework
Step 1: Analyze shocks and
trends in the macro-
environment
• Dealing with uncertainty,
Prioritisation, PEST in nat. and
Internat. Contexts, Globalisation
drivers,Scenarios (what to know ?
Impact ?)
Step 2: Analyze the nature of
market demand and
consumer behavior
(Segments, diff among customers:
price sensitivity, patterns, demand
curve, nature of goods and svc
Step 3: Analyze business
landscape (industry)
• Five competitive forces Framework,
Coopetition and Value Net
Framework, What is depressing
profitability? How is the industry
changing?)
Step 4: Identify critical
success factors (Industry’s
KSF ?)
Step 5: Analyze the intra-
industry(strategic group)
structure of the industry and
identify critical differences
between groups
Step 6: Evaluate the
competitive sustainability/
vulnerability of strategic
positions of rivals
Shifting the Focus of
Strategy Analysis: From the
External to the Internal
Environment
Situational
summary
Strategy formulation and
selection

•  Deutsche Lufthansa AG is an aviation group with global
operations and a total of more than 400 subsidiaries and
associated companies.
•  It is divided into five business segments, which cover the
areas of passenger transportation, airfreight and airline
services: Passenger Airline Group, Logistics, MRO, IT
Services and Catering. These segments play leading roles
in their sectors and are in some cases even the global
market leader.
•  In 2011 the Lufthansa Group had an average of 119,084
employees (without bmi: 115,335) and generated revenue
of some EUR 28.7bn.
> CORPORATE PROFILE
LUFTHANSA
AT GLANCE
BUSINESS
LANDSCAPE
INDUSTRY
ANALYSIS
COMPETITVE
SUSTAINABILITY
SITUATIONAL
SUMMARY
STRATEGIC
OPPORTUNITIES
INTERNAL
ANALYSIS

Mission
Lufthansa competes in the international airline industry . Its
business segments include passenger business, logistics, repair
and overhaul, catering, leisure travel and IT services.
Core values:
Ø Provide reliable services for passengers and air-cargo.
Seamless cooperation with our partners strengthens us in a
volatile environment.
Ø Grow profitably and maintain a healthy financial structure, to
enable investment in the development of our business, fleet,
products and people.
Ø Committed to sustainable development and assume our
ecological, civic and social responsibilities.
> MISSION STATEMENT
Dr.Christoph Franz
Chairman of the Executive
Board and CEO
Born 1960, industrial engineer
(Dr. rer. pol.)
Board Member since 1 June
2009
Appointed until 31 May 2014
With Lufthansa from 1990 until
1994
With SWISS from 2004 until
2009
LUFTHANSA
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Ø Lufthansa wants to exploit growth potential to create value.
Ø Activities were adopted in 2011 that will develop the Group into
Europe’s Airline Powerhouse.
Ø Competitiveness will receive a lasting boost.
Ø The financial strategy combines sound foundations with
financial flexibility.
> 2013 VISION AND OBJECTIVES
Dr.Christoph Franz
Chairman of the Executive
Board and CEO
Born 1960, industrial engineer
(Dr. rer. pol.)
Board Member since 1 June
2009
Appointed until 31 May 2014
With Lufthansa from 1990 until
1994
With SWISS from 2004 until
2009
LUFTHANSA
AT GLANCE
BUSINESS
LANDSCAPE
INDUSTRY
ANALYSIS
COMPETITVE
SUSTAINABILITY
SITUATIONAL
SUMMARY
STRATEGIC
OPPORTUNITIES
INTERNAL
ANALYSIS

BUSINESS LANDSCAPE:
A PESTEL ANALYSIS OF ENVIRONMENTAL INFLUENCES
(MACRO-ANALYSIS)

•  Deregulation in transport industries
•  Fuel subsidies provided by governments
•  Government participates in regulating fares range and assigning « useable routes »
for carriers in order to control the competition
•  Government requirement to the immigrants or tourists (Risk control)
•  Constrains in terms of adhering to government policies for instance the pledge by
the UK government to reduce carbon emissions by 60% reflected in the UK Climate
Change Bill
•  EU Emission Trading Scheme (ETS), (in stand by 2012 ),
1 kg of jet fuel = 3.15 kg of CO2
> MACRO-ANALYSIS > POLITICAL FACTORS
LUFTHANSA
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ANALYSIS

•  Gross Domestic Production (GDP): Bad economic leads to less business travel.
Most companies cut costs on non-essential travel. They may change the meeting
to conference calls.
•  Inflation rate risk in EMEA/US : The tendency of people travelling will be low when
there are high inflation rate in the country
•  Bilateral trade agreements (US, EMEA): Bilateral trade increases the frequency of
travelling by businessmen around the world
•  Oil price increase
•  Source of economic growth have changed (Asia), Power of currency (EURO vs
USD ..)
> MACRO-ANALYSIS > ECONOMIC FACTORS
LUFTHANSA
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ANALYSIS

> MACRO-ANALYSIS > ECONOMIC FACTORS
LUFTHANSA
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•  Demographic changes (development of the ‘grey’ market who are spending
more on leisure and travelling).
o  Lifestyles, tastes and fashions are all changing; customers require
opportunities to visit new and interesting, often long-haul, destinations.
•  Increased popularity of holidays abroad
o  has led to a boom in demand for travelling
•  Changing in perception of air travel
o  Low cost revolution has made air travel accros Europe available to the
larger public
o  Increase of air travel as people who would not consider travelling by air, now
have opportunity to travel
•  Population growth
o  An ageing population (lots of people in that life stage have more disposable
income to spend)
•  higher numbers of commuters and the demand of lower cost carriers
o  Show an attitude change regarding tour operators/travel-agencies,
potentially causing image problems for companies giving higher-cost service
> MACRO-ANALYSIS > SOCIOCULTURAL FACTORS
LUFTHANSA
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•  Social network
o  direct customer wishes access (worlwide)
o  Goal : gain back the control of the customer: While it is true that no one can
“own” a customer in today’s environment, given that customers are now
empowered by technology, airlines can still leverage the same technology to
gain access to their needs and wants, deliver the services desired, and
charge according to their willingness and ability to pay
o  Integration with Customer Relationship Management systems
o  Customer to Business interfacing
•  Computers reservation systems (GDS)
o  Online travel agencies War
o  Improved site usability and functionality
o  More flexible booking process
o  Alert/ Confirmation-SMS
o  Convenient check-in on cell phone
> MACRO-ANALYSIS > TECHNOLOGICAL FACTORS
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•  C02 emission rate, reduce fuel burn and noise level
•  Move to have for example airlines charged for their share of green house gas
contribution on flights that are to and fro Europe
•  Social responsibility
•  environmentally friendly measures
•  Natural Disaster
•  Location: The airports normally located near metropolitan city, which the strategic
location could bring convenience to the customers.
> MACRO-ANALYSIS > ENVIRONMENTAL FACTORS
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•  Changing in employment laws, company laws, tax law and their regulation
•  Regulation about carbon emission level
•  Privatization of transport industry / Traffic rights.
•  Security requirements - Product safety
•  Competition laws.
•  EU regulatory changes; for instance the increased call for better care of the
customer
•  US regulatory changes; for instance the ban on liquids and gels past the
screening checkpoints affects the customers of air transport mode who may be
in possession of such goods (liquids and gels).
> MACRO-ANALYSIS > LEGAL FACTORS
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> BUSINESS LANDSCAPE > SUMMARY – RISK MATRIX OF MACRO ENVIRONMENT
HIGH
•  Fuel price increase
•  Deregulations
•  Economic crisis
•  Social media •  Terrorism
MEDIUM
•  Changing in employment
laws, company laws, tax
law
•  Security requirements
•  Regulation about
carbon emission level
•  Changing in perception
of air travel
LOW
•  Social responsibility
•  environmentally
friendly measures
•  Natural Disaster
IMPACT
PROBABILITY
HIGH MEDIUM LOW
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•  THREATS
o  Economic crisis
o  Competition between modes
of transport
o  environmentally friendly
measures
o  No control on Fuel prices
> BUSINESS LANDSCAPE > SUMMARY
•  OPPORTUNITIES
o  Liberalized environment
o  Emerging countries, new
« routes », to-from Asean,
Midle-east : ASIA is
outperforming
o  Technology in transport is
fast mooving, it will bring the
changes in the future
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INDUSTRY ANALYSIS
PORTER FIVE FORCES &
KEY SUCCESS FACTORS

•  Numerous competitor
> INDUSTRY ANALYSIS > COMPETITIVE RIVALERY
Ø The Big Three are still the biggest by revenue
Ø Vueling, Norwegian and Turkish are growing fastest
Ø Ryanair is most profitable
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Ø Finnair and Turkish Airlines recorded the highest percentage point improvements
in their margins in 2012,
Ø Alitalia, SAS and IAG, 2012 saw both an operating loss and a decline in the
operating margin.
Ø Air France-KLM and airberlin, loss-makers at the operating level at least saw a
narrowing of their margin of loss.
LUFTHANSA
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•  New business models
o  Low Cost Carrier penetration
o  Price wars
•  New strategic alliances
o  Targeted partnerships and equity investments by regions (Emirates)
o  Star Alliance groups Air China and Lufthansa take the first two positions
on routes between Europe and China
o  Qantas cuts Dreamliner order, prepares for Emirates alliance for its Jetstar
subsidiary as the low-cost carrier prepares for slower growth on its long-haul
routes.
•  Low product differentiation
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•  Different Labor cost
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•  Regional dominance by Hub
• Removal of restrictions on market entry and
exit, + policies permitting airline mergers
• consolidation in hub-and-spoke networks
• strategically located hubs.
• Prior to deregulation (end of 1970s), many
airline services were taking place on a point-to-
point basis. (direct connections at the
expense of the frequency of services and
high costs )
Airline Deregulation and Hub-and-
Spoke Networks
With deregulation,
• each airline assumes dominance over a hub and services are modified so the hubs
are connected to spokes
• As an airline assumes dominance of a hub, it reaches oligopolistic (if not monopolistic)
control -> increase airfares for specific segments
• The advantage for airlines : Regional market dominance ; higher plane loads,
LUFTHANSA
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> INDUSTRY ANALYSIS > THREAT OF NEW ENTRANTS
•  Capital requirement
o  High start up Cost
•  Distribution channels
o  limited capacity of distribution channels (Companies are fighting to secure
a space for their product)
•  Hub and spoke
o  Difficult to obtain gates and landing slots at the major hubs
o  Rights of incumbent airline to take-off and landing slots (difficult y for new
entrants to establish flight schedules at attractive times of the day
•  Government policies
o  Deregulated environment in USA (1978)
o  Liberalized environment in Europe (1987 to 1997)
•  Risk
o  High-risk nature of the airline industry is a major barrier for new entrants.
o  Revenue affected by loads factor
o  highly vulnerable to an economic slowdown
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> INDUSTRY ANALYSIS > SUBSTITUTES
•  Competition with over mode of transport
o  Rail (high speed train)
o  Road
o  Boats
•  No substitute for long flights
•  Low Switching Cost
o  Could encourage consumer to substitute
•  Buyer propensity to substitute
•  Technology
o  Videoconferencing
o  Telecommunications
LUFTHANSA
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•  Pricing transparency / customers are highly price sensitive
o  Buyers have historically had low bargaining power in the airline industry,
o  Recent technological developments have changed this picture though. The
rise of the Internet has increased the bargaining power of the consumer as it
has made it easy for a potential buyer of a flight ticket to search for the
cheapest available fare between dozens of airlines
o  These developments has made prices of air travel more transparent, and
along with the liberalisations within this market over the last decade
combined with the low switching costs for buyers in this market, has helped
push down prices of air travel
•  Corp purchasing / high price elasticity of demand
o  Price elasticity is influenced by the income of consumers, seasonal
variations, consumer tastes, quality of service, the availability of substitutes
and other factors
o  Business travelers will still maintain their demand levels even when air travel
prices increase
o  Short-haul flights see a dramatic decline in demand when prices increase
due to the availability of substitutes
•  Travel agencies
> INDUSTRY ANALYSIS > BARGAINING POWER OF BUYERS
LUFTHANSA
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ANALYSIS

•  Oil & fuel suppliers
•  Aviation Turbine Fuel prices constitute around 80% of the total operating costs of Airline Industry.
•  Monopoly of Oil companies: Because of limited number of suppliers, there is hardly any alternate
choice for the airlines;
•  industry, with these state owned oil companies fixing the ATF price on a mutually agreed common
formula among them
•  Labor union
•  Labour such as pilots, cabin crew, ground personnel, gate agents etc have a bargaining
powerwhich is due to the labour agreements at the time of industry regulation that left them
withlittle flexibility.
•  This force remains a significant factor in successful performance in the industry
•  Government – FAA, ATC, TSA and Airports service
o  The supplier role of the airports is affiliated with the aeronautical services for which they provide
for the airlines.
o  To lower the aeronautical costs low fare carriers have followed a strategy of developing routes to
secondary and regional airports which also provides faster turnaround times
•  Aircraft Manufactures, No substitute (Boeing, Airbus)
o  There are only two major manufacturers for large commercial aircraft. Airbus and Boeing .
o  demand for fuel efficient and luxurious aircrafts that can accommodate more number of people.
o  Also, airlines make relationship specific investment in the form of trained mechanics, existing
stock of aircraft etc, which gives aircraft manufacturers some supplier power
o  One opposing factor for this supplier power is the slow nature of aircraft sales, because the high
value order placed by the industry can take several years to be delivered
> INDUSTRY ANALYSIS > BARGAINING POWER OF SUPPLIERS
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q  Global Economic crisis
q  Regulation vs. Liberalization vs. Deregulation
q  Rising costs (fuel, labor, maintenance, security)
q  Low cost (new entrants)
q  Restructuring and alliances / number of Competition
q  Changing Customer (target, loyalty)
q  Staff relations and new types of employees (Generation Y)
q  Sustainability of air carriers and safeguards / Consumer protection and
passenger rights
q  Impact of technology (aircraft, e-commerce, CRSs and GDSs, Internet)
q  Air transport and the global trade mechanism / Future approaches to
regulatory reform / Hub and spoke
> INDUSTRY ANALYSIS > HOW IS THE AIRLINE INDUSTRY CHANGING ?
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> INDUSTRY ANALYSIS > SUMMARY – THREATS MATRIX
Threat of new entrants - Moderate
Large capital requirement 2
Acces to distribution channels 1
Government policies 3
Threat of substitutes - Low
High speed Rail 2
Road /Boats 1
Technology 1
Bargaining power of suppliers – High
Oil & fuel suppliers 4
Labor union 3
Government – FAA, ATC, TSA and Airports service 3
Aircraft Manufactures, No substitute (Boeing, Airbus) 4
Bargaining power of buyers – High
Pricing transparency / customers are highly price sensitive 4
Corp purchasing 3
high price elasticity of demand 2
Travel agencies 2
Threat of competitive rivalry – High
Numerous competitor 5
New business models / price War 3
Strategic alliances 3
Regional dominance by Hub 3
AIRLINE INDUSTRY OVERALL NOT ATTRACTIVE
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> INDUSTRY ANALYSIS > SUMMARY – IS THIS INDUSTRY ATTRACTIVE ?
0
2
4
6
8
10
12
14
New entrants
Substitute
suppliersbuyers
Rivalry
Forces
Forces
AIRLINE INDUSTRY OVERALL NOT ATTRACTIVE
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q  Flexibility, steady and moderate growth strategies
q  Effective cost cutting strategies / Reasonable capital requirements / Improve balance sheets and
credit ratings (prudent capital planning)
q  Fleet commonality
q  Long-term vision / Ensure that available tonne-km remain congruent with demand (route / network
realignment / optimization)
q  Shift capacity to take advantage of routes and markets where depressed currency will significantly
increase value-for-money opportunities for leisure travel
q  Optimization of labour cost
q  Strategic Hub control
q  Strategic alliances
q  Fuel efficient fleet
q  Clear value for customers
> INDUSTRY ANALYSIS > AIRLINE INDUSTRY KEY SUCCESS FACTORS
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INTRA INDUSTRY ANALYSIS

•  The previous structural analysis of industries, while insightful, offers an insufficient
explanation for observed differences in performance, and needs to be extended to
a strategic group analysis.
•  Strategic group analysis (intra-industry structure) could explain more complex
patterns of performance observed in industries. Companies within industries that
pursue similar competitive strategies are commonly referred to as a strategic group
•  Strategic groups theory assumes similar strategies to result from similar resource
or scope commitments of strategic group members. These commitments are called
mobility barriers and can function as both entry and exit barriers
•  Characteristics that distinguish between strategic groups form two major
categories:
•  Scope of organizations activity: product range, business segmentation, geographical coverage, range of
distribution channels used etc.
•  Resource commitment: vertical integration, product or service quality, technological leadership, size of
organization
> INTRA INDUSTRY ANALYSIS > INTRODUCTION
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> INTRA INDUSTRY ANALYSIS > SEGMENTATION > CUSTOMERS
Travel purpose
Business travelers (with
time sensitive and
insensitive to Price)
Classic Leisure or
vacation travelers
Costumer origin
Local (customer
primarly from home
market)
Foreign (customer
primarly from
international market)
Price sensitivity
Stimulative (Pricing
drives incremental
customer demand)
Prenium (Pricing targets
yield premiums, not
market share)
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Product quality
Seat only (‘No-frills’
product focused on
seat sales; other
offerings generate
ancillary revenue)
Luxury (Premium
product focused on
holistic customer
experience)
Products
offering
Single product (one
size fits all offering
for all customer
segments)
Multi products
(Multiple product
lines for different
customer segments)
Market breath
Regional (Network
services primarily a
single geographic
sub-region)
Domestic (Network
covers most of a
large domestic
market)
International
(Network covers a
meaningful number
of intl. routes)
Global (Truly global
network without
significant regional
concentration)
Network type
Point to point
(Network focuses on
point-to point
service)
Mixed Haul Hub &
Spoke (Connect
long-haul /
international traffic
to short and mid-
haul domestic
points)
Long-Haul Hub &
Spoke (Connect
long-haul /
international traffic
to other long-haul
points)
Cabin class
Economy class
First class
Business class
INTRA INDUSTRY ANALYSIS > SEGMENTATION > PRODUCTS
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Long-haul
International
business
International
flights and
medium and
large
distances
Hub and non-
hub airports
Full service,
confortable
and prestige
Long-haul
International
leisure
International
flights and
medium and
large
distances
Hub and non-
hub airports
Long-haul
domestic
business
Domestic
flights
Hub and non-
hub airports
Full service,
confortable
Long-haul
domestic
leisure
Domestic
flights
Hub and non-
hub aiports
Short-haul
business
Domestic and
international
travel (short
distance)
Hub and non-
hub airports
Full service,
confortable
and prestige
Short-haul
leisure
Domestic
flights
(between
cities in the
same
country)
Hub and non-
hub airports
> INTRA INDUSTRY ANALYSIS > SEGMENTATION > MARKETS
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•  Traditional companies
o  Domestic flights (between cities in the same country)
o  International flights
o  several types of customers: first class, business and economy class
•  High-end companies
o  International flights and medium and large distances
o  Full service, comfortable and prestige
o  Provide quality service to the traveler
o  No policy of class specialization (niche market)
•  Low-cost companies
o  Domestic flights
o  International flights (short distance)
o  No policy of class
o  No service on board (or optional)
> INTRA INDUSTRY ANALYSIS > SEGMENTATION > COMPANIES
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ANALYSIS

•  The overall purpose of conducting an external analysis of an industry is to gain an
overview for an enterprise showing strategic opportunities and threats within the
environment it is operating in.
•  A major trend in airline industry is network alliances
•  Strategic blocks as a means for companies to transcend the resource and scope
restrictions of their respective strategic groups by accessing those resources or
markets from which they were precluded prior to forming or joining a strategic
block.
•  European airlines a looking for alliances in other markets
•  For the analysis, three different maps could be compiled each looking at a different
linkage of variables. The data supporting each variable were gathered through
researching each individual company website profile as well as the websites of the
main alliances.
> INTRA INDUSTRY ANALYSIS > STRATEGIC GROUPS ANALYSIS
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Where are we in the red ocean?
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•  Primary, vertical integration can be defined as backward or forward integration into
adjacent actions in the value chain or network
•  Airlines therefore have developed part wise interesting structures from integrating
aeroplane maintenance, training facilities for future pilots, cargo to tour operations
and even IT services.
•  In interrelation with the geographical scope in which the chosen companies
operate it can be assumed that all global operating airlines have at least a narrow
level of ve1tical integration.
•  The geographical scope axis derives from the distances (domestic, medium-haul &
long-haul) each airlines serves.
•  Therefore, the mapping of airlines groups along the axis of vertical integration and
geographical scope allows drawing three further conclusions.
> INTRA INDUSTRY ANALYSIS > STRATEGIC GROUPS ANALYSIS >
VERTICAL INTEGRATION <> GEOGRAPHICAL SCOPE
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> INTRA INDUSTRY ANALYSIS > STRATEGIC GROUPS ANALYSIS >
VERTICALINTEGRATION
GEOGRAPHICAL SCOPE
Multinational focused airlines with
broad integration
Luxair
International focused airlines with
broad integration
Lufthansa, Airfrance, Bristish
airways, Finnair, Iberia
medium integration
Austrian airlines, Virgin airlines
narrow integration
International focused airlines with no
integration
EasyJet, Ryannair, Air berlin
National focused airlines with no
integration
Lufthansa city lines, Austrian arrows,
Alitair express
Broad
None
National Global
VERTICAL INTEGRATION <> GEOGRAPHICAL SCOPE
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•  The product range of the European airline industry serves usually not more than
two segments upon all distances, on the one handbusiness class and on the other
hand economic class.
•  In addition, many airlines carry as well cargo, but this research we ll more focused
on the passenger segment.
•  In this regard the second chart which can be seen in the Appendix concerning the
interrelation of product range and geographical scope gives an informative
overview about all options the European industry undertakes.
•  It can be noted that most companies can be mapped within three main groups:
•  Dominating group serving business and economic class on all distances
•  The group serving business and economic class on medium&long-haul distances
plus one equal class on domestic flights as well as,
•  Airlines serving exclusive economic class on domestic and medium-haul flights.
•  However, it could be argued that if this attempt to map companies along the stated
axis bears all in all four one player e.g. Virgin Atlantic which just serves long-haul
flights, it could be assumed that the chosen variables are not appropriate to
identify groups.
> INTRA INDUSTRY ANALYSIS > STRATEGIC GROUPS ANALYSIS > VERTICAL INTEGRATION
PRODUCT RANGE <> GOEGRAPHICAL SCOPE
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PRODUCTRANGE
GEOGRAPHICAL SCOPE
Business class on all distance
Olympic, Alitalia, Air france, Lufthansa, KLM, turkish, aeroflot, Iberia, tap portugal
Medium haul business flight Business and economic long haul
Virgin airlines
Economic class all distance
Air lingus
Economic class domestic and
mediul haul
Business and economic
Business
Economic
Domestic Long Haul
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•  The valuations for every airline regarding their service quality have been gathered
from the Website www.airlinetest.com,
•  However, if the strategic group model is supposed to be implied to distinguish
business strategies and competitive positioning than some groups stated in the
map would not refer to that.
•  Comparing for example Austrian Airlines and Ryanair, which both have to be
mapped in the group of great service quality with a medium-sized fleet, it also has
to be acknowledge that they both use different options regarding product and
geographical scope, which was explained before.
•  In addition, although price matters have not been investigated within this paper, it
can be assumed that both companies, Ryanair as LCC and Austrian Airlines as
national flag carrier, implement totally different pricing strategies. In summary the
overall strategy of both companies cannot be assumed to be equal. Similar
variations can be found within different groupings showing the interrelation
between size and quality.
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SERVICEQUALITY
FLEET SIZE
Service excellence, small
fleet
Luxair
Moderate service quality,
large fleet
Great excellence, medium
fleet
Swiss, air berlin, finnair,
Aeroflot
Broad
None
<50 200
Great excellence, small
fleet
Air lingus, virgin atlantic,
Olympic airlines, Austirna
arrows
Great service quality,
medium large size fleet
Austrian airlines, Ryannair,
turkish
Moderate service quality,
medium large size fleet
Great service quality, large
size fleet
Lufthansa, british airways
Low service quality, large
fleet
50<100 100 < 200
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What our direct
competitors are doing?
> INTRA INDUSTRY ANALYSIS > COMPETITOR ANALYSIS>
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Air France-KLM
operating profit by business
segment (EUR million) 2005-2012
Ø New Mini offer = without luggage
Ø Long-haul passenger network drives
2012 revenue
Ø Cargo activities lost
Dec-2011* Dec-2012 Change
% of 2012
revenue
Passenger 18,834 20,186 7.2% 79%
Cargo 3,143 3,057 -2.7% 12%
Maintenance 1,040 1,096 5.4% 4%
Other 1,346 1,294 -3.9% 5%
Total 24,363 25,633 5.2% 100%
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Air France-KLM operating
profit by business
segment
Cargo activities:
Air France-KLM Cargo confirms
its leadership position
market share of 29.6% in 2012
growth based in the Middle East
(+14.8%) and Africa (+6%).
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BRITISH AIRWAYS
Ø “ a global premium airline”
Global
• across the globe
Premium
• service is worth paying a little bit
more for
Airline
• Moving people and cargo
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Ø British Airways seeks new
strategic partner after Qantas
signs Emirates deal
"Asia has become a key market
focus for IAG and we're talking to a
number of airlines about alternative
options for us."
BRITISH AIRWAYS
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Ø Concierge Quintessentially
Lifestyle Partnership for first class
offer
BA is the most international of the big flag carriers,
which means its network is the least domestic-
focused.
Focused on Long haul from her Heathrow base
It remains much
more dependent on a
single hub
(Heathrow) and on a
single
intercontinental
market (North
America)
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Weakness
Ø ageing, high fuel-burn aircrafts.
In 10 years from
2002 to 2011, BA’s
average fleet age
grew from just over
seven years to
between 12 and 13
years
BRITISH AIRWAYS
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IAG lags Lufthansa and
Air France in Asia
market
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Ø Cost-cutting measures included
reducing flight frequencies on
some routes to Europe and the US
Ø Expanding its profitable Asian
network through sister firm
• Cathay for the full year 2012 benefitted from improved results at
Air China, of which it owns 19.57% as part of a cross-equity
arrangement
An other Legacy sample,
@ the Far East
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LLC Strategy warning
Morris believes that previous responses from legacy
carriers to the low-cost threat "have been very
similar so far. They've looked to reduce frequencies,
they've looked to reduce aircraft size, they've
looked to stop serving destinations". Yet he says
that "in a business which since time immemorial has
grown economies of scale and volume growth, it's
quite a cul-de-sac strategy to say this is all about
downsizing."
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Turkish Airlines' operating
profit almost tripled in 2012
The net profit figure of TRY1,113 million
Ø Revenues up 26%
• passenger capacity growth of 18%
Ø Europe’s most efficient cost structures
Ø Productive work force
Ø Expansion strategy based on increasing
transfer traffic / strong growth on routes to
Latin American and Africa
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Turkish Airlines :
Specific IT tools to support
Network and Revenue Growth
Ø IT that can evaluate the
entire network for the best
available seat/price
combinations.
Ø Demand forecast
Ø Leg/Segment Optimization
• PROS Origin & Destination Solutions™
• PROS Real-Time Dynamic Pricing™
• PROS Group System™
• PROS Group Agent™
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India :
Indigo Model Vs KingFisher
Domestic carrier
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So,
Which products, markets, customers…are the most attractive?
Our actuals segments and revenues
> INTRA INDUSTRY ANALYSIS >
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Market by 2016
Forecast Highlights:
International Passenger Development : +331 million passengers
the top five countries for international travel
• United States (+42.1 million),
• the United Kingdom (+32.8 million new passengers),
• Germany (+28.2 million), Spain (+21.6 million), and France (23.4 million).
Domestic Passenger Development
Domestic passenger numbers : +494 million increase reflecting a CAGR of 5.2%
Kazakhstan :22.5% CAGR +3.9 million passengers
India : 13.1% CAGR, +49.3 million new passengers.
China :10.1% CAGR +158.9 million new domestic passengers.
By 2016 the five largest markets : United States (710.2 million), China (415 million),
Brazil (118.9 million), India (107.2 million), and Japan (93.2 million).
> INTRA INDUSTRY ANALYSIS > MARKET ANALYSIS>
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China is the world’s number two
aviation market with huge growth
potential
Top 10 airline passenger markets by seats
Market by 2016
Forecast Highlights:
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> INTRA INDUSTRY ANALYSIS > MARKET ANALYSIS> RETURN ON INVESTMENT BY REGION
Clear LCC succes in
european market, latin
america keep better
balance regarding ROIC
between legacy and LC
Carrier
Return On Investment by region
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Cargo segment
Asian-Pacific airlines are expected to
deliver the largest absolute contribution to industry
performance
Ø Asian carriers comprise about 40% of the air
cargo market and will be the biggest beneficiaries of
the expected upturn in cargo demand.
Ø Carriers in the region are expected to see average
demand growth of 4.9%, slightly outpaced by a
5.0% capacity expansion.
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Product Forecast :
What to offer ?
Airlines refine their customer segmentation
processes, albeit slowly
Ø US-based carriers Spirit Airlines and Allegiant Air target extremely price
sensitive travellers in domestic and regional markets. These passengers are
willing to trade off lower fares for less frequent service
Ø We (also Cathay Pacific) are targeting higher fare paying passengers
travelling in intercontinental markets.
Ø max seat = 467 in a typical 748-8configuration, Lufthansa =only 362 seats,
Ø 92 fully lie-flat business class seats
Ø 8 seats in the spacious first class.
> INTRA INDUSTRY ANALYSIS > PRODUCT ANALYSIS>
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Product Forecast :
What to offer ?
Cathay
Ø improving its premium class products (both business and
premium economy),
Ø higher frequency and more destinations in intercontinental
markets
Singapore Airlines :different segments ; distinct subsidiaries:
• Singapore mainline for long-haul premium service;
• Silk Air for medium-haul premium service;
• Scoot for long-haul budget service; and
• Tiger (part owned) for budget service in medium-haul markets.
> INTRA INDUSTRY ANALYSIS >PRODUCT ANALYSIS>
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Product Forecast :
Premium
The Middle East is at the
centre of the fastest-growing
premium traffic flows
Ø Premium trafic from 9% in
2007 to 7,5% in 2013 = -4% in
revenue
Ø Highest growing premium
growth :
• Middle East to Far East
• Europe to Middle East
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Product Forecast :
Premium economy
Airlines see growth in premium
economy service from India
• Air France : +40%
• Virgin Atlantic : +60%
growth in this class from India routes!
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Business,
Premium economy ,
Economy
The new 3 class trend
Goodbye first class ?
or…
let us dream ?
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Product Forecast : Ancillary revenues,
meaningful cash flow.
a)  A la carte
b)  Commission-based products
o  Price-service options on flight experience
c)  Frequent flier activities
d)  Miscellaneous sources such as advertising
forecasts an 11.3% increase,
surpassing $3.6 billion in new
receipts.
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> INTRA INDUSTRY ANALYSIS > CRITICAL SUCCESS FACTORS
Critical success factors refined
People
High-caliber staff is critical in this service-oriented business. Training programs focusing on front-line
communicative skills with customers and internal employee-management problem solving with customer-
focused continuous-improvement objectives are essential ingredients.
Service Product/Promotions
The actual product--aircraft seating space, aircraft type, class of service offerings and booking ease must be
at least industry-competitive for success. Promotions, particularly those targeted to frequent high-revenue
travelers, create loyalty and repeat business.
Route System
An airline's route system is perhaps the most consistent success factor. Where to fly and how often are factors
that must be matched to customer demand, and at the same time, scheduled to maximize aircraft utilization.
Revenue/Cost Control
Maximizing revenue through competitive and innovative pricing schemes to attract and maintain a customer
base is critical for success. Just as important is cost management, notably fuel procurement and price
hedging during volatile periods.
Financial Management
Net-unit revenue is the measure of profitability, representing all revenues minus all costs divided by the total
seats flown. Successful management of this key indicator enables airlines to tap investment for growth.
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•  Showing the current position of a company within a strategic group regarding two
criteria can give an overview of opportunities and threats as well as contribute to
strategy formulation.
•  However, it can not be assumed that companies within a strategic group have to
be seen as direct competitors, because their overall strategic orientation might be
different and just regarding two chosen variables comparable.
•  Nowadays, are the strategies groups so separated regarding quickly emerging
profitable models, is there any convergence to look for ?
•  Do we, while keeping “our soul”, bring ours business segment elsewhere, from our
core ressources to new revenues ?
> INTRA INDUSTRY ANALYSIS > STRATEGIC GROUPS ANALYSIS > SUMMARY
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INTERNAL ANALYSIS
RESSOURCE BASED VIEW ANALYSIS

Our Ressources and
cababilities,
90 year old
legacy
carrier…
Still there
> RESSOURCE BASED VIEW ANALYSIS >
• Financial
• Physical
• Technological
• Organizational
• Intangible
• Human
• Innovation
• Reputational
…inside the value chain
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Business Model
> RESSOURCE BASED VIEW ANALYSIS > BUSINESS MODEL
Value Proposal
●  customer
●  Product / service
●  Price
Value Architecture
●  Value chain
●  Network value
profit equation
●  Sales
●  Cost structure
●  Capital
3 windows , Value for customer, How it’s created,
and the global formula of our profit outcome
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Business Model
> RESSOURCE BASED VIEW ANALYSIS > BUSINESS MODEL
Value Architecture
●  Value chain
●  Network value
chain
INBOUND
LOGISTICS
OPERATIONS OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
PROCUREMENT
TECHNOLOGY
DEVELOPMENT
HUMAN
RESOURCE
MANAGEMENT
FIRM
INFRASTRUCTURE-Financial Policy - Accounting-Regulatory Compliance- Legal - Community Affairs
Pilot Training
Safety Training
Agent
Training
In-flight
Training
Baggage Tracking
System
• Promotion
• Advertising
• Advantage
Program
• Travel Agent
Programs
• Group Sales
• Ticket Counter
Operations
• Gate Operations
• Aircraft
Operations
• On-board Service
• Baggage Handling
• Ticket Offices
• Route Selection
• Passenger Service
System
• Yield Management
System (Pricing)
• Fuel
• Flight Scheduling
• Crew Scheduling
• Facilities Planning
• Aircraft Acquisition
Information Technology
Communications
Product
Development
Market Research
• Lost Baggage Service
• Complaint Follow-up
• Baggage System
• Flight
Connections
• Rental Car and
Hotel Reservation
System
Computer Reservation System, In-flight System
Flight Scheduling System, Yield Management System
Baggage Handling
Training
Flight, route and
yield analyst
training
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ANALYSIS

Lufthansa's balance
sheet is strong
> RESSOURCE BASED VIEW ANALYSIS > FINANCIAL
It has high levels of liquidity and low net debt. The
group has consistently covered its capital
expenditure needs out of operating cash flow.
Its gross liquidity at the end of 2012 was almost
EUR5 billion, equivalent to two months of group
revenues (much higher than its minimum target of
EUR2.3 billion).
Lufthansa has a prudent approach.
Profit equation
●  Sales
●  Capital
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Financial : Revenues
by regions
• Europe accounted for 46.3% of
passenger traffic revenues in 2012,
considerably more than Air France-
KLM and IAG.
• The North Atlantic took the biggest
share of revenues among
intercontinental destination regions
with almost 21%,
• closely followed by Asia/Pacific on
19%.
Profit equation
●  Sales
●  Capital
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Financial Highlights
In light of the decreasing
operating result again as well as
the ongoing extensive
restructuring process, the
Executive Board proposes to
the Supervisory Board to
suspend the dividend payment.
“Our aim is to allow our
shareholders to participate
sustainably in the Group’s
future success
Profit equation
●  Sales
●  Capital
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MRO and
Cathering :
ROIC
champions
Profit equation
●  Sales
●  Capital
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Profit equation
●  Sales
●  Capital
the MRO
division has
been very
steady in
its
profitability
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Financial
Highlights
Profit equation
●  Sales
●  Capital
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Physical assets - fleet
• With over 870 aircraft (including
subsidiaries):One of the largest passenger airline
fleet in the world
• New segmentation whith Germanwings for
Lufthansa's short-haul network
An airline, a fleet
Value Architecture
●  Value chain
●  Network Chain
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Physical assets –
Lufthansa Technik
IN 2012 Annual report :”The
expansion of Lufthansa Technik
Shenzhen, China, and the
construction of a material
warehouse in Singapore
additionally ensure that
Lufthansa Technik can play a key
role in the growth of the Asian
MRO market “
MRO (maintenance) locations
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Physical assets –
Lufthansa Technik
> RESSOURCE BASED VIEW ANALYSIS > PHYSICAL
Complete A380
support
(Plus airbus and boeing lines)
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Physical assets –
LSG Skychef plants…
Awarded First classLounges
LSG Skychef locations
•  Cathering Airports lounges
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Physical assets –
Logistics (Cargo)
Lufthansa Cargo reported the
second-best operating result in its
history.
Thanks to strong exports,
Lufthansa Cargo profited from
much better load factors on flights
from Europe to China. At the
same time, the company decided
to shift capacity from Asia towards
America, as market
developments in this traffic
region were much more stable.
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Physical assets –
Distribution channels
Lufthansa expands its leisure
travel booking channels
Goal : reduce cost of distribution by translating booking fees outside from LH
In home markets the tactics have been to get customers to book directly on
the airline website and to a find a way of getting travel agents and ultimately
customers to pay the GDS booking fee instead of the airline.
Now Cooperation with TUIfly - Travel agencies can book Lufthansa
flights via TOMA
More, Lufthansa will sell around 16 million of his Amadeus shares, equivalent
to 3.61 percent of the company
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Technology
> RESSOURCE BASED VIEW ANALYSIS > TECHNOLOGY
*Dynamic packaging
*Bordconnect
*future-oriented
distribution channel
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Technology
for logistics
> RESSOURCE BASED VIEW ANALYSIS > TECHNOLOGY
TIBCO EAI
(Entreprise Application Integration)
Current Status of the EAI Project Lufthansa Cargo has already
completed two EAI projects: TrackIT and Chase.
TrackIT is used to proactively supply customer information
about the current status of freight transport, and drive the
introduction of a status reporting system.
Chase is an extension of the existing customer relationship
management (CRM) system and is used to efficiently
manage
customer requirements and complaints. The Siebel CRM
application has already been connected to the system, and
at least ten additional systems will be connected over the next
two to three years, including SAP and MOSAIK.
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Organizational
> RESSOURCE BASED VIEW ANALYSIS > ORGANIZATIONAL
Ability to redraw « what is » and execute « What
should» :
The SCORE
(Synergies,
Costs, Organization,
Revenue, Execution)
programme is a
restructuring program
launched in
January 2012 to improve
the Group's operating
margin in the long term,
with cost savings of
at least EUR 1.5 billion
targeted by end of 2014.
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Organizational
Synergies, Costs, Organization,
Revenue, Execution
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Organizational
SCORE
• Around 800 measures in 2012 to improve
earnings and cut costs.
• As a result, the Company was able to achieve a
structural earnings improvement of EUR 618m
in the first year of the programme, around EUR
300m more than originally planned.
'Making better use of synergies in purchasing,
coordinating flight plans being between
airlines, adjusting capacities and lowering
staff costs through more efficient processes
in administrative areas all played a role here,
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Organizational
SCORE
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> RESSOURCE BASED VIEW ANALYSIS > HUMAN RESSOURCES
•  The volatile market environment made human resources activities particularly
challenging.
•  Major projects were launched to increase flexibility and diversity.
•  The Management Landscape 2020 project addresses the demands of the future.
•  Wide-ranging wage agreements create perspectives.
•  International employer attractiveness further improved
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> RESSOURCE BASED VIEW ANALYSIS > INTANGIBLE
Intangible assets carried at EUR 1m
(previous year: EUR 5m) were acquired by
means of finance leases.
Non-capitalised research and development
expenses for intangible assets of EUR 13m
(previous year: EUR 8m) were incurred in the
period.
Firm orders have been placed for intangible
assets worth EUR 11m (previous year:
EUR 8m), but they are not yet at the Group’s
economic disposal.
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•  Group initiative “Impulse”. Committed staff members again made vital contributions
to optimising products and processes in 2011 as part of the suggestion
management scheme.
•  employees’ imaginations produced 3,142 suggestions for improvements with the
potential for saving around EUR 8m (2012)
•  A large number of research projects and partnerships generate new findings and
advance the progress of innovative ideas in the spirit of sustainable development.
•  Lufthansa is actively involved in research into alternative fuels
•  Lufthansa and the Jülich research centre started a programme of long-term
observation of the Earth’s atmosphere using scheduled aircraft
•  For nearly two decades Lufthansa has been the only airline in the world involved in
climate research and air quality.
•  Starting in autumn 2011 and after extensive testing, the container fleet at Lufthansa
and Lufthansa Cargo is being replaced successively by new containers made of
light compound materials
•  The successful installation of hush kits on the complete Boeing B737 fleet in late
2011 also made an important contribution to the sustainable reduction of aircraft
noise
> RESSOURCE BASED VIEW ANALYSIS > INNOVATION
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•  Lufthansa claims to operate one of the safest passenger services
compared with other airlines.
•  Germany’s reputation for precise and high-quality engineering contributes
to this image. By means of cautious engine maintenance and precise
security control, Lufthansa was rarely involved
•  in serious air crashes. Through providing safe flights, it builds up an
outstanding corporation image and reputation, assuring customers a
sense of status and reputation if they choose to flight..
> RESSOURCE BASED VIEW ANALYSIS > REPUTATIONAL
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> RESSOURCE BASED VIEW ANALYSIS > CAPABILITIES
•  6 business segments
Organizational structure &
Control
•  Continuously work in innovation and stream-
lined cost structures (to remain the first choice
among competitors)
Economic sustainability
•  Maintain employee’s motivation as well as their
mental and physical health and strenghen a
culture of life long learning within the company
Social responsibility
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> RESSOURCE BASED VIEW ANALYSIS > CAPABILITIES > CORE COMPETENCIES
•  Technik AG is the word’s leading provider of
technical aircraft servicesMaintenance, Repair and
Overhaul (MRO)
•  Cargo AG ranks among the market leaders in the
international air freight business and offers
worldwide network
Logistics
•  Systems AG has a world-wide ledership role in the
aviation industry
IT Services
•  LSG Sky Chefs is the largest provider worldwide of
airline catering and the management of all
processes related to in-flight serviceCatering
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VRIST Filter
> RESSOURCE BASED VIEW ANALYSIS > VRIST FILTER
Whitch ressources and capabilities
builds competitive advantage
Ressource or
capabilities
Strategic
Ressource or
capabilities
Valorisable
Rare
Inimitable
Non
Substituable
Non
Transferable
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VRIST
LH /other
airline
Value Architecture
●  Value chain >
Primary activity
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LH service competitive
advantage
Whitch ressources and capabilities
builds competitive advantage
LH
competitive
advantage Lufthasa Technik (MRO)
Logistics
LGS SkyChef
Lufthansa gained a top rankings at the recently
concluded “World Airline Awards 2013” event in
the categories “Best First Class Airline Lounge”,
“Best Western European Airline” and “Best
Transatlantic Airline”.
Value Proposal
●  customer
●  Product / service
●  Prrice
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LH competitive drawback
LH has highest CASK on both short-haul
and long-haul / competitor
> RESSOURCE BASED VIEW ANALYSIS > BUSINESS MODEL >VALUE CHAIN > CASK RESULT
Value Architecture
●  Value chain >
Operation
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> SITUATIONAL SUMMARY > SWOT
Strenghts:
* Global operations
* Structural divisions
*Abiliity to react from future trends
* MRO and Cathering champions
* Global Logistics core competence
*Premium, robust and safety image
Weekness
* Too german centric
* Numerous proprietary aircraft models
in the fleet to manage
* No International bases and business
unit with cultural endorsment on new
growing market and culture (Brazil,
India, ASEAN)
*Structural superior CASK
regarding competitors
Opportunities
* Ownership stakes in different
markets
* Optimize fleet capacity and routing
*Use a mooving world to dispacth LH
core values, seeking profitability
* Expand presence in growing market
Threats:
* LCC on European Market
* Other alliances, and new kind
of jointures (ethiad-jetairway)
* Gulf Carriers in European
Market without the same
structure cost and taxes
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> SITUATIONAL SUMMARY
•  The opportunities and risks for the Lufthansa Group will be defined very largely by
macroeconomic factors and their subsequent effects on global air traffic markets
and competition.
•  Past experience shows that developments in external parameters are subject to
great uncertainty.
•  Lufthansa currently anticipate that the global economy will continue to perform
well, albeit at lower growth rates. As a result of the financial and economic crisis a
tangible forecast risk can be observed for assessments of future economic
developments. In the future greater volatility is expected than has been previously
observed.
•  The assumed growth in global passenger and cargo demand is therefore subject to
considerable opportunities and risks for Lufthansa.
•  Fuel prices remained high and were not much affected by the lower growth
prospects. Kerosene costs are reduced by strong hedging results.
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> SITUATIONAL SUMMARY
•  Additional expenses will come from the inclusion of European air traffic in
emissions trading
•  No decision has yet been taken on the possibility of offsetting the costs of
purchasing the necessary certificates against the air traffic tax
•  These risks are mirrored by the corresponding opportunities if the parameters of
demand, average yields and fuel price develop better than expected.
•  In this environment Lufthansa is relying on its ability to adjust its capacities and
resources flexibly to changing market conditions and to cut costs.
•  In early 2012 the Executive Board presented SCORE, the new Group programme
to safeguard earnings, which is intended to make lasting, structural improvements
to profitability.
•  Despite the tense situation on financial markets and the deteriorating economic
outlook, the Group expects to be able to maintain its investment grade rating.
Counterparty risks are rising again, however.
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INTERNAL
FACTORS
(IFAS)
EXTERNAL
FACTORS
EFAS
* Global operations
* Structural divisions
*Abiliity to react from future trends
* MRO and Cathering champions
* Global Logistics core competence
*Premium, robust and safety image
* Too german centric
* Numerous proprietary aircraft models in the fleet
to manage
* No International bases and business unit with
cultural endorsment on new growing market and
culture (Brazil, India, ASEAN)
*Structural superior CASK regarding competitors
* Ownership stakes in different markets
* Optimize fleet capacity and routing
*Use a mooving world to dispacth LH core values,
seeking profitability
* Expand presence in growing market
* LCC on European Market
* Other alliances, and new kind of jointures
(ethiad-jetairway)
* Gulf Carriers in European Market without the
same structure cost and taxes
STRENGTHS (S) WEAKNESSES (W)
OPPORTUNITIES (O) SO STRATEGIES WO STRATEGIES
THREATS (T) ST STRATEGIES WT STRATEGIES
> SITUATIONAL SUMMARY > SWOT
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•  Invest in emerging markets
•  Invest in new travel technologies, high quality
customers travel experience
•  Expand high quality service
•  Business operations cost control
•  Optimize labor cost
•  New LCC acquisitions
•  Develop new alliances
•  Operating cost
•  Reduce operating cost
•  Reduce Structure cost

BUILDING A STRATREGY
Bruno Nelzy
Mountaha Ndiaye
Noufe Sie

Nothing is possible
without cultural change
Cultural change in Lufthansa is also a key theme and priority for Dr
Franz. He identifies the need for “a culture which embraces change,
[…] where we, with our de-centralised business units, strengthen and
foster entrepreneurship; […] a culture which is open to create and
make use of synergies between similar businesses, […] and a culture
which is open for taking up ideas invented maybe outside the Lufthansa
Group”.
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> STRATEGIC OPPORTUNITIES > CORPORATE STRATEGY

CORPORATE STRATEGY
Our focus : Searching to grow,
Handshaking the world, by
Spreading our cababilities
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Middle east
Gulf carrier
Ø The Market have to be shared,
Ø Emirate’s & Gulf carrier cant’be (at this
time ) beaten on midle-east Hub Control
Ø Opportunity to optimise slot allocation in the
for our long hull A380
> STRATEGIC OPPORTUNITIES > CORPORATE STRATEGY > NEW MARKETS
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India Ø Enforce Strategic MRO Alliances
for the India growing fleet., (Indigo,
Jet Airways)
Ø Propose the lease and
maintenance model from the
Turkish base created to India
carrier
Ø Premium economy product
should be the lowerest cabin of a
LH fleet there, focused on long-
haul superior planes thanks to our
fleet optimization and Opex
reduction.
Profit equation
●  Sales
●  Capital
> STRATEGIC OPPORTUNITIES > CORPORATE STRATEGY > NEW MARKETS
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Turkish Airline Strategic
Aliance
Ø New revenues , economy of scale
and bigger native customer base
Ø New MRO base
Ø the two compagny in a « join management » give
and Immediate bigger base , adding code-share
and more total income.
Ø Staff costs are lower in Turkey and air travel is
becoming more affordable. Revenues at TK have
grown at an average 24% a year for five years.
Ø Create a Turkish LH Technik MRO/lease base
Value proposal
●  customer
●  product/ service
●  Price
Profit equation
●  Sales
●  Capital
> STRATEGIC OPPORTUNITIES > CORPORATE STRATEGY > NEW ALLIANCES
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TAM MRO – LH Tecknik
joint venture
Ø Make a coordinated dispatched
structure
Brazil MRO sector poised
for major expansion
Ø Each International major substanable step,
should be considered with a localy cultural
approach,
Ø Making a Lufthasa tecknik there , should be
made whith a local partener who wants to grow.
Value proposal
●  customer
●  Price
Profit equation
●  Sales
●  Capital
> STRATEGIC OPPORTUNITIES > CORPORATE STRATEGY > NEW ALLIANCES
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BUSINESS STRATEGY
Our focus : How to enforce
premium Lufthansa Experience,
meanwhile lowering Operating
Cost ?
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BUSINESS STRATEGY
From our ‘fil rouge’ « Do customer
buy a seat or an experience ? », let’s
take a look at our
SCORE 3D STRATEGY
Ø 1 Product value business strategy enhancement
on Passager Segment
Ø 1 Global Operating Cost business strategy
enhancement
Value proposal
●  clustomer
●  Price
Value Architecture
●  Operationnal
value chain
●  Value network
> STRATEGIC OPPORTUNITIES > BUSINESS STRATEGY > CUSTOMER EXPERIENCE
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Dimention 2
on Experience Lufthasa
• Build an Business traveller
ecosystem, Every where we are not
but business is.
Ø Quasi-Integration of business Travel
agent, co-development of facilities
o Including from emerged country ! (Brazil, India)
Ø Develop First Class Lounges and
business facilites in Sao Paolo, Delhi ..
o  even if actual fligths are on code-shared
companies, present LH business services localy
Value proposal
●  customer
●  product / service
●  Price
> STRATEGIC OPPORTUNITIES > BUSINESS STRATEGY > CUSTOMER EXPERIENCE
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Dimention 3
Optimizing Operating COST by
new Fleet business model
Limit aircraft fleet models
Ø Less models whith premium
cabins to keep comfort
differentiation
Ø Key succes factor of
o Southwest Airline (only B737)
o Indigo (A320)
Value Architecture
●  Operationnal
value chain
> STRATEGIC OPPORTUNITIES > BUSINESS STRATEGY > OPERATING COSTS
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Dimention 3
Reduce direct ownership
of fleet
Ø New Quasi integration of
Lufthasa lease and MRO Technik
to manage a shared fleet for
lease
Ø Air Lease sample : Operating
Cash Flow x 10 by 3 years
Value Architecture
●  Operationnal
value chain
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Dimention 3
Reduce direct ownership of fleet
Ø Gradually swith to lease model selecting the
most profitable aircraft for each route from
models avaliable between owned fleet or the
« shared »’s subsidiary fleet.
Ø The goal is to moving OPEX to the LH subsidiary
Ø New revenues by leasing planes to others
carrier who can t support total maintenance
Value Architecture
●  Operationnal
value chain
Profit equation
●  Sales
●  Capital
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Reduce fleet
models
Quasi intégration
Lease-Lechnik MRO
Switch to a shared
fleet
Moving OPEX of
fleet maintenance to
the new subsidiary
Capture new
Revenues from
others airlines whith
it
Enhance Premium
Lufthasa Experience
•  Co-develop business
facilities whith agencies
from IBAS and ASEAN
countries
•  Seek new Meedle class
from IBAS countries
> STRATEGIC OPPORTUNITIES > SUMMARY
LUFTHANSA
AT GLANCE
BUSINESS
LANDSCAPE
INDUSTRY
ANALYSIS
COMPETITVE
SUSTAINABILITY
SITUATIONAL
SUMMARY
STRATEGIC
OPPORTUNITIES
INTERNAL
ANALYSIS

•  The Executive Board of Deutsche Lufthansa AG believes that the outlook
for the Group remains positive overall. The combination of operating
flexibility and solid financial profiles allows the Company to develop its
business actively and independently of the prevailing market environment.
•  At the same time, the business segments are addressing the structural
shifts in the industry, which result from high fuel prices or state subsidised
competitors on long-haul routes.
•  Against the background of these changed conditions, Lufthansa must
create competitive structures in order to be able to retain its market
position and defend itself against competition, in particular low-cost
carriers and airlines from the Middle East, India for the long term.
> STRATEGIC OPPORTUNITIES > SUMMARY
LUFTHANSA
AT GLANCE
BUSINESS
LANDSCAPE
INDUSTRY
ANALYSIS
COMPETITVE
SUSTAINABILITY
SITUATIONAL
SUMMARY
STRATEGIC
OPPORTUNITIES
INTERNAL
ANALYSIS

STRATEGIC ANALYSIS
Determining Industry Attractiveness and
Identifying Strategic Opportunities
Bruno Nelzy
Mountaha Ndiaye
Noufe Sie
ESG Executive MBA, September 2013
THANKS YOU
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Lufthansa strategy analysis

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