marketing stragy of lufthansa airlines

LUFTHANSA AIRLINE

1. Introduction

The Passenger Airline Group Lufthansa is the core business segment of the Lufthansa Group. It is the most prestigious and largest airline of the world. It is an aviation group with a network of more than 400 subsidiaries around the globe as well. In 2011, the Lufthansa Group employed approximately 120,000 people, generating revenues of 22.3 billion Euros in total. To do so, they welcomed more than 65 million passengers on board their flights, enabled by a fleet consisting of more than 400 aircrafts.

“Quality, innovation, safety and reliability have always been the characteristics of Deutsche Lufthansa and will remain so in the future.” (Star Alliance, Member Airlines, Lufthansa)

2. Marketing Mix

2.1 Product

Lufthansa is one of the main airline companies in the world. Their partnership with Star Alliance allowed them to provide a large number of destinations (18 domestic’s destinations and 183 international destinations in 82 countries across Africa, Americas, Asia and Europe) with a punctuality rate of 82.4% and a frequent flyer program. Security and trust are two aspects Lufthansa passengers can expect to count on. People flying Lufthansa feel they project a high professional image of themselves as the brand is associated to corporate travel. (Lufthansa Group; “Lufthansa achieves record punctuality at Frankfurt”; 30.01.12)

2.2 Price

Lufthansa strives to maintain competitive prices. Inside Europe though, compared to its competitors, Lufthansa offers average – priced services.

Lufthansa will have to increase their price tickets in the future because of the European law about the Emissions Trading Schemes of the airplanes companies. (Lufthansa social media newsroom; “Ticket prices to rise in Europe as aviation is included in the Emissions Trading Scheme”) 2.3 Place

Lufthansa operates on several distribution channels to ensure a wide coverage of service availability. It offers two online-portals, one for individual consumers and one for corporate customers and currently sells 74, 74 million tickets per year. (Star Alliance, Member Airlines, Lufthansa)

2.4 Promotion

“There’s no better way to fly” is Lufthansa’s publicity line. The company has put more energy and focus recently to better promote its brand image. It enhanced its direct marketing focus, through telephone, direct mail and e-mail campaigns.

Since the beginning of May 2002, Lufthansa and Deutsche Bank have entered into a partnership whereby services from one company are offered by the other and vice versa as bonus schemes for instance.

Lufthansa’s wide array of services ensures its presence in different markets. In Berlin for example, Lufthansa employees did social work which was meant to foster team spirit–working skills and to create a positive image of the company in the communities in which it operates. (Odyssey Media Group; “Deutsche Bank And Deutsche Lufthansa Partnership”; April 08, 2002)

3. Marketing and sales strategy

3.1 Mission

The Passenger Airline Group is Europe’s Airline Powerhouse connecting Europe with the world and the world via Europe with their global services. Customers are the center of company attention. The company provides reliable services for their passengers with seamless co-operation with their partners
in volatile environment. As the world’s leading aviation group, they are the global leader in selected aviation services. They are highly motivated and dedicated team stands for superlative quality.

“Our corporate culture and its value concepts are defined by entrepreneurship and collaboration, in an atmosphere of transparency, trust and diversity. Our target is to grow profitably and maintain a healthy financial structure, to enable investment in the development of our business, fleet, products and people. We are committed to sustainable development and assume our ecological, civic and social responsibilities.” (“Mission statement”; Group strategies; lufthansagroup.com)

3.2 Vision

The Lufthansa Passenger Airlines demonstrates their vision as to stick assiduously to their course, which is defined in terms of sustainable and profitable growth.

“In a strong corporate group with economies of scale and a global network to realise synergies and transfer knowledge systematically the group airlines and service segments can apply their individual strengths with greater force. By striving continuously for safety, quality and innovations that make our business more socially sustainable and reduce its environmental impact we use to improve our opportunities on the market” (“Vision“; Lufthansa investor relations; reports.lufthansa.com)

3.3 Strategy of the company

The company has set four key strategic goals towards which they orientate and conduct business performance. These strategic goals are rests on four pillars: To increase company value

This goal is necessary for future viability and successful development. They are focus for continuing to invest successfully in the certain segments. For instance, consumers, fleets, products and employees, for meeting return
obligations to shareholders and keeping product and service promise to customers. To expand the leading market position of their airlines and service companies by actively shaping the aviation industry

As the one of the largest aviation groups and recognized marketing leader they need to play an active role in shaping the development of the industry and take benefit in the global growth of the airline sector. The company want to achieve it by continue expanding existing partnership and to initiate new ones. Examples in the passenger business include the expansion of the North Atlantic by joint venture with United Airlines and Air Canada. To continually improve customer satisfaction with product and service quality, technology and safety

The Lufthansa Passenger Airlines will invest 3 billion into ground product till 2016. The group fleet will have a modern product optimally suited for customer needs. It creates a position as an innovative company with the highest level of quality. The company also establishes one of the most modern and efficient airfreight terminals in the world at main hub in Frankfurt. To run an economically and ecologically sustainable business

Investment policy aims to support sustainable business in every respect. They ensure their economic success in sustainable by integrating CVA in all decision-making processes. Investment in new aircraft types rejuvenates the fleet for all airlines, and at the same time delivers considerable efficiency gain by reducing kerosene consumption and noise emissions which improving the ecological footprint of the company. The pillars of Group strategy

Other targets for return on capital and innovation are derived from these four main strategic pillars and are subordinated to them. They are supplemented by measures relating to synergies, the renewal and improvement of our products and fleets, the careful handling of emissions and materials and responsibility for our staff.

(“Group strategy”; investor relations; lufthansagroup.com); (“Annual report”;
Group strategy, Page 37-38, Lufthansa group) SCORE PROGRAMME

With the SCORE programme they are working equally towards all these objectives. With the Group-wide SCORE improving programme, they are preparing ground for substantial increase in profitability and efficiency by 2015 and for making the Lufthansa Group even more flexible at the same time. The SCORE is intended to modernize the administrative structure and improve the efficiency of the operating business. (“Financial report 2012”; Page 5; lufthansagroup.com)

3.4 Customer Segmentation

The customers of Lufthansa can be described as: People who travel and either need or want to travel via airplane. Sufficient financial resources are essential. Lufthansa is working with data mining to get precise insights in all of their customers. Therefore Lufthansa can dynamically cluster customer segments according to different factors and does not have to pigeonhole customers into groups that do not 100% fit. As a result, Lufthansa is able to form communication channels and messages individually to personal preferences. Still, general segmentation does exist:

First of all, customers are generally divided in private and business. Though, the basic concept how they are treated looks pretty similar, the bonus programs only differ in details. For private customers the bonus program is called Miles & More, for business customers it’s called Partner plus Benefit. Here, the Miles & More is introduced.

Miles & More Status
This status describes the frequency / distance with which travel with Lufthansa, measured in travelled miles. Segments from most travelled miles to least: HON Circle
Senator
Frequent Traveller
Miles & More Members

As said, segmentations might not always fit. For e.g. advertising messages an alternative segmentation is used to tailor communication: Business
Ethno• Students/30s

Other segmentation criteria used at Lufthansa for different purposes: Customer Equity
Customer Lifecycle
Products
Industries
Customer Preferences

3.5 DESTEP-factors (External) of Airline Industry

3.5.1 Demographic aspects

Demographics aspects that create impacts on airline industry might consist of Age (generally at which customers are independent on financial issues, and at which customers have good health condition to be on a flight); Income (frequency of utilizing air travelling; categorized level of serving depends on the prices/types of the tickets purchased such as business class and economic class); And Population (amount of demands for air travelling).

3.5.2 Economic aspects
Economic impacts on Demand

It is undeniable to claim that Economic aspects play an important role on the demand for travelling by air. People with stable and high income will have frequent wants of travelling globally. Companies and organization that plan to expand or in the process of expanding their business globally have to arrange meetings across the borders for the decision – makers or even send their employees abroad. In contrast, if the income of a person is unstable, he has to take care of his own basic needs first; and the same situation for companies/organizations, reducing costs and investments will be strict when they are in difficult period of sustainment. Price elasticity of supply and demand

Travelling by air is considered whether elastic or inelastic based on the situation as well as who purchase the tickets. If it comes to a usual holiday vacation of a family, the price of the ticket could be waited and purchased at its best price and comfortable time. However, if it is a business mission that needs urgent solving, the tickets will be purchase regardless of its price. Price of oil

Currently, the price of oil continuously increases, which leads to rapid rise in cost of fuel for airplanes. According to IATA (International Air Transport Association), the airline industry expected to serve 2.54 billion passengers in 2011, which is 5 percent higher than the previous year. This fact means more flights will be proceed and therefore more fuel required.

(Airline Leader; “Rising fuel prices: The constant sorrow of the airline industry”; 2011) Monetary and Fiscal Policies

Bank interest rate affects toughly on airline industry since the high operational cost will induce difficulties for airlines’ activities; and in contrast, when interest rate decrease, the demand for travelling will raised up and simultaneously the profit of airline industry recovers.

Fiscal policies tend to generate profound effects on airlines such as excise taxes and fees, which are utilized for supporting airport facility and airlines’ operations. As said by ATA (Air Transport Association) in 2005, these fees might be up to 26 percent of a standard round trip ticket. This figure, ATA explained, led to approximately 129 thousand unemployed, many airlines bankruptcy, and tremendous ticket price rising. (Air Transport Association; 2005; “Comments of the Air Transport Association of America, Inc. before the President’s Advisory Pane on Tax Reform”)

3.5.3 Social – Cultural aspects
Freedom to Travel

Air traveling connects people, countries, cultures and business. Not only
does air traveling facilitate exchanging culture between countries and continents, but it also strongly supports tourism – a profitable business that has become the main income of many countries. Positive Effects on Social Behavior

Almost all major airlines frequently donate a significant amount of capital to charities, and/or “facilitate local charities in their hub cities as well as national organizations”; as well as “served as a source of aid during times of emergency”. (“Social impacts”; Airline Industry; Sites.goodle.com) Terrorism: 11th September 2001 attack

The terrorist attack on 11th September 2001 in the United States shook not only the citizen of the US but also the whole world. Airline industry, therefore, is one of the industries that were affected the most seriously. The federal government immediately took actions of closing the airports and canceling thousands of flights. Even though, after the reopening, there was still reduction in passenger demand. “At least 30 percent reduction in demand during the initial shock period”, Gabi Logan stated in his article. (Gabi Logan; “The Effects of 9/11 on the Airline Industry”; Demand Media)

Currently, the pain and shock for this terrorist attack has been eased gradually over a long period of time, and recover the demand for air travel remained. However, its consequence is continuously maintained in the strict policies of airlines to prevent the repeat. 3.5.4 Technological aspects

Obviously, technological trends create impacts on the airline industry. First impact should be mentioned is the way how airlines approach to customer through internet. They provide customers with information about their brand and flights, acquisition of tickets and complaints receiving on their own websites. In addition, there are many websites provide the combination of several airline brands’ tickets, so that customers are capable to make comparison about the price and convenience between those tickets and make buying decision.

Robert Boyle – Director of Strategy & Business Units, British Airways –
stated that “The drive towards integration enabled by the Internet, open source software, and service orientated architecture and mobile computing will, we believe, also continue to create change in the airline industry.” (Robert Boyle, Director of Strategy & Business Units, British Airways; “TECHNOLOGICAL TRENDS AND THEIR IMPACT ON THE AIRLINE INDUSTRY”; Air Transport IT Review – Issue 1, April 2009). The provident for this statement is the fact that airline customers recently are able to process the check-in process easily by their mobile phones, as well as utilize their mobile phone as a boarding pass, which is particularly convenience and is being used extensively. 3.5.5 Environmental aspects

Duncan Clark wrote in his article in theguardian.com that air travel has been forming enormous environmental footprint as the climate change. (Duncan Clark; “Aviation Q&A: the impact of flying on the environment”; Tuesday 6 April 2010 12.08 BST). The aviation industry claimed that air travelling takes a portion of “1.5%–2% of global CO2 emissions”; however, he also pointed out that most of the flights were served in developed countries. Therefore, it is more practical to conclude that the developed countries account for higher slice of CO2 emissions in consequence of flying than the developing ones.

The IATA claimed that one of its important policies is to assist its members to participate in improving environmental performance. Specifically, IATA set up Alternative Fuels which is reducing emissions of CO2; Carbon Offset program which is for short-term limiting the climate change impacts; and Environmental Assessment which is a voluntary program that encourage airlines to improve their environmental management. (IATA, “Improving Environmental Performance”) 3.5.6 Political aspects

Since the war on terrorism has occurred continuously recently, the guidelines for passengers have become stricter. For instance, luggage as well as passenger is examined more carefully; documents relating to the flights are also checked strictly; and sharps as well as exceeding amount of liquid will be eliminated. Those careful policies may bring passengers the feeling of protection; on the other hand, this procedure takes more time and money.
(“Airline Industry Analysis”; “DEPEST Analysis”; sites.google.com)

3.6 SWOT-analysis (Internal) of Lufthansa Airline

Strengths

Largest Star Alliance Member which brought huge market expanding opportunities and created abilities to service its own planes and form its own IT through its subsidiaries. Leading IT service provider for the Air Transport industry

Strong image associated with German Engineering
A status symbol amongst Corporate/Business men
Has a strong workforce of over 37,000 employees
Powerful management and employee teams helped make dramatic changes, create a profitable and competitive firm. Over 200 international destinations in nearly 80 countries
Weaknesses

Significant Exposure to Higher Competitive Market
Market share growth restricted due to pressure from competition Reduced workforce, compel the company to rely upon efficiency (Past layoffs cause some “high potential employees” to not want to work for the company because of their career aspirations)

(“LUFTHANSA”; BrandGuide; mbaskool.com); (“Lufthansa case analysis”; Amiel Traynum, Elin Ghadimian, Josh Sherriff, Ross Zalavsky, Ryan Neal; csun.edu)

3.7 Model of Hofstede

Dr. Geert Hofstede stated that “Organizational culture is the collective programming of the human mind that distinguishes the members of one organization from those of another. Culture in this sense is a system of collectively held values”. The organization culture can be analyzed through 6 dimensions which are: mean vs. goal oriented, internally driven vs.
externally driven, easy going work discipline vs. strict work discipline, local vs. professional, open vs. closed system, and employee vs. work oriented. In this report, we will apply all 6 dimensions in order to reveal how Lufthansa working environment is and how these dimensions determine the organizational culture. 3.7.1 Mean vs. goal oriented

Dr. Geert Hofstede indicated that the mean vs. goal oriented is, among all six dimensions, determined the effectiveness of the organization. “In a means oriented culture the key feature is the way in which work has to be carried out; people identify with the “how”. In a goal oriented culture employees are primarily out to achieve specific internal goals or results, even if these involve substantial risks; people identify with the “what”. (Geert Hofstede, Gert Jan Hofstede, Michael Minkov, Cultures and Organizations: Software of the Mind. Revised and Expanded 3rd Edition. New York: McGraw-Hill USA, 2010).

According to the “Sustainability Report 2012”, Lufthansa emphasized on vocational and professional training in order to guarantee a future high-qualified staff because the profitable growth of Lufthansa, as they claimed, is “decisively supported by the value-oriented thinking and behavior of every employee”. Employees are encouraged to promote new ideas via the idea management and they will be awarded if the ideas are implemented. Thanks to the goal oriented, “employees can efficiently and effectively prepare for the challenges of the future with our comprehensive range of training measures” and company can maintain their promise to quality and innovation leadership. 3.7.2 Internally driven and externally driven

In the internally driven culture, employee tends to perceive their tasks base on the idea of what they do best and what they think are the best for customers. In the externally driven culture, customer’s opinions are prudently taken into account; results are most important and a pragmatic rather than an ethical attitude prevails.

In Lufthansa, company committed to creating added values for customers, for
that reason, the company emphasizes the responsibility toward climate and the environment, maintains responsible and fair relation with customer through actively engaged in several social activities.

The social responsibility in Lufthansa is driven internally based on the company business ethics and what they perceive will benefit their customers and the society. 3.7.3 Easy going work discipline vs. strict work discipline

A very easy-going culture reveals loose internal structure, a lack of predictability, and little control and discipline; there is a lot of improvisation and surprises. On the other hand, a very strict work discipline reveals the reverse. People are very cost conscious, punctual and serious.

Lufthansa creates a culture for continued training and personal development which could help the firm’s continued success. Thanks to the serious vocational training, employees had clear knowledge about the firm objectives and somehow familiarize themselves to the company culture. Thus, Lufthansa environment is not easy going but also not very strict. 3.7.4 Local vs. professional

In a local company employees identify with the boss and/or the unit in which one works. In a professional organization the identity of an employee is determined by his profession and/or the content of the job.

In a very local culture employees are very short term directed, they are internally focused and there is strong social control to be like everybody else. In a very professional culture it is the reverse.

Lufthansa working environment displays a very professional culture. The company concentrates on the self-development of their own staff members. Employees are encouraged to cooperate with their manager to develop goals and measures for their professional and personal development and advancement. All employees are willing to create their personnel development portfolio in long term and associate with the company to systematically
measure these goals on future oriented. 3.7.5 Opened system vs. closed system

This dimension reflects the accessibility of the organization. In an opened system, newcomers are welcomed to access the working environment. Reversely, in a closed system, it takes time for newcomers to prove themselves before being accepted to the organization.

As mentioned above, Lufthansa policy underlines the importance of vocational training. A newcomer has several options to choose whether he/she wants to have an apprenticeship or vocational training in any existed vacancies. Lufthansa also offers internship placement for university students and study opportunities in the real work placement. From all these reason, it is understandable to claim that Lufthansa offers an opened working environment. 3.7.6 Employee oriented vs. work oriented

In an employee oriented culture, the personal problems of the employees are taken into account, for example: welfares and health insurance. In a work oriented organization, employees are always put into heavy pressures to perform the tasks even if this is at their expense.

The philosophy of Lufthansa is “a healthy body is a healthy mind” so the issues of health and safety at work are considered very seriously. In order to guarantee the employees does not harm by any irregularities, a specific trained team travels regularly to the various workplace to inspect working conditions and thereby ensure the high safety standards are being met. Moreover, Lufthansa offers a work-life balance policy for all their staffs. Specifically, employees can choose from a variety of working time models so that they can balance their professional challenge with personal interest. “Lufthansa Family Time” is an offer for special circumstances so staffs can take vacation time off to care for relatives, partners or children.

4. Conclusion

Lufthansa is a perfect example of organization which is highly successful in clarifying goals and building up systematic strategies. According to the
record, Lufthansa German Airlines, which includes German wings, contributed a positive operating result of EUR 300m to the business segment’s profit in the first nine months of 2013, an increase of EUR 189m over the same period last year. Swiss generated an operating profit of EUR 182m, which was EUR 9m more than in the previous year. Austrian Airlines achieved a profit of EUR 19m for the first three quarters and increased its normalized result by EUR 11m. (Lufthansa Group, “Lufthansa Group increases result in core business”, October 31th 2013)

From this report, we came to a conclusion that the strategies of Lufthansa Passenger Airline take emphasis on these aspects:

The quality of staff members is the core value. In Lufthansa, employees are considered as the bone of the organization so they are offered a wide range of occupations, trainee programs and further training. Moreover, the working condition and workforce environment are also taken seriously in order to guarantee the satisfaction of staff members.

The policy of Lufthansa is maintaining a reasonable range of price. Realizing the conflict between the rising demand for global mobility and the scarcity of fossil fuel, Lufthansa has focused on developing sustainable biofuel. Between 15 July and 27 December 2011, Lufthansa has become the first airline worldwide to use biofuel on regular flights. This strategy has helped the company not only reduce the energy cost but still remain a competitive price with the competitors. (Lufthansa Group, “Biofuel in practical tests”)

Lufthansa has a reputation for reliable and punctual. In order to ensure the customer’s satisfaction, they have continually improved their products and services to offer the best quality and guarantee the safety for every passenger. Moreover, Lufthansa also underlines investments into innovation and R&D to run an economically and ecologically sustainable business.

Reference

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