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Lufthansa Group Strategy?

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Lufthansa Group Strategy?

Old 7th Jan 2016, 11:33
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Lufthansa Group Strategy?

Hi there!

I would be really interested to hear your opinion about Lufthansa Group Strategy towards it's subsidiary and acquired partners?

Why they don't re-brand Swiss and Austrian and Eurowings and other airlines to Lufthansa Brand? Why they push so hard right now towards low cost airlines?

Don't you think passengers would prefer to fly with the same low cost Germanwings tickets if it would be re-branded to Lufthansa?
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Old 7th Jan 2016, 22:32
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They would be foolish to rebrand Swiss, Austrian or indeed Brussels Airlines to Lufthansa. This is for a number of reasons;

  • These brands are developed in their respective countries and they are seen as local and of each respective place.
  • Lufthansa or indeed any other European national or former national carrier have had no success in opening up bases using their own brands in other countries, unless of course those operations are for flights to their own respective hubs. E.g. Lufthansa set up LufthansaItalia based in Milan, this didn't work and was soon withdrawn.
Eurowings is another issue. Like with other European legacy carriers, Lufthansa have essentially reformed their (or in the process of) operations to centre on the main hub airport, with Lufthansa operating almost all Frankfurt routes to offer the hub with connections. The remaining operation in the main and that of Germanwings will go into Eurowings. This will allow for a different model that can compete on low cost operations, with a large point to point offering. Lufthansa's own cost base is geared towards a hub and spoke operation, with differentiation, e.g. lounges, long haul etc. Eurowings is a bit different to many of its counter parts in that it also is in the long haul market. In my view it is trying to be all things to all people and will struggle in the long run.

Looking around Europe you can see the same thing.
Madrid- Iberia centralisation of its own operation, non Madrid ops extensively by Vueling, in markets more suited to low cost airline formula, Iberia Express too though it is used ex Madrid too with a lower cost based from Iberia mainline to enable it to compete with low cost airlines more effectively.
London - BA has ended all non London operations again focussing its activities on hub ops and LCY is niche business operation. It had its own foray into low cost through Go but due to the challenging times that existed this was sold at a profit. However, BA is part of IAG and again has Vueling as its sister airline in the low cost space that has more extensive ops around Europe than just Spain. I.e. bases in a bunch of countries in EU
Alitalia - has extensively shifted its focus to Rome
Air France - has been trying to reform its business model and focus AF mainline on Paris and a few other French gateways, and then HOP for other regional flying and non Paris operations to a large degree
The list goes on.

In relation to why they are pushing so hard towards low cost ops:
The market requires a lower cost formula to compete where there is no differentiation. Often they can sustain a large operation ex their key hub due to interlining connections, a short haul flights feed this long and medium haul network and vv. Equally, often in relation to point to point traffic, their hub airports are congested and the low cost airlines cannot get a significant foothold. E.g. Frankfurt (LH), Amsterdam (KL), Paris (AF) etc.

The passenger would naturally always like the cheaper tickets, but the Lufthansa cost base would not allow for the same cheap tickets on a sustainable basis. Ironically, low cost airline like Ryanair or Germanwings does not always mean a cheap ticket due to yield management. And there is demand for customer who is willing to pay more for a more premium service, I.e. business class, first class, lounges, frequent flier miles, on-board service etc etc. So airlines like LH are segmenting their operations to make their services fit for the markets that they operate in.

If this is for studies etc. take a look at Porter's Generic models, i.e. cost leadership or product differentiation.

Hope this helps.
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