A Portfolio Analysis of Deutsche Lufthansa Ag and Strategic Responses

Table of Contents

1. Company and portfolio presentation 2

2. Hypothesis/Purpose of the report 3

3. Literature Review 3

4. Theoretical Framework 4

4.1 Portfolio Management / BCG Matrix 4

4.2 Portfolio Analysis of Deutsche Lufthansa AG 7

5. Strategic Responses 9

5.1 Grand Strategy Matrix 9

5.2 Ansoff Matrix 11

6. Case Study: Germanwings – Cannibalization or not? 12

7. Conclusion 16

8. References 17

9. Appendix 19

1. Company and portfolio presentation

Lufthansa's humble beginnings are an aspect of the company left in its distant past. Lufthansa began in 1926 as "Luft Hansa"; "Luft" as in air and "Hansa" stemming from the Hanseatic League. The present day company could not be named better. The Hanseatic League was a powerful economic alliance of trade which dominated much of Northern Europe during the middle ages. Lufthansa is currently Germany's top airline provider, Europe's second most popular airline and the fifth largest worldwide. This is attained through their intricate system of alliances, mergers, and inventive forms of integration. (Deutsche Lufthansa Aktiengesellschaft: 1999)

Perhaps the most vital piece of Lufthansa's strategy is the Star Alliance. In 1997 it appears that Lufthansa began its current strategy of mass presence and domination with the Star Alliance. This group was the first global airline alliance and while competitors have since formed their own alliances the first mover advantage was indisputably held by Lufthansa and their fellow members. Starting with only 5 members, the group now has 28 and is always expanding. (A chronological history: 2010)

But the Star Alliance only represents the beginning of Lufthansa's series of moves to increase its market share. In 2000 they formed a partnership with Air One and in 2005 Lufthansa merged with SWISS. In 2007 roughly 20% of Jet Blue's stock was purchased to become a majority shareholder. In 2008 a strong majority shareholder position was acquired within Brussels Airlines with the possibility to buy a controlling interest of 55% in the future and Lufthansa took a strong controlling interest in a somewhat hostile takeover of BMI. The conflict was resolved and the final acquisition took place mid 2009. In total, Lufthansa has over 400 different subsidiaries and roughly 13 different airlines. By keeping the subsidiaries under their own titles, Lufthansa is able to capture all market segments while avoiding excessive overlap. While the strategy seems simple this is only a small aspect of Lufthansa's power play. (Deutsche Lufthansa Aktiengesellschaft: 1999)

The company also vertically integrates through its ownership of companies which provide aviation IT, plane maintenance, air transport insurance, airline meal, and pilot training. Sky Chefs alone provides one third of all airline meals. It classifies these parts into five groups: passenger airline, logistics, tech (maintenance, repair, and overhaul), catering and IT services. By being a part of all of these aspects of commercial aviation Lufthansa is able to cut costs and increase their own margins while increasing profit by selling to competitors. (Lufthansa Annual Report: 2010)

An especially large part of Lufthansa's diversified portfolio is Lufthansa Cargo. Initially this Company was named German Cargo Services. The company began operations in 1972 and in 1995 it changed its name to Lufthansa Cargo. Today the company provides cargo and mail transport logistics all across the world generating 1.9 billion euros annually. Similarly Lufthansa Technik operates as a technology, maintenance, and training utility for airlines across the world. Unlike Lufthansa Cargo, Lufthansa Technik was developed later in 1994 and has retained its original title. (Lufthansa Annual Report: 2010)

2. Hypothesis/ Purpose of the report

The purpose of this report is to prove the hypothesis that companies with a business portfolio are more likely to be successful because the company does not only concentrate its resources only on one product/product segment but on a variety of different profit centres. An analysis