The Challenge of Globalization

Historical Background
1926
Deutsche Lufthansa AG was formed as a result of a merger between Deutsche Aero
Lloyd and Junkers Luftverkehr AG.

1939
Abandon international flights due to war

1945
Went into liquidation after Potsdam Treaty prohibited all German Flights

1953
The Aktiengesellschaft fur Luftverkehrsbedarf (Luftag) was founded in Cologne to
establish a new German air transport system

1954
Changed its name to Deutsche Lufthansa AG

Historical Background
1955 - 1980
1st scheduled service began
Company grew rapidly with passengers exceeding 10 million for the first
time in 20 years

Mid 80s
Saw a fundamental re-organization to give sales and marketing
departments greater flexibility
Began expanding its fleet

1989
Signed the first co-operation agreements with France, Varig (Brazil) and
United Airlines (USA)

1990
Resumed its scheduled services to Berlin
Was organized into functional departments, each led by a member of the
Vorstand (executive board)

Historical Background
1991
Gulf War and economic recession impacted Lufthansas financial
performance
Despite rising volumes of service, the companys yield (revenues per km)
was falling at a rate of 7% pa.
Management saw the company was nearing bankruptcy

1992-1993
Jurgen Weber replaced Heinz Ruhnau as chairman
Starts the phase 1 of the turnaround which prioritizes the communication
of gravity of the situation to Lufthansa Managers and staff and to stem the
losses.
Introduced the Samurai of Change and Sanierungs Workshop (restructuring
workshop)
Developed 123 key actions aimed at cutting costs and staff numbers to
reduce the companys losses which is slated at 1.3 billion DM.

Historical Background
1994
Profits started to return for the company
Pay freeze and reduction of 8,500 staff was successfully negotiated with
the unions
Phase 2 of the turnaround began, starting on the negotiation with the
German Government to become a private company and withdraw from the
government pension fund.
Government diluted its holdings to 36% and a new organizational structure
was announced

1995
Five new independent companies were created (Cargo, Technik
(maintenance), Systems, Ground Service, and Flight operations).
Lufthansa is determined to be one of the global players that will lead the
industry into the 21st century

1996
Management Environmental protection and sustainable development are
high-priority goals of Lufthansas corporate policy. The Executive Board
approved Group-wide guidelines for environmental care. This made
Lufthansa an environmental pioneer in the aviation.

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

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

Historical Background
1998
Carsten Spohr assumed responsibility for regional and later for the
companys global partnerships including the Star Alliance.

1999
Lufthansa CityLine has replaced 35 smaller and older aircraft with 24
bigger and more environmentfriendly Embraer E190/195 regional jets.

OLD

NEW

Ansett Australia and Air New Zealand both became a member of the

Alliance

Historical Background
2000
Admission of TheAustrian Airlines Group(Austrian Airlines,
Tyrolean Airways andLauda Air) in 26 March.
Singapore Airlinesjoined on 1 April

2001
The Lufthansa Aviation Group equips itself for the new millenium, training
its focus on innovation and quality. Placement of orders for 15 Airbus A380
megaliners charts the airlines path into the future.

Ansett Australia left the alliance due to bankruptcy

Airbus A380 Specs

The A380 is the largest and heaviest passenger aircraft in the world. It is 73 meters
long, 24 meters high, and has a takeoff weight of up to 560 tons. The Lufthansa A380
seats 526 passengers, and its four Rolls-Royce engines each generate 70000lbs of
thrust. Thats the rough equivalent of what 3500 cars could produce. Ecologically
speaking, too, the A380 raises the bar. The megaliner is quieter than other planes,
uses less fuel and can even think for itself and automatically apply the brakes after
landing on the runway.
Airbus A380-800
Length: 72.7 m
Wingspan: 79.8 m
Height: 24.1 m
Cruising Speed: 907 km/h
Max. Altitude: 13,100 m
Max. takeoff weight: 560,000 kg
Max. landing weight: 391,000 kg
Range: 12,000 km
Cabin width (Main deck /Upper deck): 6.6 m / 5.9 m
First/Business/Premium Economy/Economy (max.): 8/92/52/336

Historical Background
2001-2005
The airline reorganises its regional markets, while gaining new partner
airlines to expand the Star Alliance global route network.
Passengers enjoy greater comfort in a completely revamped Business
Class with fast broadband Internet connectivity in the aircraft cabin.

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

Historical Background
2006
Lufthansa creates future prospects for Germany as center of business by
placing the first order for twenty Boeing 747-8 Intercontinental aircraft.

More than two million foreign visitors come to Germany for the FIFA World

Cup. The famous soccer nose painted on most Lufthansa aircraft boosts
the publics image of and affinity with the company.
Admission ofSouth African Airways, being Star Alliance's first African
member as well as Swiss Air

Historical Background
2007-2009
Swiss International Air Lines AG becomes part of the Lufthansa Group.
The Passenger Airline Group is established following the full takeover of
British Midland and Austrian Airlines and the acquisition of a 45 percent
stake in Brussels Airlines.
Star Alliance and its members celebrated the alliance's 10th anniversary
Investments are also made in infrastructure: builds a high-tech hall for the
A380, starts construction on the exclusive Lufthansa A-Plus concourse at
Frankfurt Airport and renovates the Lufthansa Training and Conference
Center in Seeheim.

Lufthansa Training and Conference

Center in Seeheim, Germany

Historical Background
2010 - 2011
Lufthansa receives its first Airbus A380.
The start of a new era of flight for Lufthansa passengers, as the A380 also
features the new First Class and a more comfortable Business and Economy
Class.

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

Historical Background
2012
Lufthansa is the first passenger airline to fly the Boeing 747-8, a much
quieter and more fuel-efficient enhanced version of the jumbo jet. The
aircraft is equipped with the new generation of Business Class, which has
seats that recline into comfortable, fully flat beds.
Lufthansas exclusive new A-Plus concourse opens at the airlines hub in
Frankfurt. Around 15,000 passengers per day benefit from the new gates
and five new lounges with the latest technology.

The New A-Plus Concourse

General facts & figures

Eastward extension of Terminal Area A of Terminal 1

New concourse exclusively for Lufthansa and Star Alliance passengers
Length: 790 m, Width: 28 m, Height: 22 m
Floor space: 185,000 m
Four levels Level 1: Baggage conveyor system and bus gates; Level 2:
Schengen
flights; Level 3: Non-Schengen departures; Level 4: Arrival corridor for nonSchengen
flights)
Official commissioning: 10 October 2012
Operational improvements
Reduction of minimum connection time for many Schengen USA
connecting flights
from 60 minutes currently to 45 minutes due to the positioning of all US
flights in the A
Area
Increase in percentage of flights docking directly at terminal building
(boarding and

Cont. (A-Plus Con Course)

Comfortable and wider moving walkways (up to 70m long, 1.20m wide)
The entire building is barrier free and sanitary facilities are easily

accessible
On both Level 2 and Level 3 there are two central marketplaces with a
total of 70
shops and catering outlets and a floor space of 12,100 m
Architecture/Infrastructure
Forward-looking, energy-efficient construction, including the use of facade
shades
An innovative lighting concept aids orientation and navigation in the
building and
divides the concourse into different functional areas; this is supported by a
new
signage system
Extension of baggage conveyor system by 7.5km; thanks to state-of-theart
technology, the baggage conveyor system can transport up to 5,000
baggage items

Historical Background
2013
The Lufthansa Group orders 59 ultra-modern wide-body aircraft, making
this the largest single private-sector investment in the history of German
industry. It consumes an average of just 2.9 liters of kerosene per passenger
and 100 kilometers flown and they boast a reduction in noise footprint of at
least 30 percent.
Passengers can choose between the Best, Smart and Basic fare products.
Lufthansa wins a prestigious award of the travel industry: The

International 5 Star Diamond Award for its First Class service onboard its
intercontinental fleet, first class terminal in Frankfurt and first class lounge
at New Yorks JFK International Airport.

Historical Background
2014 - Present

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

The overhaul of the Group fleet continues as well.

Boeing delivers its 1,500th jumbo jet, Yankee Papa, to Lufthansa.

List of Schengen Area Member

State
Austria
Norway (not a European Union Member State)
Belgium
Poland
Czech Republic
Portugal
Denmark
Slovakia
Estonia
Slovenia
Finland
Spain
France
Sweden
Germany
Swiss (not a European Union Member State)
Greece
Hungary
Iceland (not a European Union Member State)
Italy
Latvia
Liechtenstein (not a European Union Member State)
Lithuania
Luxembourg
Malta
Netherland
French Ministry of Foreign Affairs and International Development - 2015
http://www.diplomatie.gouv.fr/

Statement of the Problem

1. How

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

Causes of the Problem

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Agreements on service levels to partner airlines are not

properly defined.
No uniformity in hiring and training of staff
Cultural differences of local and foreign staff
Business process
Differences in individual personality and motivation
Responsibility for business results are not clearly defined
Job descriptions and communication process of the
organization
Cost (operations, air fare)
Global competition
No trust in hiring foreign management
Use of International Language which is English
Flexibility in adapting change and restructuring process
Customer Service

Analyses of the Problem

A. Being global is best achieve through a well-defined business

process, continuous development of strategies, services,

business costs, and restructuring of the organization.
B. The companys alliances bring all sorts of detailed issues to light.
This requires firstly an agreement on service levels and
secondly, a uniformity in hiring and training staff to ensure that
the agreed level of service is maintained.
C. With regards to merging cultures, the key issues for Lufthansa
and its partners will be to internationalize training activities and
merge corporate cultures.
D.It was also noted that employees acceptance to alliances is hard
and it was a problem to convince people that Lufthansa cannot
survive in this world alone.
E. The company also initiated and implemented a restructuring
process to clearly define responsibility for business results.
However, the restructuring has affected individuals differently.
This is due to differences in role, position and level of seniority
and also because of differences in individual personality and

Analyses of the Problem

F. On the other hand, the senior manager of Lufthansa face the challenge of

deciding which costs to internationalize and to what degree, while

preserving and improving the existing quality standards, cultural identity,
and employee morale.
G. Hiring Heterogeneous management will give Lufthansa advantages that
would help broaden and deepen the network, develop service strategies
and increase market share. But they give more emphasis on the
disadvantage, by throwing their concerns that larger numbers of nonGerman managers may weaken management cohesion and the
companys culture and image. Also senior managers implies that hiring
non-German managers might cause financial mismanagement and
corruption. This is simply an indication that trust is still a question with
the company.
H. It was also noted that currently, all management training courses are
conducted in German and some non-German managers, although fluent
in German, are frustrated with the companys limited acceptance of
English. Globalization means company shall compete in the global
markets and that English language is also necessary.
I. Finally, the need to develop a more customer-focused service culture has
become a major issue for Lufthansa.

Recommendation
1.Re-orientation and review of current business processes

including R&D and policies

2.Initiate effective restructuring process
3.The company should improve its alliance networks
4.Openness to trends and modern culture
5.Should establish effective cost control system
6.Establish standard hiring process to non-German, and
understand their culture
7.Hiring right fit personnel
8.Establish effective training activities
9.Shall improve its customer services
10.Show flexibility to organizational changes

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

recognized that there is still a long way to go if the company is to

become a successful global airline. Yields continue to fall at 2% pa and
deregulation gives rise to ever-increasing competition.
B. Lufthansa does not have a clear positioning, a reputation for customer

service, or a seamless alliance network. Coupled with an inherently high

cost structure, and a culture traditionally focused on technical
excellence, the future is not assured. The change in the companys
culture and mindset will be arguably the hardest to achieve.
C. Many managers have welcomed the changes so far. For them, the

freedom and challenged has transformed their attitude to work. But for
others, the pressure, risk, and fear of job security has proved difficult.
D. Many employees feel that, given the companys return to profitability,

they are entitled to a pay rise or more training and development. The
full implications of the challenges ahead may only be visible to a few
and so it may be difficult to maintain momentum.