Lufthansa Company Overview:
Lufthansa was founded on February 26, 1926. It began as a German state airline and after WWII, it was divided into three regional airlines in what was known as the “Association of the United Flights.” Each company had one of the regions; they were Interflug, which was East Germany’s airline, “Hamburger Flugzeugbau” (HFB), and Aero O/Y. All three merged back into Lufthansa on January 1st, 1957. The company headquarters for the Lufthansa Group remain in Frankfurt am Main. Let’s go over Lufthansa’s Porter’s Five Forces Model.
Lufthansa Competitive Rivalry:
Lufthansa is mainly a European airline, with much international traffic going through its hubs, Frankfurt and Munich. It competes with many other European airlines as well as Middle Eastern airlines such as Emirates. Lufthansa also has a low-cost carrier, Eurowings, which competes with Ryanair and other no-frills airlines. In 2020, Lufthansa announced a takeover of Brussels Airlines, which will make it the largest airline in Europe.
Lufthansa Bargaining Power of Suppliers:
The company takes part in a market economy, so it is able to dictate prices and negotiate contracts with its suppliers. For fuel, Lufthansa has hedging contracts in place to protect itself from rising prices. It is also one of the few airlines that own its own maintenance subsidiary, so it has more control over costs there.
Lufthansa Bargaining Power of Buyers:
Lufthansa is one of the largest and most prestigious airlines in the world. This gives it a great deal of bargaining power with customers, who are often willing to pay more for tickets on a “premium” airline. Lufthansa also has a large number of codeshare agreements with other airlines, which gives it even more leverage in the market. Lufthansa is known for its quality of service, so it is not as vulnerable to competition from low-cost carriers as some other airlines.
Lufthansa Threat of New Entrants:
The airline industry is highly regulated, and it is difficult to enter the market. Lufthansa has a strong brand name and a large number of loyal customers. It also has a large fleet of aircraft and a well-developed route network. These factors make it difficult for new entrants to compete with Lufthansa.
Lufthansa Threat of Substitutes:
The airline industry is highly cyclical, and customers can easily switch to other modes of transportation such as cars or trains. Lufthansa competes with many other airlines, including low-cost carriers, so it is vulnerable to competition from other providers. In addition, new technologies such as video conferencing may reduce the demand for business travel.
Lufthansa Porter’s 5 Forces Conclusion:
Lufthansa has a very strong and internationally recognized brand name. It is the largest carrier in Europe and does not look like this will change anytime soon. The company can make deals with suppliers and dictate prices to customers, due to their size and strength. Lufthansa’s biggest threat would be from low-cost carriers, but they are mainly used on regional and domestic routes. Global economic conditions could pose a threat to the company, but at the moment it looks like that won’t happen anytime soon. The airline industry is becoming increasingly oligopolistic, meaning that Lufthansa will have a little competitive rivalry in the future.