The Lufthansa Group aims to be the first choice for shareholders, customers, employees and partners in the aviation sector and to continue shaping the global aviation market as a key player in the future. In this context, the strategy aims to systematically develop the Group based on the three pillars of Network Airlines, Point-to-Point Airlines and Aviation Services.
The three pillars benefit from mutual synergies and economies of scale across business segments. Lufthansa Cargo, for example, transports a large proportion of its freight in the belly capacities of the Lufthansa Group’s passenger aircraft. Lufthansa Technik, in turn, has access to maintenance licences which are negotiated with the OEMs when the Group airlines order new aircraft and performance data for modern aircraft, collected in subsequent flight operations.
To keep refining the Group portfolio, the Lufthansa Group regularly reviews the attractiveness of individual market segments, its current competitive position, potential for future success and the synergies realised from the Group network by the individual operating segments.
The aim is to increase the revenue share of segments other than Network Airlines from around 30 per cent to around 40 per cent. This should be achieved in 2018 by strong growth in point-to-point traffic, as well as a good performance in Aviation Services.
Consolidation, flexibility and digitalisation are regarded as the key value drivers in the aviation value chain. They form core elements of the Group strategy and are advanced both across segments and within the individual operating segments.
The Lufthansa Group regularly reviews options for market consolidation in all operating segments. Consolidation opportunities that add value are exploited by means of both organic and inorganic growth in order to expand the Lufthansa Group’s market position in Europe and globally. The aim is always to achieve economies of scale and further synergies.
1) Germany, Austria, Switzerland and Belgium.
Changes in value chains, differentiated customer expectations and more dynamic global political conditions require rapid adaptability and flexible cost structures. For these reasons, the Group is organised into efficient and flexible organisational structures in line with production logic. Synergies from functional cooperation and a sustainable cost focus form the basis for long-term success. Thus, the set-up of a standardised A320 fleet for the Group enables capacity to be reallocated quickly and cheaply, for example, and also has a positive impact on the cost base. As well as harmonising fleet specifications, the networks and revenue of the network airlines are now also managed centrally, making use of synergies and significant improvements in flexibility.
Ongoing digitalisation makes it possible to develop new business models, solutions and products. Interfaces with the customer can be redesigned and differentiated customer needs can be better addressed by all companies in the Lufthansa Group. The Lufthansa Group actively uses the opportunities offered by digitalisation to add value for its customers and support its quality strategy. This includes an initiative to develop increasingly personalised offers according to flight status, location, interests and needs, as well as the open and neutral AVIATAR platform developed for airlines by Lufthansa Technik, which uses predictive maintenance, based on years of aircraft performance data, combined with the engineers’ knowledge to significantly reduce aircraft maintenance costs. In order to identify and steer the opportunities of industry changes and digitalisation trends in a more structured way, the Lufthansa Group has set up the Innovation Hub in Berlin, which aims to further develop the existing culture and power of innovation in the Lufthansa Group and to seize opportunities as they arise.
This bundle of activities continues to successfully secure the competitiveness and ability to invest of the Lufthansa Group as a leading aviation group in a dynamic market environment, in order to enable profitable growth and support its ability to shape the industry.
The network airlines are pursuing a consistent quality strategy in order to make the best use of the high-quality customer potential in their home markets. One visible result of this quality strategy is the Five Star rating awarded to Lufthansa German Airlines by the renowned agency Skytrax, which for the first time has awarded an airline outside of Asia. In 2017, Lufthansa German Airlines was also rated the best airline in Europe by Skytrax on the basis of customer surveys. In the future, the focus will remain on further improving the customer’s travel experience, optimising the route network and the fleet and pursuing cost reduction initiatives.
The travel experience for the customer will become even more convenient, especially through greater personalisation of the products and services along the entire travel chain. At the same time, this will make it possible to exploit new sources of revenue potential. There will also be continuous improvements to aircraft interiors and service at all points of customer contact. In order to keep offering leading product quality alongside lower unit costs, the Lufthansa Group invests continuously in its fleet. The network airlines are growing largely by replacing older aircraft with more recent models that boast higher seating capacities and greater fuel efficiency, without significantly increasing the total number of aircraft. Strategic cooperations and partnerships supplement the flight plans, which delivers a greater added value for customers. Today, the network airlines in the Lufthansa Group already have commercial joint ventures with the most attractive partners for them in key long-haul markets.
Comprehensive cost-cutting is continuing, especially in areas that have no effect on customers’ perceptions of quality. They include pooling the organisational structures of the network airlines and systematically harmonising their commercial management and system landscape, cutting supplier costs and those for infrastructure providers as well as modernising wage agreements. Unit costs continue to fall despite the increasingly positive perception of product quality by customers.
With Eurowings, the Lufthansa Group has an innovative and competitive offering in point-to-point traffic, which addresses both price-sensitive and service-oriented customers with low-cost basic fares and additional service options that can be booked flexibly. In addition to its greater efficiency and competitive cost, the Eurowings concept is based on a scalable company structure that enables the flexible integration of new partners. In 2018, after the full takeover of SN Airholding SA/NV (Brussels Airlines) and the acquisition of parts of the Air Berlin group, the focus will be on the integration of additional capacities.
This will enable significant cost savings in the years ahead. Other key drivers of cost reductions include the growth of particularly low-cost production platforms to replace less cost-effective operations within the Eurowings group, as well as the standardisation and streamlining of processes. This ensures the Company’s sustainable and successful development in a market characterised by intense competition over costs.
The aim is profitable growth, both organically and in particular by means of partnerships and acquisitions, and expanding the offering of long-haul connections. This will secure its position as one of the three leading providers of direct traffic in Europe and strengthen its role as the biggest carrier of point-to-point traffic in the home markets of the Lufthansa Group.
The Eurowings group is managed largely independently of the network airlines as an integral part of the Lufthansa Group, so as not to dilute the structural cost advantages of the point-to-point model. At the same time, it benefits from belonging to the world’s largest aviation group, with its wide range of aviation services.
With the aviation services companies, the Lufthansa Group has several global leaders in their respective markets. These companies can exploit further growth opportunities – organic, via partnerships or through acquisitions – in a targeted way in order to secure the Lufthansa Group’s leading position in these aviation services markets. The diversification of its investment portfolio of airlines and aviation services creates synergies and constitutes a key strength of the Lufthansa Group.
Clear customer focus and quality are also the key elements for the aviation services. Customers of Lufthansa Cargo, for example, benefit from innovative logistics services in an expanded route network. Lufthansa Technik is extending its offer by refining its products and services and expanding its global presence. In a highly competitive market, the customers of the LSG group benefit from flexible and individual catering offers that provide effective support for their own services and brands.
To continue delivering profitable growth, the Aviation Services in the Lufthansa Group continuously adapt their business models to changes in value chains and competitive conditions. Continuous cost-cutting and extensive individual efficiency programmes also ensure commercial success.