Group Strategy

Targeted development of position as leading European airline group

As a leading European airline group, the aim of the Lufthansa Group is to take on a key role in shaping the global aviation market and to remain the first choice for shareholders, customers and employees in the future. In this context, the strategy aims to systematically develop the Group, which consists of Network Airlines, Eurowings and Aviation Services.

The airlines form the core of the Lufthansa Group. The differentiated portfolio of Network Airlines and Eurowings, which offers direct connections, makes it possible to serve all relevant market segments, representing an attractive offering on relevant geographic markets both for premium customers and for more price-sensitive travellers. Compared with Aviation Services, the airlines are planning to grow faster than average in the future. The former are composed of classic aviation services – essentially the Logistics, MRO and Catering segments – along with data-driven business models, which in addition to their profitable business from external markets, enable the airlines to improve their focus on customers and customer loyalty.

Structuring the Group along the airline value chain helps to maximise synergies between segments and makes it possible to scale business from external markets at the same time. The aim is to consistently exploit potential synergies around the core of the Lufthansa Group. Key drivers include revenue synergies between airlines and Miles & More in terms of loyalty and joint production in the cargo business, in which Lufthansa Cargo transports a large proportion of its freight in the bellies of passenger aircraft belonging to the Lufthansa Group.

Excellent quality and a strict cost focus form the basis for the long-term success of the Lufthansa Group. Consolidation, flexibility and digitalisation continue to be regarded as the key value drivers in the aviation market. They form core elements of the Group strategy and are advanced both across segments and within the individual segments.

The Lufthansa Group regularly reviews options for market consolidation in all segments. Consolidation opportunities that add value are exploited by means of both organic and inorganic growth in order to expand the Lufthansa Group’s relevance to customers and its market position in Europe and globally. The aim is always to achieve economies of scale and further synergies.

Objective: Number 1 for Customers, Shareholders and Employees

The airline industry remains defined by changing market and competitive conditions, including increasing exogenous uncertainties and shifts in the value chain. They include new virtual interlining services, in which providers such as online travel agents use their systems to combine different flight segments, and increases in the scale of maintenance activities carried out by manufacturers of aircraft and engines. This dynamic environment means flexibility is becoming an increasingly important success factor.

As a shaper and innovation driver of the airline industry, the Lufthansa Group therefore persists in aligning its services, business models and organisational structures with a complex, networked and dynamic market environment. For example, the cost efficiency and adaptability of the Lufthansa Group are safeguarded by means of flexible organisational structures and competition between providers of infrastructure and other suppliers. We also increase the flexibility of our fleet by reducing the number of sub-fleets and standardising them. As a result, one standard specification applies to all the aircraft in the Airbus A320 family delivered to the Lufthansa Group from 2019 onwards. This enables synergy potential to be exploited even better and capacity to be allocated quickly and flexibly across the Group’s production sites. Adopting new aircraft technologies also contributes to reducing costs.

In 2018, the Lufthansa Group launched a lean programme for the Group, with the aim of spreading the lean philosophy as an intuitive component of everyday work. Lean methods are introduced and employees are given appropriate training on these methods as part of extensive transformation projects with a focus on the customer, end-to-end process and value creation. The routine application of lean methods in all areas makes processes transparent, measurable and accessible for end-to-end management. The Lufthansa Group expects this to deliver a steady focus on the value actually added by the process. Applying the lean methods should therefore lead to greater efficiency in the Group, ongoing process improvements and lower costs.

The Lufthansa Group aims to expand its position as one of the most innovative and digital airline groups in the world. It therefore makes active use of the opportunities offered by digitalisation to increase the efficiency and stability of its core business, to add greater value for customers by developing commercially attractive products and business models, and to support its consistent quality strategy. Key focus areas include the greater personalisation of services and the development of digital support for the travel experience, by sending notification of delays by app, for instance, or rebooking customers automatically in the event of irregularities. Additional digital activities are strengthening its expertise in e-commerce, in internal and external sales channels.

In addition, digitalisation is strengthening the successful positioning of Aviation Services. To provide consistent support for its innovation and digitalisation activities, the Lufthansa Group has also established organisational units such as the Lufthansa Innovation Hub, and includes digitalisation requirements when training and recruiting employees.

By way of this package of activities, the Lufthansa Group secures its competitiveness and ability to innovate as a leading European airline group in a dynamic market environment, enables profitable growth and develops its ability to shape events.

Network Airlines focus on quality strategy and improve cost-effectiveness

The Network Airlines in the Lufthansa Group offer a locally differentiated premium product to pursue a consistent quality strategy and make optimal use of the attractive customer potential in its home markets. 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, is a tangible result of this quality strategy. This and the introduction of the new brand design for Lufthansa German Airlines are a clear hallmark of the high quality standards and the modernisation and strengthened competitiveness of the Company. 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. As a result, new digital self-services throughout the travel chain as well as individualised meal concepts contribute to aligning the product even more closely with customer needs and opening up new sources of revenue. 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 organically, largely by replacing older aircraft with recent models that boast higher seating capacities and greater fuel efficiency without significantly increasing the total number of aircraft.

The Network Airlines strive to offer an attractive, high-quality product over the long term on the basis of a stable multi-hub system. To do so, the Lufthansa Group implements measures to enhance quality in the areas under its control. Reallocating capacities within the multi-hub system, for example, is one way of supporting more even capacity use of airport infrastructure. In addition, the Lufthansa Group works with its system partners to create the conditions for high operating stability and sustainable growth in line with demand. We work with our partners to expand the leading position of our Network Airlines in both European and global hub traffic. Today, the Network Airlines already have commercial joint ventures in key long-haul markets.

A consistent focus on costs forms the basis for the sustainable economic success of the Network Airlines. Cost-cutting continues to this end, especially in areas that have no effect on customers’ perceptions of quality. They include streamlining the organisational structures of the Network Airlines and systematically harmonising their commercial management and system landscape, cutting supplier costs and those for infrastructure providers, and modernising wage agreements. Reductions in unit costs are set to continue, while customer perceptions become increasingly positive.

Eurowings is the focus of growth for the Lufthansa Group airlines

With Eurowings, the Lufthansa Group has an innovative and competitive offering in direct 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 2019, after the full takeover of SN Airholding SA/NV (Brussels Airlines) and the integration of parts of the Air Berlin group, the focus will be on stabilising the core business and reducing operating complexities. Eurowings is thus paving the way for continued growth in the years ahead. The goal here is both organic growth and further partnerships and acquisitions, in order to keep expanding its market position as the third largest operator in European direct traffic.

To achieve sustainable success in this highly competitive market, Eurowings continues to develop its point-to-point business model. Key focus areas are to achieve a competitive cost structure, keep defining its scalable integration potential and develop leading digital expertise. Eurowings has established a multi-channel distribution platform with a digital focus for this purpose: Eurowings Digital will play a leading role in digitalisation along the travel chain. The competence of Brussels Airlines in the long-haul business is being used to refine its positioning in specific areas of this fast-growing market segment.

Eurowings is managed largely independent of the Network Airlines, so as not to dilute the structural cost advantages of the point-to-point model. At the same time it benefits from belonging to one of the world’s largest aviation groups and its wide range of aviation services; from economies of scale in fleet purchases, for instance, and the maintenance competence of Lufthansa Technik.

Aviation Services are seizing growth opportunities and being developed accordingly

With the Aviation Services companies, the Lufthansa Group has several global leaders in their respective markets. In order to build on their successful positioning and deliver profitable growth, Aviation Services are permanently adapting their business models to changing value chains and competitive environments. Lufthansa Technik will increasingly shift its value added towards intelligent maintenance management by means of data-based products and services, for instance, and invest more in digital innovations to improve its product portfolio. Expansion will target attractive, synergetic segments that increase the appeal of the Lufthansa Group’s digital environment. Miles & More is developing its third-party business, for example, whereas AirPlus is growing in the lucrative market for payment and billing services for business travel. Aviation Services will be scrutinised continuously for their value contribution and developed with a clear focus. The Lufthansa Group regularly reviews the attractiveness of individual market segments, their current competitive position, the future revenue potential of the segments and the synergies realised by them, and, in particular, the value contribution for the airlines. At the level of the segments it may make sense to develop companies in the Aviation Services segment within or outside the Lufthansa Group using a differentiated approach or with partners, in order to ensure their long-term growth and sustainable profitability.