Report on Lufthansa

Ⅰ Executive Summary

Lufthansa is the world's fifth-largest airlines in terms of overall passengers and owns the third-largest passenger airline fleet. It is a dominant organization in the Star Alliance--the world largest aviation alliance. Together with its partner, today, Lufthansa serves in the vicinity of 410 destinations(Wikipedia, 2011). This report focus on the existed and potential problems or issues which are or will be faced to Lufthansa. These are fourfold, including the divergence leadership styles due to different culture background, the threat of low-cost airlines, the conflict caused by code-sharing and social responsibilities. The recommended solutions for the first problems are removing contracts with airlines which belongs to countries that share very different culture with Germany. Another solution is that using a " points accumulation system", which is tailored for the second problem. All the problems and solutions are management-oriented discussed.

Ⅱ Problem Identification and Analysis

a. Leadership Changes With Culture

Lufthansa, together with Air Canada, Scandinavian Airlines, Thai Airways and United Airlines formed the Star Alliance, the world's first multilateral airline alliance. Today, about 27 airlines from more than 27 countries have entered this Alliance, creating a large stage for generating synergy(Wikipedia, 2011). However, culture diversities have raised such problems as different leadership styles and ways of decision-making. Lufthansa hold "town hall" meetings with members of management board by CEO and written communication flow about the company's development(Tywuschik and Steger (quoted in Ireland et al, 2010)), being apt to democratic leadership styles and consultative decision-making which are better applied to low power distance countries(Goleman, 2001). Yet the gap of power distance index between some countries are too large to reach a consensus on management style and decision-making. Without this unification, it is hard for Lufthansa to decrease complexity and maintain its unique culture as well as pursue its own organizational objectives.

A glance at table 4-1(on the next page) reveals that Austria and New Zealand are comparatively low power distance countries with altogether 6 affiliates while the PDI in countries like Japan, Brazil, etc are over 50 and even reach a staggering 80 in China and Egypt. These high PDI countries hold more than 10 affiliates ( some of the higher ones are not raised in the table), accounting for an ignorable percentage.

The PDI of main participants in Star Alliance

Member Airline Country Affiliates No. PDI

Austrian Airlines Austria 2 11

Air New Zealand New Zealand 4 22

Lufthansa Germany 7 35

Continental Airlines &United Airlines & US Airways United States 21 40

ANA Japan 4 54

Turkey Airlines Turkey 2 66

TAM Airlines Brazil 2 69

Air China China 1 80

Egypt Air Egypt 1 80

(4-1)

Source from http://www.clearlycultural.com/geert-hofstede-cultural-dimensions/power-distance-index/

b. Threat of Low-cost Airlines

Cost and price are permanently determining factors as well as a paradox in airline industry. Corporations strive for every cost-cut opportunities, meanwhile, majority of customers prefer a cheap flight to a luxury one with enjoyable food and service. The problem occurs that Lufthansa is a standard airlines, but has to compete with those no-frills low-cost airlines like Cebu Pacific, Southwest Airlines, Virgin Blue, etc. It is a no easy problem which can be solved just by cutting the price when needed because Lufthansa takes pride in engineering excellence and high service standard, which should be kept all the way or Lufthansa will lose its customer loyalty. In addition, after the acquisition of other airlines like Swiss Airlines and Austria Airlines, the price making should also balance Lufthansa's company image and customer price in terms of the two acquired company.

c. Conflicts Caused by Code-sharing

Code-sharing also arouses problems. To cite an example, once Varig and Mexicana left the Star Alliance because of conflicts on code-sharing agreements with other airlines. Lufthansa's 180 destinations is code sharing with 12 JetBlue destinations in the U.S. and Puerto Rico and there are other code-sharing agreements. (Ann, 2009). It is reported that Lufthansa does not grant Star Alliance mileage benefits for its code share flights since they are not true "Lufthansa". In other words, the management of code-sharing is not customer-oriented, being contrary to this service industry. Although code-sharing keeps more customers in the network and make full use of planes and infrastructures, Lufthansa is under the risk of being defamed because passengers feel cheated.

d. Social Responsibility

On March 11, tsunami and earthquake lashed the east part of Japan with buildings and houses being wiped out. What was worse, the strong shaking led to nuclear leak. Under these circumstances, many foreigners were eager to flee back to their hometown. However, take Air China as an example, the price of the flight between Japan and China was deliberately raised to astonishing high. The airlines took advantage of the global disaster to earn large profit, which dissatisfied and irritated the refugee. The leaders' capability of positive decision-making in Air China are blamed. There are four Japanese airlines in the Star Alliance and what can Lufthansa do in this cyclical market to show its care for society?

Ⅲ Statement of Key Issues and Problems

There are four problems and issues raised in the above part, involving leadership styles and decision-making under various power distance, the threat of low-cost airlines, improper management of code-sharing as well as social responsibilities. Among them, the first two problems will be given solutions in the next part.

Ⅳ Generation and Evaluation