As Lufthansa move to operate internationally, new problems and uncertainties are unavoidable and these would make it difficult for them to use and manage. Evaluation of the exterior environment using PESTLE and PORTER's five pushes construction have illustrated the uncertainties due to consumers, suppliers, market, rivals and its purchased companies.
The airlines industry being services-oriented, troubles Lufthansa to adjust its ways of meet the needs of its international consumers. The increasing affluence of these passengers demand an increased international standard of service and if indeed they find their service unsatisfactory, they can certainly turn to other airlines. Competitive rivalry is also relatively high due to the boost in popularity for low cost travel companies across nations. Additionally, Lufthansa haven't any control over fuel costs and its own suppliers have high vitality as there is no substitutes for engine oil.
Next, competing in the international market will expose Lufthansa to increased worldwide cyclical fluctuations in airline flight demand as it is no more safeguarded within its countrywide restrictions. Given the increase in new aircraft orders, increasing overcapacities in many market segments is expected in future and a slowdown throughout the market would aggravate this trend. Release of the "Open Skies" between the EU and USA which favour the united states airlines would create more competition and put pressure on air travel prices which may drive their gains down. .
Moreover, Lufthansa must address the politics, economical and public impact of overseas markets that effect its demand, especially in the under-performing market segments that they have entered. The market restoration in aviation industry is uncertain and could lead to continued decline in journey demand. Expanding abroad would also produce difficulties in terms of insuring airplane against terrorist disorders that aren't of their control. Furthermore, the acquisitions of airlines such as SWISS, Germanwings and Australian Airlines have all been damaged by the monetary crisis and might not exactly be considered a profitable investment in the long run. Furthermore, if these airlines aren't stable they could lose their position in their house markets. If fragile demand continues, it troubles Lufthansa to develop its flexible creation capabilities in order to react to fluctuations, i. e. Lufthansa's business segments need to regularly assess their capacities and cost set ups and adjust them to fit the respective market segments.
Besides, uncertainties may also occur from international challengers. Due to price competition and increasing rivalry, Lufthansa has to achieve increased cost efficiency in its functions to be able to compete keenly against its international opponents. In addition, Lufthansa's financial freedom would be threatened if their financial structure is unable respond to the weaker finances of their purchased companies. Politics instability within any of the homes of its acquisitions or lovers would also present additional challenges which includes economic risks and uncertainty from government legislation, conflicting legal specialists or problem and the possible acquisition of Lufthansa's property by those countries.
The implementation of business-level cooperative strategies with Star Alliance may present potential risks to Lufthansa. However, it's important to note that utilizing cooperative strategy in the flight industry is acceptable because of the high doubt of the industry and risk associated with pursing growth opportunities individually.
The risks of cooperative strategy includes the risk of opportunistic habit. The supposed tactical alliance could fail due to a fake perception of trustworthiness in its participants. Lufthansa is thus exposed to entrepreneurship and industry-specific hazards by competition, partnerships and alliances which can lead to a partner acting opportunistically. This may happen if contracts neglect to prevent this step or when alliances derive from phony motives and notions. The determination to create as an alliance to exploit primary competencies, synergies can in fact be a mask for a company to gain as much insider knowledge as you can from its alliances.
Other competitive dangers may consists of misrepresentation where people of Superstar Alliance may neglect to fully disclose its competencies, especially common if partner's contributions is in the region of intangibles. For instance, superior knowledge of local airline conditions is one intangible advantage that associates often fail to deliver. In regards to to Lufthansa and its own compromises made over time counter to benchmarks and its own culture, has provided difficulties to Lufthansa. An important exemplory case of was the IT infrastructures, and the fact that the customer interfacing with digital check in conclusion was less than appealing. With cooperative strategy, collaboration of Legend Alliance IT infrastructure would rob Lufthansa IT systems of these customers (Hitt, 2009). Alliance partner may fail to make available its resources and capacities that needs to be brought in to the cooperative strategy in order to protect its interests. This can ensure that they can not be at the sacrificing end as they will gain more than they provide. However, this does not maximize the benefits from the cooperative strategy. Another risk can also occur if one of the associates does not add the necessary purchases to make the development of a service or product for the intended purpose of the alliance. It will be very important to Lufthansa Group to continue with certain requirements and conditions with regards to searching for suitable partners in order to improve their position in key markets.
Lastly, cooperative strategy could lead both interior and external dangers. Internal risks consist of proper, process and ethnic issues within the Legend Alliance. Strategic conflicts come up from clashes between Lufthansa and Celebrity Alliance's strategies scheduled to differing interest. Process issues make reference to failure to integrate inner procedures of Lufthansa with Legend Alliance's. Cultural conflicts would be differing views on issues such as operational requirements between Lufthansa and the Celebrity Alliance. External dangers which involves complexities due to customers and other alliance customers includes overlapping routes and reputational risk. Overlapping routes are unavoidable and would create competition between participants. Moreover, the addition of new alliance users would further boost the overlapping of existing routes. Reputational risks results from inconsistency in service specifications by other alliance participants which would tarnish the reputation of the Celebrity Alliance and Lufthansa. To increase increases, Lufthansa can lessen its costs by tapping on the Star Alliance's value chain. It can also integrate procedures within Legend Alliance and reduce expenditures through economies of scale and joint functions. An example is the integration of the business's marketing and devotion points programme. Lufthansa should integrate with the competencies of other airlines which will add value to its functions. To minimize dangers, Lufthansa can reduce its internal dangers by aligning its business aims, product delivery process and infrastructure with those of Star Alliance. Strategic and social issues can be reduced by establishing a common objective and eyesight that align with business objectives. Process issues can be resolved by aligning its product delivery process and common infrastructure through distributed knowledge of operations. This would allow both Lufthansa and Legend Alliance to better appreciate each other's operations and infrastructure such as IT networks and joint facilities which can only help reduce any process conflicts scheduled to incompatibility. A good example would be Lufthansa restricting its move forward IT systems for the integration with the systems of Legend Alliance. External dangers can be fixed with relationship management with other alliance associates and going for a proactive stand in the Legend Alliance. Though certain issues such as competition can't be solved, romantic relationship management can help better fortify the relationships between alliance customers. Using the increased advantages of the cooperative strategy with Superstar Alliance, I firmly believe Lufthansa is on its street to success.