This thesis focuses on the economic feasibility of a low cost strategy for long distance flights, based on the example of Eurowings in the product portfolio of the full service carrier Lufthansa.
On the ITB 2015, Europe’s largest tourist trade fair, an executive board member of Lufthansa, Karl Garnand, announced the first routes for the coming low cost long distance flight product of the company. Lufthansa is going to start this project with its brand Eurowings. The first flights to three destinations will be operated as from November 2015, tickets are already bookable. The low cost carrier business prospers for a long time. Its market share in Germany, measured by the number of passengers, grew from 4,8% in 2002 to 25% in 2014. However, this success refers exclusively to short and middle distance flights. Eurowings is not the first try of an airline to establish a low cost product for long haul flights, but there is no example with economic success.
Table of Contents
1. Introduction
1.1. Problem
1.2. Ambition, Methods and Structure
2. Theoretical concepts of growth strategies
2.1. Concentration
2.2. Horizontal integration
2.3. Vertical integration
2.3.1. Backward vertical integration
2.3.2. Forward vertical integration
2.4. Diversification
2.4.1. Related diversification
2.4.2. Unrelated diversification
3. Theoretical concepts of competitive strategies
3.1. Differentiation strategy
3.2. Low cost strategy
3.3. Best cost provider strategy
4. Information about Lufthansa and Eurowings
4.1. Growth strategy of Lufthansa
4.2. Competitive strategies of the Lufthansa Group
5. Analysis of the Eurowings low cost strategy for long haul flights
5.1. Comparison between the Eurowings low cost and the Lufthansa full service long distance product
5.2. Low cost carrier strategy – factors of success and examination of the transferability of these factors to long distance flight circumstances
6. Results, conclusion and outlook
Research Objectives and Themes
This thesis investigates the economic feasibility of implementing a long-distance low-cost carrier model within the portfolio of a full-service airline, using the Lufthansa Group and its brand Eurowings as the primary case study.
- Growth strategies including concentration, integration, and diversification
- Competitive strategies: Differentiation, low-cost, and best-cost provider models
- Lufthansa’s growth and competitive strategic framework
- Comparison of service and cost structures between full-service and low-cost long-haul products
- Economic potential and risks of transferring traditional low-cost success factors to long-haul flight operations
Excerpt from the Book
2.1. Concentration
The concentration strategy focuses on internal growth. Own competences and resources are used to achieve a growth process. Professional literature often uses the word organic growth due to the fact that the company grows because of its own effort. Merger and acquisition of another company is redundant. Some economists e.g. Wheelen and Hunger argue that the concentration strategy implies also external growth. This paper however agrees with the more common understanding of organic growth as an exclusively internal growth strategy. There are many examples of approaches to gain organic growth. Additional sales people, product development, geographical expansion, opening new shops, new manufacturing facilities or new distribution channels can be actions to grow internally.
There are several conditions that induce companies to favour the concentration strategy. A good environment which is indicative of assuming a satisfying growth of the single operating business would be one. This can be applicable if a product is in the growth or early maturity stage. Another reason for concentration strategy could be if a company acts risk averse to avoid uncertainty.
Summary of Chapters
1. Introduction: Presents the research problem regarding the feasibility of long-haul low-cost flights within a full-service group and outlines the thesis structure.
2. Theoretical concepts of growth strategies: Defines core strategy concepts and examines organic growth (concentration) versus external growth (integration and diversification) methods.
3. Theoretical concepts of competitive strategies: Discusses Porter's generic competitive strategies, including differentiation, low-cost, and the best-cost provider approach.
4. Information about Lufthansa and Eurowings: Provides an overview of the Lufthansa Group's business areas and its current growth and competitive strategic positioning.
5. Analysis of the Eurowings low cost strategy for long haul flights: Compares the Eurowings product with Lufthansa's full-service offering and evaluates the transferability of classic low-cost success factors to long-haul operations.
6. Results, conclusion and outlook: Synthesizes the analysis, predicting the economic potential of the Eurowings project while highlighting the risk of internal cannibalization.
Keywords
Growth Strategy, Concentration, Horizontal Integration, Vertical Integration, Diversification, Competitive Strategy, Differentiation, Low Cost Strategy, Best Cost Provider, Lufthansa, Eurowings, Long Haul, Economic Feasibility, Airline Management, Synergy Effects
Frequently Asked Questions
What is the primary objective of this thesis?
The primary objective is to evaluate whether a long-distance low-cost airline model can be economically successful when integrated into the existing portfolio of a full-service airline group.
What are the central themes discussed in the work?
The work explores various growth and competitive strategies, specifically analyzing how a traditional full-service carrier like Lufthansa attempts to integrate a low-cost long-haul brand (Eurowings) without undermining its own market position.
What research methodology does the author apply?
The author uses a qualitative approach, applying established strategic management theories to current corporate practices, and conducts comparative analyses of business models, fare structures, and operational success factors.
Which industries are referenced as strategic benchmarks?
The thesis refers to various sectors, including the food and beverage industry (Domino's Pizza, PepsiCo, McDonald's), the retail sector (Edeka, Apple), and the automotive industry (Toyota, General Motors, BMW) to explain generic growth and competitive strategies.
What is the core focus of the analysis in the main chapters?
The main part focuses on the theoretical underpinnings of growth and competition, followed by a practical application of these concepts to the Lufthansa Group's transition into the low-cost long-haul segment.
Which key concepts characterize the competitive analysis?
The key concepts include Differentiation Strategy, Low Cost Strategy, Best Cost Provider Strategy, Economies of Scale, and Economies of Scope.
How does Lufthansa differentiate between its full-service and low-cost brands?
Lufthansa maintains a twin-strategy approach: full-service airlines focus on high-quality service, flexibility, and extensive network connectivity, while the low-cost model focuses on cost-reduction, standardized products, and price-sensitive customer segments.
What specific challenges are identified for the Eurowings long-haul project?
Major challenges include the difficulty of achieving significant cost savings on long-haul flights compared to short-haul operations, the risk of cannibalizing the parent company's higher-margin business, and the complexity of maintaining brand standards.
Why is the "stuck in the middle" problem significant in this study?
The "stuck in the middle" problem, as defined by Porter, suggests that failing to clearly commit to either a low-cost or differentiation strategy can lead to failure; the thesis examines if the best-cost provider strategy can effectively circumvent this.
What is the author's final assessment of the Eurowings project?
The author concludes that while the project has significant economic potential due to the backing of a powerful parent company and its niche positioning, its success depends on carefully balancing costs and avoiding negative impacts on the parent company's core business.
- Citation du texte
- Joren Steinheuer (Auteur), 2015, Feasibility Analysis of a Low Cost Strategy for Long Distance Flights, Munich, GRIN Verlag, https://www.grin.com/document/310370
