mci eportfolio business model emirates & lufthansa
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Part of MCI ePortfolioTRANSCRIPT
vs.
A Comparison of Aviation Business Models
History &
General Company Information.
First operations in 1985
Fully owned by the Government of Dubai
Sheikh Mohammad Bin Rashid Al Maktoum is Chairman and Chief Exekutive of the
Emirates Airline & Group
Emphasize on high-quality flights for passengers and Cargo to big cities as well as
to regional airports
In 2011 34 mio. passengers were carried to 122 destinations in 72 countries.
62.000 employees ensure smooth operations on the ground and in the sky.
Huge importance of Emirates Airlines on Dubai‟s economy as the Emirates turnover
contributes 20% to Dubai’s GDP
(Annual Report Emirates 2011, O‟Connell 2011)
Emirates Airline & Group
Founded in 1926 as „Deutsche Lufthansa A.G.“
Global aviation group that operates in five high-quality business segments with more
than 400 subsidiaries
Provision of 21.900 flights to 194 destinations every day thanks to the Star Alliance
Membership
Europe’s biggest Airline measured by passenger numbers and revenue
Lufthansa Group employed about 120.000 personnel and generated a total operating
revenue of EUR 28.7 billion in 2011
(Lufthansa Company Information 2011)
An Approach to
Business Model Comparison.
Definition Business Model
„It is a description of the value a company offers to one or several
segments of customer and the architecture of the firm and its network of
partners for creating, marketing and delivering this value and relationship
capital in order to generate profitable and sustainable revenue streams.“
(Osterwalder 2004)
Business Model Structure
(Kapeleris without year)
Value Proposition.
„A fast-growing international airline with one of the youngest fleets in the
sky and more than 400 awards for excellence worldwide.“
Emirates provides commercial air transportation services via a
constantly expanding network of more than 120 primary and regional
destinations in over 70 countries with more than 180 aircrafts.
Business segments Airline, Destination & Leisure Management,
Sky Cargo, Skywards, Official Store,
EmQuest, Emirates Aviation College,
Engineering
(About Emirates 2012, O„Connell 2011)
Europe„s full-service airline that connects Europe with the World
The membership of Star Alliances allows the provision of 21.900 flights to
194 destinations every day.
Focus on Quality & Innovation, Safety & Reliability
Aim to grow profitably and to develop sustainable
Business segments Passenger Airline, Air Cargo, Technology for
Maintenance & Repair, Catering, IT Services
(Annual Report Lufthansa 2011, Lufthansa Company Information)
Customer Segments.
Huge mass of potential customers
4.5 billion people live within an 8-hour flight distance of the hub Dubai
Lifestyle oriented Market Segmentation
Ambitions to attract „globalista‘s“, the experienced global travellers
Further segmentation criteria like demographics, geographics and
economic aspects are not considered.
(O„Connell 2011, O„Reilly 2012)
No specific Target Group is outlined
Lufthansa Business Travellers
2011 65 mio. passengers
Germanwings Price sensitive Businessmen & VFR
2011 7,85 mio. passengers
Condor Holiday Travellers & Families
2011 6 mio. passengers
(Airlinewerbung 2012)
Different Target Groups
for each Sub-Brand
Distribution Channels.
Provision of possibilities to book directly and online
Despite of emphazising the internet as booking platform, Emirates still
incentifies travel agencies especially in Australia and India.
Emirates still rely on Travel Agencies due to low internet accessability and
low tendency to use credit card in their main markets of the Middle East,
Africa and West Asia
Strict refusal to join a strategic aviation alliance avoid the access to
additional booking platforms
(O„Connell 2011)
Provision of an online booking platform to meet the needs of Business
Travelers and to respect the overall development of booking behaviour.
Attemptions to bypass the GDS fees by encouraging European customers
to book directly or by aportioning it to travel agencies or to the customers
Enourmous distribution synergies due to the membership of Star
Alliance
(Annual Report Lufthansa 2011, Pilling 2010)
Customer Relations.
A lot of efforts are put in the creation and distribution of customized services and in
excellent service quality (Emirates, Bob Kabli 2012)
Customer Loyalty Programme „Skywards“
„With Skywards, it's not just about earning and spending Miles - it's about managing
your journey, going beyond the travel experience and enjoying the real privileges of a
more rewarding frequent flyer programme.”
Multiple ways to spend miles.
Flights & Upgrades of Emirates and 8 Partner Airlines, Hotels, Car Rentals, Leisure &
Lifystyle Activities located in UAE, Donation to the Emirates Airline Foundation, Raffling
Miles
Limited attractivity of the programme caused by the little number of participating airlines
(Skywards)
Special status for frequent flyers
Access to Lounges, preferred choice of seats, booking guarantees, priority
check-out, free additional luggage and further more
Divers and numerous possibilities to spend miles
on flights & upgrades with Lufthansa and 36 global and regional airlines,
hotels, car rentals, Shopping & Lifestyle, Finance & Credit Card, Donation
of Miles and other partners
(Miles and More)
Key Resources.
The hub Dubai and the network of Emirates which connects primary as
well as regional airports on six continents.
Competitive low cost structure due to the access to cheap fuel and
labour force which enables Emirates to charge low fares to attract new
customers.
Strong brand thanks to huge brand awareness arising mostly from
sponsorships and commercials
(O„Connell 2011)
Membership of the Star Alliances and affiliate companies like Austrian Airlines and
Swiss Airlines enable Lufthansa to reach and serve more potential customers, create
greater brand awareness and a stronger customer loyalty on a global level.
Three major hubs (Frankfurt, Munich, Zurich) to serve the global destinations.
Subsidiaries like Germanwings and Condor allows Lufthansa to target different kinds of
customers and exhaust synergy effects.
Vertical Diversification through the different business segments
Loyalty of the employees which is reflected in the long-term and constant perception of
Lufthansa as reliable, safe and high-quality.
(Annual Report Lufthansa 2011, Lufthansa Company Information)
Key Activities.
Provision of full-service, long-haul connection flights of primary and regional destinations
for passengers and Cargo.
Ensuring the smooth operation through combining many parts of the supply chain in the
subsidiary Dnata.
Increasing weekly frequency in fast growing markets (e.g. from 2004 to 2009:
India +238% und China +444%)
Optimizing operations through the controlling of the profitability of every single route
every week (Emirates, Rob Kabli 2012).
Raising brand awareness through advertisements and especially through sponsorships
for a range of sports teams and events, e.g. football (Arsenal FC, Hamburger SV, AC
Milan, Paris Saint-Germain), Rugby, Tennis, Horse Racing, Golf, Sailing and further more
(About Emirates 2012, O‟Connell 2011)
Divers business models of the subsidiaries (Lufthansa, Condor, Germanwings, Swiss,
Austrian) allow Lufthansa to serve customers with a wide wange of different needs.
Aviation synergies of the Star Alliance through code sharing strategies and corporate
distribution and customer targeting enable Lufthansa to optimize its operations.
Constant network expansion based on the leading position of network density in Europe.
Continous development and improvement of technologies and services (FlyNet -
WiFi in the sky, new Business Class with added comfort, …)
Profitability is favoured over growth!
(Annual Report Lufthansa 2011)
Partnerships & Networks.
Strict refusal to join a strategic alliance to maintain ist
independence (Emirates, Bob Kabli 2012).
Only eight Airlines do have partnerships with Emirates
South African Airways, easyJet, Japan Airlines, Jet Airways,
JetBlue, Kingfisher Airlines, Korean Airlines, Alaska Airlines
Strong connections with the Government of Dubai
(About Emirates 2012)
Membership as mean to extend
market opportunities and growth
options
Entry of new members to expand
the spoke system and the
presence especially in Latin
America
Joint Ventures: Atlantic ++
Japan +
(Annual Report Lufthansa 2011, Star Alliance)
Cost Structure.
Overall low cost structure creates an comparative advantage
Expenses for fuel 40% of total expenses which is low owing to the proximity of oil production and lower
consumption of fuel of the relatively new aircrafts
Labour cost Two-tier free tax salary system
Tie 1 immobile, labour intensive tasks operated by West Asian expatriates while
mobile labour intensive tasks like accouNting were outsourced mainly to India
Tie 2 generously paid professionals mainly Emiratis and Western specialists
Airport Charges low aircraft and passenger related fees at Emirates Hub - Dubai International Airport due to
synergy creation caused by multi-faced management (Government, Emirates, Airport Authority)
and the establishment of a huge duty-free facility which generates gross-subsidies
Ground handling Dnata as subsidiary of Emirates has a monopoly on ground handling at DXB
MRO 10% of total expenses thanks to the young fleet
Distribution higher cost due to incentives given to Travel Agencies & the refusal to join an alliance
to profit by synergies
Finance cost heavy burden of repayment for aircrafts which can be considered as the main weakness
Debt that is based on a strong relationship of economic, financial and political linkages
Marketing 4% of revenues and US $380 mio in total in 2008
(O„Connell 2011)
Annual Report Lufthansa 2011
Highest cost factors are labour and fuel.
Revenue Streams.
Results 2010-2011
Emirates is operating profitable for 24 years
33,9 m passengers carried
High productivity (passenger seat factor 80%)
Revenues 2011 US $18.9 billion which means an 21% increase
compared to the preceding year
Net Profits 2011 US $629 million
61% loss compared to the preceding year due
to higher fuel costs
Annual Business Report 2010-2011
Results 2011
Highlights Group Lufthansa 2011
Conclusion.
The Business Model of Emirates Airline & Group allows to create comparative
advantages due to lower costs of fuel and labour which are the highest cost items of the
Lufthansa cost structure.
The woven structures of the Airline, the Government of Dubai and the Airport authority
guarentee short decision making processes and an easy access to financial resources.
In addition to that the dedicated focus on offering high-quality services and the great
variety of served destinations via the strategic geographical hub Dubai constitutes a
competitive advantage for Emirates Airline & Group.
The strategic direction focuses on maintaining the competitiveness and the
independence by refusing to join an aviation alliance.
Lufthansa„s Business Model is highly dependent on external driven factors like the
financial crisis and rising fuel cost as the past few years had shown.
In addition the negotiating power of the employees can cause problematic effects like
increased salary requirements and strikes which affect the cost structure tremendously
as labour costs are the greatest item in the cost structure.
Its historic grown image of reliability, safety and quality as well as the ability to serve a
dense worldwide network of destinations through code sharings with Star Alliance
members create a competitive advantage for Lufthansa compared to Emirates.
The diversified business segments minimize the entreprenuerial risk and can support
the awareness of the brand Lufthansa.
References.
About Emirates
www.emirates.com/de/english/about/
Airlinewerbung 2012
http://www.airlinewerbung.com/
Annual Business Report Emirates 2010-2011
http://content.emirates.com/de/english/images/Annual_2011-2012_tcm254-926013.pdf
Annual Report Lufthansa 2011
http://reports.lufthansa.com/2011/
Emirates, Bob Kabli (2012): About Emirates. Presentation on 15.10.2012
Kapeleris, J. (without year): Business Model Structure
http://johnkapeleris.com/blog/wpcontent/uploads/2010/09/Business-Model-Elements1.jpg
Highlights Group Lufthansa 2011
http://reports.lufthansa.com/2011/ar/highlightsgroup.html?cat=m
Lufthansa Company Information
http://konzern.lufthansa.com/de/unternehmen/
Miles and More
http://www.miles-and-more.com/online/portal/mam/de/homepage
O„Connell, J. (2011): The rise of the Arabian Gulf carriers. An insight into the business Model of
Emirates Airline. Journal of Air Transport Management. 17 (2001). pp. 339-346.
O„Reilly, L. (2012): Emirates introduces new brand prositioning.
http://www.marketingweek.co.uk/news/emirates-introduces-new-brand-positioning/4000869.article
Osterwalder, A. (2004): The Business Model Ontology. A Propositional in a design science approach.
Université de Lausanne. Ècole des Hautes Études Commerciales.
http://www.hec.unil.ch/aosterwa/PhD
Pilling, M. (2010): Lufthansa and Amadeus sign Distribution Peace Pact.
http://www.flightglobal.com/news/articles/lufthansa-and-amadeus-sign-distribution-peace-pact-337267/
Star Alliance
http://www.staralliance.com/en/
Skywards
https://www.skywards.com/
vs.
A Comparison of Aviation Business Models