Background
The new commercial joint that recently concluded between Lufthansa Grouped and the Singapore Airlines at the end of November 2015 seems to bear more fruits than expected. The partnership agreement of deciding to operate between Europe and Singapore in the JV basis continues to expand the codeshare bond; deepening the commercial cooperation. However, there are some differences between these two airlines.
According to the vision, Singapore Airlines have expressed their responsibility not only to remain excellent but also stay exemplarily among the competitors in the world, through enhancing the lives of people served (Lufthansa Cargo AG, 2016). With all this in mind, the airline has made several commitments to the art, communities, education as well as health sector in the countries where they fly. The mission of this airline firm is to become a global organization and offer air transportation services of high quality, hence maximize the return of benefits as well as employees and shareholders.
The central hub for this organization is Singapore Airlines Airport, and has its headquarters at Airline House, 25 Airline Road, Singapore 819829 as well as Singapore. Singapore Airlines is a very busy company and lies in 63 destinations around the world specifically in 3 countries from its key hub. One of the regions where this company enjoys its strongest presence is the Southern Asia. The parent company for Singapore Airlines is Temasek Holdings and has annual revenue of s$16 billion (Singapore Airlines, 2015).
Its operating income is s$450 million for the same financial year. The net income for the airline is S$340 million and a total employee team of 25,000 members. On the other hand, Lufthansa Group is a well-known global aviation team and has a total of 550 subsidiaries as well as equity investments. The major service in this airline group is the transportation of passengers. Its main hubs include the Munich Airports as well as Frankfurt Airport, with 220 destinations from its main hub (Deutsche Lufthansa, 2015).
The headquarters for this organization is Cologne in Germany. It has a revenue of E35 billion and an operating income of s$2 billion for the year ended 2015. The net income for this organization is approximate s$2.5 billion with a total assets accumulation of s$39 billion.
It has a large working team of 130, 000 employees for the year ended, 2015 (Deutsche Cargo AG, 2016). The mission of this airline company is to be a leading air carrier in the global network coverage with strict compliance to the safety of flights, product lien, reliability, and competitiveness. The vision is to maintain zero major crashes or accidents, continued growth in the industry. According to Global Market Directs (2008), the core values of this organization include teamwork, innovation, leadership, productivity, and an open door policy as well as customer satisfaction.
Competitive strategy
Using the Porters matrix, it is possible to come up with an analysis of the level of completion among these two airline firms. Basing the argument on the “cost leader vs. differentiation” and “mass market vs. niche”, it is possible to know which airline is more competitive that the other. Unlike the Singapore Airlines, Lufthansa Airlines are more competitive; with many destinations, workers, and services that the rest.
For instance, while Singapore airline has only 25, 000 employees, Lufthansa group have more than five times, the number of staff (Research and Markets, 2013). Consequently, revenue and profits also differ in the same magnitude where Lufthansa leads far ahead of its competitor. When the porter’s strategy, it is easy to determine whether an organization is falling below the performance average of it is above the profits. Competitive advantage for cost leadership is by cost leadership vs. differentiation.
It is good to admit that, the competitive rivalry remains a dominant force of the five forces in the model by Porter as used to assess completion in the industry (Chen, He, & Wong, 2014). In this case of the airline industry, it remains one of the major organizations globally and exists in the intensely competitive market.
Since Lufthansa Group has proved competitive than Singapore, all this can be attributed to its excellent services. It majors in passenger’s transportation and offers the services at fair prices (Lufthansa Cargo AG, 2016). It is more of leisure to use the services of this organization; has competitive in-flight entertainment, high technology, and better catering services in comparison to the customer’s services in Singapore Airlines.
Lufthansa maintains the base of their clients through sustenance of the differentiation in the services offered to the customers. According to the recent report released from both of these airline firms, it is evident to see that, the air industry has gone to some degree that makes it more attractive to the new entrants (Pearson, Pitfield, & Ryley, 2015). The next force of the Porters forces is the threat of new entrants in the industry. The airline is so saturated that, there is no fee space for newer firms in the industry to join. The most significant factor is the new way in which entrants appears.
Lufthansa is still likely to enjoy more market favor since the chances of other firms with similar services, entering the industry are minimal. The cost that is involved in starting up a new airline company and makes it competitive as the ones that are already in the market is too high since it has to make considerations of overheads, wages, and salaries, maintenance, market penetration as well as the costs of maintaining existing customers (Global Market Directs, 2008).
In this regard, bureaucracy, as well as larger financial, outlays which are involved in the establishment of a firm can serve as a barrier to the newer organization to join the industry of airline, where the already competitive ones keep going higher regarding market share and revenues. Unlike Singapore, Lufthansa has clearer air traffic infrastructure and is one of the leading in the destinations which it serves (Pearson, O’Connell, Pitfield, & Ryley, 2015).
It can be said that the airline traffic congestion is still going higher, and the slots of specific airports have defiantly turned to be commodities of particular carriers. It can well explain why the new airline firms find it difficult to join and negotiate primetime slots at the airports that are busy and can well result in the restriction of to offer flights at peak hours and having a routine fly in airports that are considered as not very busy.
According to the third forces of the Porter’s model, the focus can be used to explain why Lufthansa group keeps it’s foot far much ahead of its competitor Singapore Airlines due to cost and differentiation focus. This generic strategy rests on choices of narrow competition scope in the airline industry. The focuser opts to segment or even group the sectors in this industry as then decided to tailor its strategy so that it can serve them excluding others.
Taking the attention of the cost focus Lufthansa Airlines seeks to receive some cost advantage due to its economies of scale (Research and Markets, 2013). On the other hand, since Singapore airline is still smaller in comparison to its competitor, it finds it difficult for it to survive in the highly competitive environment. One can choose to use the differentiation segments; a firm can seek differentiation in the target segment. Both of these variants of the focus strategy rest on the differentiation of the entire industry. The cost focus exploits the differences in the Singapore Airlines regarding price behavior in some of the segments while other sections focus on exploitation of particular needs of the buyers of the carrier services (Singapore Airlines, 2015).
Adaptations
Due to the dynamic world we live in, organizations should try their level best and be accommodative of changes, primarily technological, for them to remain relevant and up to date. Most airlines in the world have even gone out due to inability to adapt to changes like overcapacity. Unlike Singapore Airlines, Lufthansa does not struggle to hold constant changes such as many carriers as well as changing economic environment (Pearson et al., 2015).
As a result of an inability to accommodate changes in Singapore Airlines, there has been countless civil and labor unrest, where employees complain about working in an environment that is not entirely conducive. Recently Singapore was hit by a loss of more than 5000 euros due to a 14-day pilot strike. Even though Lufthansa has also suffered the same effect, it has never caused as many economic pains as Singapore Airlines have already caused it (Singapore Airlines, 2015).
For the legal requirement in this industry, both Lufthansa and Singapore Airlines have been at a position to adapt successfully with the help of their respective governments (Lufthansa cargo AG, 2016). Besides, the government has aided them in controlling the customs duties as well as air tickets so that they can be in line with the economic status of the country.
Sustainability
The airline industry is one of the most delicate industries and requires to be attended with sustainable investments to ensure its continuity without barriers. The sustainability initiatives employed by Lufthansa remains very significant since they help it stay competitive in the environment. However, these variations do change from region to region depending on the type of sustainability in question (Deutsche Lufthansa, 2015).
For instance, Lufthansa has added massive capacity carriers that can carry more people and cargo than it is the case in other airline firms such as Singapore Airlines. Besides, the plane can survive in the sky for a much extended period of the air due to its security measures. The investment is critically sustainable since it has resolved the problem of high traffic, customer waiting, and client’s safety (Chen et al., 2014).
Risk analysis
One other significant risk involved in the airline is energy issues, inflation among some destinations as well as completion various from one destination to another. For Lufthansa, the major challenge is the issue of inflation in most of its principal target (Pearson et al., 2016). For instance, the airline mainly operates in Africa and Asia, where countries have not adequately been at a position to manage their economic status.
In this regard, when rapid economic changes occur, the operations of this company are severely affected, making the profit and revenue projection unattained (Chen et al., 2014). According to Singapore Airlines (2015), competition is a significant threat. Giant airlines like the American Airlines and the Eastern China Airlines real threat in the destinations where Singapore Airlines operates.
Personal Perspective
According to this study, it is clear that Lufthansa has a more effective and efficient strategic direction when it comes to the approach of international business that has proved most successful in the global market (Research and Markets, 2013). The fact that, Lufthansa has a workforce of more than one hundred thousand employees is a reason, convincing enough that, it has global domination regarding airline services. According to the decision matrix which evaluates and frequently prioritizes on the list of options, it becomes very easy to narrow down to one choice which is more successful in a market (Pearson et al., 2015).
Besides, making use of decision matrix enables one to reach the said action on numerous criteria. After the listing of the various options, there will be manageable lists reduced and in this case, there are only two instances to consider; Singapore Airlines and the Lufthansa Airlines. Turning the focus on Lufthansa, it is evident to see that, the airline has been able to acquire more global destinations that its competitor Singapore Airlines (Deutsche Lufthansa, 2015).
Conclusion
From the comparative analysis above, it can be noted that, international expansion is directly proportional to the competitiveness of a firm in the global market. Lufthansa has invested heavily in the destinations, some employees (both local and international) as well as domination on the world market. Besides, Lufthansa has also embarked on suitability through owning overcapacity carriers as well as maintaining high-level services to both existing and potential customers. As it can be seen in adaptability, Lufthansa is quicker to respond to changes in the evolving world, which gives it better chances of remaining competitive. The study could highly recommend that Singapore airlines should adopt the strategy of Lufthansa groups for it survives in this competitive industry.
References
Chen, Z., He, M., & Wong, K. (2014). A Case-based analytical study on the strategic evaluation of common equity performance of SIA in a global organic environment. Journal of Contemporary Management, 2(1), 51-63.
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Global Market Directs. (2008). Deutsche Lufthansa Ag travel, tourism, leisure & hospitality strategic report. Web.
Lufthansa cargo AG- Strategic SWOT analysis review. (2016). Web.
Pearson, J., O’Connell, F., Pitfield, E., & Ryley, T. (2015). Competition between Asian network airlines and low-cost carriers. Transportation research record: Journal of the Transportation Research Board, 25(1), 56-65.
Pearson, J., Pitfield, D., & Ryley, T. (2015). Intangible resources of competitive advantage: Analysis of 49 Asian airlines across three business models. Journal of Air Transport Management, 47(1), 179-189.
Research and Markets: Analysis of Deutsche Lufthansa (2013). Web.
Singapore Airlines (2015). Annual report. The Path of Progress. Web.