Formulating business strategy invariably requires an estimation of firm’s capacity and capability to sustain business competition. We all know that market place is the final arbiter and it does not give a damn about your status or how high you have overestimated about the product you intend to sell. The only concern market has is value creation & value delivery.
Lufthansa Airline in November 2020, eliminated free in-service food & drinks and introduced buy on board, a practice that is followed by no-frills budget airlines. The company justified this move due alluding to the fact that preferences of food & drinks vary and air travellers are not that keen to get this included in the price tag. Lufthansa overestimated her service quality sans in-service food & drinks. The airline assumed travellers are better off pre-ordering necessary food and drinks before flight taking off or while on flying.
Faced with high operating costs and intense competition from other airlines Lufthansa ushered in a programme of cost-cutting that primarily centred on customer care in terms of hospitability that includes food & drinks. The presumption that the nature of the European air travel market has changed and air travellers, are now willing to forego frills in exchange for reduction in airfare is fundamentally flawed one while executing business strategy.
This is where Lufthansa failed to analyse the broad picture. Driven madly by cost-cutting it neglected an important aspect in customer care: mollycoddling. Serving food & drinks by beautiful stewardesses has soothing effect over the psyche of travellers that gives them fulfilment of value for money was overlooked as critical factor.
Frequent air fliers generally expect a good deal although flying for few hours that includes the best of luxury an airline can dispense. Whereas Lufthansa went on nibbling away the frills, its competitors in the budget segment such as Ryanair are slowly and steadily upgrading their quality of in-flight services that included albeit trimmed form of food & drinks. Their business strategy is focussed on value creation & value delivery in feasible manner such that travellers have the choice to make.
That sealed the Lufthansa air travel affair in favour of budget airlines, most of them targeted on frequent flyers as well as high-spending ones who are willing to enjoy the luxury of mollycoddling. Even though Lufthansa is not bad as other European full-service airlines, its revenue along with profitability is on free fall.
Lufthansa slogan “Say yes to the world” is a thing of past. It is now mired in deep struggle to maintain the semblance of saying “yes”. Its business strategy in shambles and profit has tanked. Posting Euro 2 Billion loss by September 2020, Lufthansa proposes to slash thousands of full-time jobs. Somewhat of a sad ending for a firm which was a founding father of Star Alliance, the world’s largest airline alliance, formed in 1997.
Let this sink in: overestimating has sunk Lufthansa mid-air!
Cheers!
Muthu
Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Business Strategist
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