Lufthansa SWOT & PESTLE Analysis

Strength

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Weakness

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Opportunity

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Threat

1. Stiff competition from low cost airlines and large Middle Eastern carriers: Certain low cost airlines such as Ryanair and EasyJet are tied to local market are the major competitive threat to Lufthansa in the European market as customer experience quality is often neglected in no-frills airlines. The big players in the Middle East region such as Emirates, Etihad Airways and Qatar Airways are world class airlines with best-in-class infrastructure and are expanding aggressively on a global scale eating into Lufthansa’s trans-Atlantic market share. Doha and Dubai the base hubs of Qatar airways and Emirates have emerged as global hubs and have taken traffic away from traditional European hubs such as Frankfurt, thereby impacting Lufthansa.

2. Volatility in oil prices: Low fuel prices have help to boost the bottom-line of aviation players like Lufthansa, however volatility in oil markets remain a concern. Any recovery of oil prices in the global market will lead to decline in operating profit as fuel costs are going to increase. Middle East and North Africa region which accounts for major global oil production is going through a period of conflict and civilian unrest. Venezuela another oil produces is also under pressure from US sanctions and internal economic turmoil. Any major escalation in conflict which threatens the oil producing economies will result in sharp escalation of fuel prices and will impact the operating margins of Lufthansa.

3. Catering segment witnessing changing market dynamics: There has been increase in preference of airlines towards switching to in-flight service concepts that has put LSG Sky Chef into a stiff competition. Also, there has been steady rise in awarding service packages and production-delivery to various new suppliers that has significantly reduce the threat of new entrants into flight catering segments.

Political

1. Political developments leading to economic uncertainty: The deterioration in the security situation and political instability in several regions across the globe is leading to economic uncertainty. Many countries in the Middle East and the North Africa region are going through civilian unrest, uprisings and impacted by terrorist activities. Yemen, Syria, Iraq, Egypt, Libya have been severely impacted by civil wars and terrorism and the recent blockade of Qatar by the other members of the GCC also complicates the political stability of the region. There have been terrorist attacks across Europe including Germany, France, Belgium and UK over the last two years. A Malaysian airline flight was shot down in 2014 over Ukraine leading to closure of civilian airspace over that area. Lufthansa’s potential losses from the above could result in not being able to fly to some destinations or taking longer flight paths in order to avoid skies where there is potential of terrorist attacks.

2. The uncertainty over Brexit to be a challenge for the European aviation sector: UK’s departure from EU in March 2019 brings in significant uncertainty with regards to the aviation business environment across Europe and is an important political factor concerning Lufthansa. If UK remains in Open Skies agreement with EU, things shall be status quo for the Lufthansa and the European aviation industry. However, there is a high possibility that UK will not remain in Open Skies and until the final terms are decided, uncertainty shall prevail. While the impact of Brexit will be more for UK based carriers, Lufthansa’s business and growth will also be impacted.

Economic

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Social

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Technological

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Legal

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Environmental

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