The Foundation of Germanwings

Katlynn Farmer

BA 598

Case Study 1 – The Foundation of Germanwings

1. Was Lufthansa’s decision to launch Germanwings the best choice? What other options were available and how would you evaluate the feasibility of these alternatives relative to the Germanwings launch?

Yes, Lufthansa’s decision to launch Germanwings was the best option.  By doing so, Lufthansa gained a larger market share in their industry, increased visibility and brand awareness, and also gained another source of revenue from a growing market.

Other options Lufthansa could have pursued include offering executive only flights, reducing costs through Lufthansa flights by limiting perks currently offered, or attempting to reinvigorate the charter industry.  

Executive only flights would attract executive level consumers with entire flights equipped with business class seats and first class perks such as hot meals and inflight entertainment; these services would be offered at high premium prices due to the additional incentives offered.  However, this would also come at great expense as a new flight of planes would need to be equipped with the appropriate seating and tech options.  This option would open up a new market segment, targeting upper class customers in search of ultra-premium flight options. However, this market is significantly smaller than that of Germanwings target consumer.

Reducing costs by limiting perks currently offered by Lufthansa would reduce operating costs while also reducing costs to customers.  This option would attract consumers currently targeted by the Germanwings strategy, but would require less upfront costs as their plane fleets are already established and would not require any refurbishing to meet customer expectations.  However, in reducing currently offered perks, Lufthansa would lose some of its premium status and faces the potential of losing current market share to other premium airlines.

Attempting to reinvigorate interest in charter options would be extremely risky, but could result in significant profits.  However, it would come at significant cost as well as Lufthansa would need to invest significantly in infrastructure; charter planes would be required as well as including charter destinations into their flight plans.  However, with the charter industry currently in decline it may prove difficult to break through and increase demand in this lane.  Lufthansa would need to incorporate significant interest in highly desirable locations at exceedingly competitive prices for this venture to succeed.

1. What was Lufthansa’s goal in launching Germanwings?

Lufthansa’s goal in launching Germanwings was to expand their target market and include those from price conscious, low-income households.  By targeting this particular market, they hoped to undercut competition such as Southwest and People Express while maintaining the brand quality and comfortable experience of flying with Lufthansa.  One factor that aided in making this endeavor successful, was their ability to utilize the preexisting infrastructure provided by Lufthansa, i.e. IT infrastructure, GlobeGround services, and SkyChefs catering.  By not having to create an entirely new subsidiary and working off of a pre-established foundation, Lufthansa was able to keep startup expenses at a minimum, which ultimately benefits the customer in need of low cost airfare.  Additionally, Germanwings kept costs low by limiting “frills” available to customers, for example, they utilized streamlined boarding procedures, as well as opted to not utilize frequent flier programs or premium options such as jet bridges and first class perks.  In doing so, Germanwings’ popularity with customers lead to significant growth in their first 3 years of operations; their aircraft fleet grew from eight to 22, staff increased from 180 to 681, revenues reached €400 million, and they managed to capture 35% of the market.