Lufthansa SWOT: new low cost platforms are smarter strategy than resorting to protectionism

The Lufthansa group reported an operating margin of 3.9% in 2014, up from 3.5% in 2013 (based on its operating result before restructuring and project costs). However, adjusting 2013 for the change in depreciation policy implemented in 2014, its margin would have been fallen by 0.7ppts year on year, the result of a damaging pilot strike and weak pricing. Lufthansa expects a significantly improved result in 2015, when ASK growth will be 3%, although it expects unit revenue to fall. All its capacity growth will be on the long haul network, where unit revenue was weakest in 2014.

The development of strategic joint ventures to resist growing long haul competition from Gulf-based airlines makes sense. Its growing use of lower cost platforms in both short haul and long haul point to point markets is also welcome, but Lufthansa faces an ongoing challenge in taking its pilots with it on this course of action. Moreover, Lufthansa's protectionist instinct as a response to competition may have short term delaying value - but if it is intended as a serious strategy, it is high risk.

We consider Lufthansa group's strengths, weaknesses, opportunities and threats in the context of these, and other, issues.