1.1
From the information available (https://www.lufthansagroup.com/) the air transport industry, operates in a dynamic environment that is defined by global challenges, such as population growth and the rise of megacities, increasing demand for mobility, climate change and processes of political transition.
The aviation industry faces three major challenges (http://skift.com/2014/10/14/3-biggest-challenges-facing-the-global-aviation-industry/ ) — safety, convenience, and environmental and financial sustainability. From the information available and noted below we can determine that the Lufthansa Group, inorder to ensure its future viability, meets these challenges with a comprehensive sustainability agenda which is influenced by developments in society and mega-trends.
Safety
Flying is safe and has never been a competitive issue. In order to make flying safer there is a continuous responsible and commited cooperation among the industry’s stakeholders. For this reason the industry withholds the world’s largest database of safety information.
Passenger Experience
Passenger growth from around the world is resulting in an increasingly socially, culturally, and ethnically diverse pool of customers each with unique needs. Travellers are sensitive to cost, tend to require fastest possible transport options, greater comfort and convenience. Passenger experience begins before you fly and has improved tremendously over the years. The good news is that the future of travel is full of innovation.
Environmental sustainability
The aviation industry (https://www.airbus-fyi.com/article/582/affordable-growth?back=Site.about) has grown rapidly over the last decades. More people in emerging markets are reaching income levels that permit them to fly, and using the industry as a powerful enabler of economic development.
For this reason, costs for the customers should be stabilized. With the use of technology, this could be achieved by decreasing the overall consumption of fuel, by improving the efficiency of new aircrafts, by making better use of resources and improving business performance all around. More flights also require new airport infrastructure, air traffic control and airspace, whilst maintaining maximum levels of safety and security.
Financial sustainability – Profitability
The airline is a very competitive sector where the desire od the customer for this type of connectivity, is growing tremendously. Slim profit margins are constantly forcing carriers to focus on both cost reduction and revenue growth through better customer interactions.
From the information available (https://www.lufthansagroup.com/) we can determine that the Lufthansa Group meets these challenges. In order to address these challenges adequately, the Lufthansa Group has a sustainability agenda that comprises five dimensions:
Human resource planning (Mihiotis,2005) determines the organizations human resource needs for the future. Organizations (Noe,2010) should carry out human resource planning so as to meet business objectives and gain an advantage over competitors. According to (Mihiotis,2005) the must be some basic connection between human resources planning and the strategic aspects of the human resource management function in any organization inorder for them to be effective.
Corporate Responsibility within the Lufthansa Group
An integral part of Lufthansa’s Group strategy (https://www.lufthansagroup.com/) is to increase company value, profitable growth, customer satisfaction and to meet its responsibilities toward the environment and society. The company’s goal is to be the first choice for customers, employees, shareholders and partners. We can note here that the company is trying to maintain responsible and fair relations especially with the employees.
Main pillars of the strategy are confirmed and will be expanded:
The Lufthansa Group responsibilities (https://www.lufthansagroup.com/) have been reorganized by the new members that have joined the Executive Board. Its has also reviewed and confirmed its strategies in order to ensure its future viability, taking into account the key success factors of financial stability, market position and fleet age.
Seven fields of action (https://www.lufthansagroup.com/) under the title “7to1 – Our Way Forward” have been defined to reach these goals, in which strategic steps are to be implemented across all segments in the years ahead and are as follows:
eResponsibility & Sustainability
Lufthansa Group assumes full corporate social responsibility. From the information available (https://www.lufthansagroup.com/), we can note that sustainable business in all of its areas is firmly integrated in Group management and is considered as the basis for the success of the Lufthansa Group.
Subject 1.2
Compensation strategy has to do with giving the right rewards for the right employee behaviors.
As mentioned in (Mihiotis,2005), in handling compensation HRM has to ensure that the compensation arrangements between the organization and its employees are legal, fair, ethical and appropriate.
Compensation strategy (Noe,2010) includes significant decisions about pay structure, incentive pay, and employee benefits. These decisions affect a company’s costs and ability to compete. It is considered as an important way to show employees that the pay structure is designed to be fair and related to the value that the employees bring to the organization.
In the Lufthansa Group, adjusting capacities and lowering staff cost through more efficient process in administrative areas all played a role in formulating its compensation strategy.
From the article available and basically from other related articles we can observe that from the managements point of view Lufthansa has been facing increasing competition from low cost carriers in Europe and has developed a strategy to battle against it. Chief executive Carsten Spohr is looking to cut costs by growing use of lower-cost subsidiaries in Europe and intercontinental destinations and by reforming the company’s costly pension scheme (making it fall over time). According to Mr. Spohr, Lufthansa suffered a large amount of net loss last year and it is said that results were dragged down by rising pensions costs and losses on fuel hedging. Management is pushing for a step change in the group’s efficiency, so that it can compete more effectively.
Low interest rates caused a large rise in the liabilities at Lufthansa’s defined benefit pension scheme. Also leading to no dividends!!!!
Management is looking for a compromise where new employees will join a predefined scheme which will be less expensive for Lufthansa than its defined benefit retirement plan within which its existing workers will remain.
Mr Spohr appears determined to push ahead with the planned restructuring where previous management has failed. “Longer-term this looks to be the right approach and indeed a necessity if Lufthansa ever wants to overcome its inflated legacy cost base,” he says. Also, claiming that there is no alternative.
From the article available and basically from other related articles (http://www.slideshare.net/bnelzy/lufthansa-strategy-analysis), we can observe that from the labor unions point of view : Lufthansa’s diverse labor union such as pilots, cabin crew, ground personnel etc have a bargaining power which is due to the labor agreements at the time of industry regulation that left them with little flexibility. This force remains a significant factor in successful performance in the industry.
The pilots’ union (http://www.ft.com/cms/s/0/ee352c8a-56f6-11e5-97e9-7f0bf5e7177b.html#axzz3wkb8XGPi), which is also striking over retirement benefits and pay, considers that the reorganisation will affect wage contracts. The aim of the union’s talks with management is to try and finalize collective bargaining agreements covering pay and benefits that cover its flagship carrier and its cheaper Germanwings subsidiary. But it insists that workers at Eurowings are expected to be on less attractive pay and benefits.
Pilots are concerned that the expansion of Eurowings will lead to an erosion of jobs at Lufthansa’s flagship brand. Both the pilot and cabin crew disputes are focused on pay and benefits, including pensions, as Lufthansa looks to cut expenses by expanding Eurowings, its low-cost carrier.
According to the cabin crew representant (http://www.ft.com/intl/cms/s/0/39a27e8a-8a09-11e5-9f8c-a8d619fa707c.html#axzz3wkb8XGPi), the latest strike was about changes to pensions, not restructuring. He agrees that Lufthansa needs to cut costs in order to compete with the likes of Ryanair and Emirates, and Eurowings is also a good idea … also adding “We have made an offer to Lufthansa that guarantees that costs will be lower for the next 10 years,”.
One reason why agreements are proving difficult with the unions is Lufthansa’s improving financial performance and higher profits due to the falling cost of fuel. Lufthansa last month raised its full-year group earnings target after a solid third quarter, partly because of strong demand in Europe and low fuel prices. But Lufthansa’s management considers the group’s profitabilit somewhat ephemeral and hopes that its recent good results will not strengthen unions’ hands in the battle over cost-cutting.
Analysts say it is essential that Lufthansa secures a productive deal with staff to allow it to get on with its far reaching restructuring. They also believe that management team are determined and are going to proceed.