This document provides an external analysis of the European airline industry and Lufthansa Group's recent acquisition of Brussels Airlines. It analyzes the industry using Porter's Five Forces model and a PESTEL analysis. Competition in the industry is intense with a CR5 of 47% and low barriers to entry due to high capital costs. Buyer power is high due to low switching costs between airlines. The document also provides a competitor analysis of Lufthansa and Brussels Airlines, examining their strategies, financial performance, and resources. Finally, it evaluates the acquisition of Brussels Airlines and provides recommendations, including converting Eurowings to a hybrid model by merging with Brussels Airlines to expand in the growing hybrid airline market.

1. Running head: LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS
Assignment #3: Capstone Project
Lufthansa Group’s Acquisition
of Brussels Airlines and Future Strategy
Travis Cook
Benson Giang
Celia Glowka
Melinda Jackson
Jennifer McRae
Kevin Schultz
Santa Clara University
Fall 2016

2. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS i
Table of Contents
I. Executive Summary ...............................................................................................................1
A. Introduction........................................................................................................................1
B. Strategic Move..................................................................................................................1
C. Major Issues......................................................................................................................1
D. Motivation for Final Recommendation. .........................................................................2
II. External Analysis...................................................................................................................3
A. Industry Definition.............................................................................................................3
B. Six Forces Industry Analysis ..........................................................................................3
i. Level 1 Analysis............................................................................................................3
ii. Level 2 Analysis............................................................................................................3
iii. Level 3 Analysis/Overall Attractiveness of the Industry .........................................5
C. Macro Environmental Analysis.......................................................................................6
i. Global Climate ..............................................................................................................6
ii. Technological Trends ..................................................................................................6
iii. Social Climate...............................................................................................................7
iv. Government/Political Climate .....................................................................................7
v. Economic Climate ........................................................................................................8
vi. Demographic Trends ...................................................................................................8
vii. Ethics and Social Responsibility..............................................................................9
viii. Summary of Macro Environmental Effects.............................................................9
D. Competitor Analysis.......................................................................................................10
i. Top Competitors .........................................................................................................10
ii. Primary Competitors ..................................................................................................10
iii. Competitors’ Strategic Positions ..............................................................................13
iv. V - C Analysis .............................................................................................................17
v. Comparative Financial Analysis...............................................................................18
vi. Section Summary.......................................................................................................20
E. Industry Dynamics..........................................................................................................21
i. Industry Evolution and Lufthansa’s Position ..........................................................21
ii. Competitive Dynamics...............................................................................................21
F. External Analysis Conclusions .....................................................................................22
III. (A) INTERNAL ANALYSIS - Lufthansa..........................................................................22

3. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS ii
A. Organizational Analysis.................................................................................................22
i. Goals & Objectives.....................................................................................................22
ii. Organizational Policies, Values, Culture, and Innovation....................................23
iii. Ethical & Social Responsibility .................................................................................25
iv. Organizational Structure ...........................................................................................25
B. Strategic Position ...........................................................................................................25
i. Corporate Level ..........................................................................................................25
ii. Business Level............................................................................................................26
iii. Partnerships, Alliances, Joint Ventures and Acquisitions ....................................26
iv. VRIO, Value Chain & BCG Matrix Analysis ...........................................................28
III. (B) INTERNAL ANALYSIS - Brussels Airlines.............................................................28
A. Organizational Analysis.................................................................................................28
i. Goals & Objectives.....................................................................................................28
ii. Organizational Policies, Values, and Culture.........................................................29
iii. Ethical & Social Responsibility .................................................................................30
iv. Organizational Structure ...........................................................................................30
B. Strategic Position ...........................................................................................................31
i. Corporate Level ..........................................................................................................31
ii. Partnerships, Alliances, Joint Ventures and Acquisitions ....................................31
iii. Business Level............................................................................................................32
iv. VRIO & Value Chain Analysis: .................................................................................32
IV. ACQUISITION ANALYSIS .................................................................................................33
A. Ally or Acquire?...............................................................................................................33
B. Porter’s Tests..................................................................................................................33
i. Industry Attractiveness Test .....................................................................................33
ii. Better-off Test .............................................................................................................33
iii. Cost-of-Entry Test ......................................................................................................33
C. Combined Resources & Capabilities, V-C, and Industry Conditions .....................34
D. Linking Corporate to Business-Level - Part C and D (Scenario analysis, NPV
calculations) ....................................................................................................................35
i. Discounted Cash Flow Analysis...............................................................................35
ii. “Worst, Better, Best Case” Scenarios .....................................................................36
V. RECOMMENDATIONS........................................................................................................37
A. Short-Term Recommendations....................................................................................37
i. Revise Eurowings’ Product Mix to Learn From and Mimic Brussels .................37

4. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS iii
ii. Standardize Eurowings Fleet to Improve LCC ......................................................38
iii. Revise Offerings to Support FSC Operations........................................................39
B. Long-Term Recommendations.....................................................................................39
i. Convert Eurowings to Hybrid Model & Merge with Brussels ...............................39
ii. Fold Brussels into Eurowings to Expand LCC Model...........................................40
iii. Fold Brussels into Lufthansa to Expand FSC Model............................................40
C. Strategy Implementation ...............................................................................................41
i. Short-Term Implementation......................................................................................41
ii. Long-Term Implementation.......................................................................................43
D. Corporate Social Responsibility and Ethical Decision-Making ...............................44
VI. CONCLUSIONS...................................................................................................................45
VII. BIBLIOGRAPHY.................................................................................................................46
VIII. MAIN APPENDIX...............................................................................................................52
Exhibit A – Industry Diagram............................................................................................52
Exhibit B – Six Forces Analysis (Levels 1 and 2)..........................................................52
Exhibit C – Six Forces Analysis (Level 3).......................................................................63
Exhibit D – Distribution of FSC versus LCC Market Share in 2013 ...........................63
Exhibit E – Market Share of European Based Airlines.................................................64
Exhibit F – Key Characteristics of Full and Low Cost Air Carriers .............................65
Exhibit G – Lufthansa’s Primary Competitors ................................................................66
Exhibit H – Porter’s Generic Business Level Strategies: Competitors ......................67
Exhibit I – VRIO Analysis: Competitors*.........................................................................68
Exhibit J – Comparative Financial Metrics .....................................................................75
Exhibit K – Lufthansa Business Unit Financial Analysis ..............................................79
Exhibit L – V-C Analysis: Competitors ............................................................................80
Exhibit M – Lufthansa BCG Matrix Analysis ..................................................................82
Exhibit N – Lufthansa Eurowings V-C Analysis (Supplemental Information) ...........82
Exhibit O – Lufthansa Value Chain Analysis .................................................................83
Exhibit P – Brussels Airlines Value Chain Analysis ......................................................84
Exhibit Q – Ally or Acquire Framework ...........................................................................85
Exhibit R – Synergy Analysis ...........................................................................................86
Exhibit S – VRIO Post Merger Analysis..........................................................................88
Exhibit T – Cost of Entry Test...........................................................................................89
Exhibit U – Post Merger V-C Analysis ............................................................................90

5. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS iv
Exhibit V – Lufthansa's Revenue Growth Rate .............................................................90
Exhibit W – Lufthansa Weighted Average Cost of Capital Analysis ..........................90
Exhibit X – Lufthansa’s Free Cash Flow Derivation .....................................................90
Exhibit Y – Lufthansa Discounted Cash Flow Analysis................................................91
Exhibit Z – Brussels Airlines Revenue Growth Rate ....................................................92
Exhibit AA – Brussels Airlines Free Cash Flow Derivation..........................................92
Exhibit BB – Brussels Airlines Discounted Cash Flow Analysis .................................93
Exhibit CC – Combined Firm Valuation (Worst Case) .................................................94
Exhibit DD – Combined Firm Valuation (Better Case) .................................................95
Exhibit EE – Combined Firm Valuation (Best Case) ....................................................96
Exhibit A – Timeline for Short-Term Recommendation................................................97
Exhibit B – Timeline for Long-Term Recommendation ................................................97
IX. FINANCIAL APPENDIX .....................................................................................................98

6. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS v
(Wall, 2016)

7. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 1
I. Executive Summary
A. Introduction
Tourism. Business Trips. Family Visits. They all contribute to Europe’s bustling
airline industry. This industry has changed immensely since the first commercial flights
started just over a hundred years ago. Wild inventions, technical advancements, and
modern machinery have built a system that millions of people rely on to travel every
day. With the European airline industry growing increasingly mature, recent history has
found success in new strategies as well. This paper’s scope will be limited to Europe’s
passenger airline industry and will analyze an acquisition currently taking place.
Lufthansa Group owns a small handful of passenger airlines, and is sizably
invested in a couple others. Among them are Lufthansa, a large full-service European
airline, Eurowings, a low-cost airline, and most recently, Brussels Airlines, a hybrid
between the two. Brussels Airlines is a customer-focused, low-cost airline operating out
of its hub at the Brussels Airport in Belgium since 2002. A number of other competing
European airlines ensure a low concentration in the industry along with intense
competition. The market appears to be growing steadily as global air travel becomes
increasingly more popular.
B. Strategic Move
Lufthansa recently announced its plans to acquire the remaining 55% of Brussels
Airlines (Wall, 2016). This purchase will cost up to €250 million, and will add twelve
more destinations to Lufthansa’s network. The acquisition of Brussels’ 49 aircraft (Fleet,
n.d.) brings the number of passenger airplanes in Lufthansa Group’s aggregate fleet to
630 (The Fleet, 2015). While Lufthansa has not yet disclosed details of what it plans to
do with the new additions, they have hinted at the possibility of adding some of
Brussels’ airplanes to the Eurowings fleet. However, the public will have to wait to see
exactly what Lufthansa does with Brussels Airlines after the acquisition is complete. As
a parent company owning multiple separate airlines, there are numerous ways to
handle the acquisition.
C. Major Issues

8. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 2
A major issue with this acquisition is the state of one of Lufthansa’s subsidiary
airlines, Eurowings. The low-cost carrier has greater costs than Brussels, which
provides drastically more value to customers, for less (Error! Reference source not
found.). Although low-cost, no frill flights are what Eurowings specializes in, they don’t
do it well. This makes brand management an issue as Lufthansa expands its fleet and
has the opportunity to expand Eurowings. Brussels Airlines is viewed more favorably by
customers and provides higher value with its customer-centric strategy. Managing
consumers’ perception of Eurowings will prove critical if Lufthansa wants to commit
some of the new assets to the sub-par brand. Regardless of the decision Lufthansa
makes, it is clear that the value and brand loyalty Brussels Airlines currently has should
be preserved and not diminished in this transaction. The transition strategy must be
managed to minimize disruptions or inconsistent experiences for customers while
promoting customer education and retention.
D. Motivation for Final Recommendation.
With such strong competition in the European airline industry, turning a profit is
important and can be difficult. We recognize that addressing Eurowings’ poor
performance must be a high priority. Hybrid airlines, those that combine quality service
and low cost, appear to be on the rise. With this growing market that provides high
value to the customer while maintaining a low price, Lufthansa could benefit by
prioritizing this strategy. We recommend Eurowings try to learn from Brussels and use
their operations as an inspiration to revamp their business model. This means
Eurowings will overhaul their operations and emerge a hybrid airline. This change would
be implemented in stages with campaigns to educate the public. The end goal for our
recommendation looks like a successful, strong hybrid airline made up of Eurowings
and Brussels Airlines. This merged company would be modeled on the success of
Brussels and would increase Lufthansa Group’s market share in the hybrid market.

9. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 3
II. External Analysis
A. Industry Definition
We are defining our industry of focus as Scheduled Air Passenger
Transportation, similarly modeled after the North American Industry Classification
System (NAICS) 2016 Code 48111. This industry definition is derived from the overall
Air Transportation industry classification (481111 Scheduled Passenger Air
Transportation, 2016), and concentrates on passenger travel via commercial airlines in
Europe. Since our firm of study is the Lufthansa Group (hereinafter, Lufthansa), industry
points of perspective manifest as commercial airlines, further categorized as full-service
carriers (FSCs) and/or low-cost carriers (LCCs) where appropriate. As most recently
reported, the industry is worth €110 billion (Air: Internal Market, n.d.) with a growth rate
in Europe of 2.7% (Air Passenger Forecast Shows Dip in Long-Term Demand, 2015).
(See Error! Reference source not found. for a diagram of the industry)
B. Six Forces Industry Analysis
i. Level 1 Analysis
A detailed Level 1 analysis of the Six Forces is presented in Error! Reference
source not found..
ii. Level 2 Analysis
Level 2 of the industry analysis considers the weight of each of the Six Forces:
Barriers to Entry/Threat of Entry, Threat of Rivalry, Buyer Power, Supplier Power,
Threat of Substitutes, and Threat of Complements. The following sections describe
critical factors influencing the strength of each force. A detailed Level 2 analysis is
provided in Error! Reference source not found..
Barriers to Entry/Threat of Entry
Industry profits are encouraged by several favorable factors deterring entry
threats, but dampened by factors that detract from other profit opportunities. Of
particular note are industry-favorable high capital costs, dedicated assets, and the

10. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 4
importance of achieving supply-side economies of scale as well as industry-unfavorable
customer switching costs and low differentiation among airlines.
Capital costs for airlines are high, involving the purchase/leasing of aircraft,
equipment, facilities, services, and other expenses related to airport access. For
example, the cost of an Airbus A320 aircraft, a popular aircraft for short-haul flights,
runs approximately €92.5 million; and the Airbus A380, geared towards business and
leisure, is to the tune of €408 million (Airbus, 2016). With these price tags, it is not
unreasonable to infer that economies of scale are necessary for airlines to make a
profit. Additionally, threat of entry is further discouraged by the current capacity of
central airports, with consistently filled airport “slots” and scarcely available gates for
airlines.
Threat of Rivalry
The concentration for commercial airlines is low, with CR5=47% including
Lufthansa, Air France-KLM (AFK), International Airlines Group (IAG), easyJet, and
Ryanair (Lufthansa Group, 2016, p. 22). This is likely fueled by low product/service
differentiation among airlines servicing respective segments of the industry (business,
leisure, low-cost), as well as regulations prohibiting monopolies. At the same time, ticket
pricing is becoming a more pronounced differentiator, as low-cost carrier market shares
are increasing while maintaining comparable performance (Israel, 2015). Exit barriers
also pose an unfavorable factor for the industry as it is difficult for an airline to exit the
industry, considering large sunk costs, service agreements with airports, and cost of
layoffs.
Buyer Power
The primary buyer group for the Scheduled Air Passenger Industry is air
passengers. Buyer power is particularly boosted by low switching costs between airlines
as travel is paid for on a per flight basis. Low differentiation between airlines also
contributes to buyer power, thus consumer decisions are dominated by cost and
schedule preferences (Shankman, 2014). And with a CR5=47% (Lufthansa Group,
2016, p. 22) as mentioned earlier, travelers have a wide selection of airlines from which
to choose.

11. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 5
Supplier Power
Within the industry, there are numerous suppliers for commercial airlines, but
supplier groups with the heaviest influence are airports, aircraft manufacturers, and fuel-
related suppliers. Supplier power for these groups tends to be heightened by large
demand distributed to few suppliers. For example, aircraft manufacturers, Airbus and
Boeing, make up a duopoly in the market (C., 2014). Airports are essential to airline
operations and the desirability of certain airports and limited gates add to the group’s
power as a supplier. Fuel suppliers, with hedging contracts providing benefits or
disadvantages depending on the market, are a force to be reckoned with due to
fluctuating oil prices and the fact that fuel can make up more than 30% of an airline’s
operating expenses (Commercial Fuel Policy, n.d.).
Threat of Substitutes
The main substitutes for air travel are other modes of transportation (such as
train and automobile) or internet methods (for web-conferencing or virtual exploration).
Air travel provides unique value at comparable costs for most modes of transportation,
further detailed in Error! Reference source not found.. While the option of web-
conferencing for business could pose a threat to the industry, it is not a viable substitute
in all cases of air travel.
Threat of Complements
Threat of complements is generally a weak force in the industry because
complements do not greatly influence pull-through of demand, except in the case of
tourist attractions (Error! Reference source not found.). Additionally, complements do
not embody credible asymmetric integration threats at this time.
iii. Level 3 Analysis/Overall Attractiveness of the Industry
Considering the effect of the six forces on the present-day industry, overall the
Scheduled Air Passenger Industry is moderately unattractive (Error! Reference source
not found.). The strongest forces skewing industry unattractiveness were Threat of
Rivalry, Buyer Power, and Supplier Power, mostly due to the saturation of nominally
differentiated firms, consumer choice, and dependence on a few suppliers. However, it

12. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 6
should be noted that air passenger growth is expected to increase significantly in the
next 20 years with slow expansion of airports (Airport Capacity & Airport Slots, n.d.), a
combined phenomenon that could impact the attractiveness of the industry at a later
time.
C. Macro Environmental Analysis
i. Global Climate
Terrorism in Aviation
Although terrorism targeting the aviation industry has been apparent since the
1960s, it was not until the September 11, 2001 attacks that airline terrorism was brought
to the forefront on an international scale (Azani, Lvovsky, & Haberfeld, 2016). In 2016
alone, Europe experienced two tragic aviation-related attacks: one at the Brussels
Airport in Belgium and another at Ataturk International Airport in Turkey. The advent of
internet connectivity spurs knowledge-sharing among terrorist organizations and as a
result the industry continues to heighten security measures, driving up costs. The
events that have occurred and the potential for them to occur are deterring forces for air
travelers (Alderman, 2016), slowing industry demand with each occurrence.
The “Hybrid” Carrier
While FSCs and LCCs are now common in the industry, a new breed of airline is
being born: the “hybrid” carrier. The hybrid provides the purposeful option to re-bundle
many of the amenities and services that LCCs stripped. A hybrid carrier may also cater
to different customer segments by offering premium services on one flight, but function
as an LCC for another. This new designation further blurs the line between FSCs and
LCCs, as it is starting to change the landscape once dominated by mature airline
business models (Ros, 2016). This presents even more challenges for differentiation
and will increase competition (and corporate strategy) in the industry.
ii. Technological Trends
Air Traffic Management
Europe sees 27,000 flights with a total traffic of 2.27 million passengers daily
(European Aviation Environmental Report, 2016). Technology has fostered

13. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 7
interconnectivity so that aviation operations can be optimized. The air traffic
management system is currently being improved and will provide benefits towards
accommodating more air traffic while increasing overall aviation network performance
(EASA, et al., 2016). The industry will benefit from streamlined operations and
increased capacity to serve demand, which will result in more favorable experiences for
travelers.
Aircraft Sustainability
Aircraft inputs and outputs, including part materials, fuels, and technological
systems, continue to be innovated, producing faster, safer, more fuel-efficient, and more
environmentally-friendly airplanes. Such technological advancements reduce costs,
lessen environmental and human health impacts, and improve operations (EASA et. al,
2016) -- ultimately escalating profits for the industry.
iii. Social Climate
Labor Strikes
The industry is no stranger to compensation-based labor strikes from numerous
labor groups (such as air traffic control, pilots, and flight attendants), each time severely
impacting airport and airline operations. From the start of the year through September
15, 2016, air traffic controller strikes in Europe alone resulted in an aggregate delay of
one million minutes (almost 23 months) and over 3,000 flight cancellations in Europe
(Economic Performance of the Airline Industry, 2016). In addition to major operational
losses and human resource implications from labor strikes, the EU mandates that
airlines are required to refund unused tickets as well as cover lodging expenses until a
replacement flight can be provided (Trend, 2016) -- further impacting the industry’s
profitability.
iv. Government/Political Climate
Single European Sky
The Single European Sky (SES) initiative began in 1999 in an effort to better
integrate the European airspace by way of legislation for improvements to air traffic
management and air navigation services (Thomas, Air Transport: Single European Sky,

14. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 8
2016). In 2011, the impacts without SES were seen in €13.49 billion lost as a result of
flight delays, inefficiencies, wasted costs, emissions, and more (McNamara, 2013).
While progress has been made under SES, if all goals are achieved by 2035, benefits to
the industry could be on the order of 1 million new jobs and €245 billion added annually
to Europe’s GDP (News Brief: European Air Traffic, 2016).
The United Kingdom Exiting the European Union (Brexit)
On June 23, 2016, the UK voted to leave the EU; an event coined as “Brexit.”
While it is not entirely clear how Brexit will affect the airline industry as a whole, from a
regulatory standpoint, the UK relinquishes much influence over aviation regulations. As
a non-Member State of the EU, the UK would need to negotiate agreements to operate
in the EU aviation market, possibly impacting the operations of known carriers with
home stakes in the UK such as IAG and easyJet. Converse agreements would also
need to be made as the UK could develop their own regulations and policies for the UK
market, affecting the rest of Europe. While, there are many non-Member State airlines
that operate successfully, the UK’s airspace is particularly critical for Europe (Erkelens,
Briggs, Phippard, Boström, & Bell, 2016). The industry faces some complexity in the
future; with increased regulation, and possibly negatively affected industry profits.
v. Economic Climate
Oil Prices and Exchange Rates
Although crude oil, and in turn jet fuel prices have been increasing since the
beginning of 2016, the industry still enjoys low fuel prices (around €50 per barrel in
November 2016, in contrast to almost €100 four years ago). Also, playing a part in
economic factors are currency exchange rates, where the Euro has depreciated by 20%
against the US Dollar since the beginning of 2014 (Macquarie, 2016). This has
diminished the fall in oil prices for Europe over the years, but also reduces foreign
currency deficit obligations for international airline operations (Buecking & Oxley, 2015).
The current state of oil prices and exchange rates are favorable for European airlines,
resulting in opportunities for high profitability. Airlines may choose to pass cost benefits
along to the consumer in the form of reduced fare pricing and/or more flight offerings,

15. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 9
however, the companies must remain conscious of long-term implications given the
unpredictable economy.
vi. Demographic Trends
Internet Savvy Levels the Playing Field
The multitude of travel websites bringing side-by-side comparisons of flights
makes scheduling and flight selection much easier for the internet-savvy consumers.
Instead of enlisting the help of a travel agency, travelers can now perform a quick web
search of accommodations catered to their exact preferences. Loyalty might be harder
to gain from an informed consumer who can assess all available flights, service,
reviews, and pricing differences on one computer screen.
vii. Ethics and Social Responsibility
Flight Safety
Safety is a top concern in the airline industry, spanning from operational abilities
of aircraft (encompassing performance of materials, weathering, and proper
maintenance) to the abilities of pilots. The Germanwings Flight 9525 crash in March
2015 spurred discussion of mental health screening for pilots and spotlighted a new
safety concern in the industry (McHugh, 2016). Safety issues also surround labor shifts
for pilots and flight attendants, especially concerning long-haul flights.
Environmental Obligations
In an effort to batten down environmental emissions, the EU has integrated
aviation emission regulations into the EU Emissions Trading System (ETS). The EU
ETS mandates a 20% greenhouse gas emission reduction between 2008 and 2020. Air
travel accounts for over 3% of emissions produced in Europe (EASA et al., 2016).
Market-based mechanisms also play into this goal with airports charging airlines for
noise and greenhouse gas pollution. This requires airlines to update their fleets with
more environmentally-friendly aircraft, as well as scrutinize operations and flight
schedules, which effectively increases costs and decreases industry profits.
viii. Summary of Macro Environmental Effects

16. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 10
There are numerous macro environmental factors that can affect the air
passenger industry and the challenge is that they are often unpredictable. Global,
economic, social, and government/political factors are the most unpredictable and can
result in significant detrimental impacts (loss of profitability). However, the industry can
also derive great benefit (more profit) from other factors, as is currently the case with oil
prices and foreign exchange rates.
D. Competitor Analysis
i. Top Competitors
The European passenger airline market is fragmented. As discussed, the five
largest European airlines: Lufthansa Group, IAG, AFK, Ryanair, and easyJet - make up
47% of the total market in terms of revenue (Lufthansa Group, 2016, p. 22), and 54%
(List of Largest Airlines in Europe, n.d.) in terms of market share by passengers flown
(see Error! Reference source not found.). The next 10 largest companies by
passengers flown are comprised of: Turkish Airlines, Aeroflot, Air Berlin, SAS,
Norwegian, Alitalia, Pegasus, Wizz, TAP and Aegean Airlines. As per the
aforementioned exhibit, more than half of competing companies have 1% market share
or less (List of Largest Airlines in Europe, n.d.).
ii. Primary Competitors
As noted above, the European airline industry is composed of FSCs and LCCs,
with firms adhering to either platform, or a hybrid of the two (see Error! Reference
source not found.). Important to note is that LCCs generally offer only point-to-point
flight segments, without transfer capabilities, to reduce cost. Thus, they generally focus
on short-haul flights. However, short-haul is not limited to LCCs, as FSCs also offer
short-haul segments.
Since Lufthansa competes in the full service category, as well as in low cost
through its subsidiaries, the company has several primary competitors: AFK and IAG
(traditional FSCs, which also own low cost subsidiaries), Ryanair and easyJet (low
cost), and Air Berlin (hybrid). As per Error! Reference source not found., Lufthansa
has defined their primary competitors in their 2015 annual report.

17. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 11
International Airlines Group
IAG is comprised of the airlines Aer Lingus, British Airways, Iberia, and Vueling.
Headquartered in London, IAG offers the 95 million customers it flew in 2015 a total of
274 destinations. The group’s major cities are London, Madrid, Barcelona, Rome, and
Dublin, and European destinations make up 20% of its available seat kilometers (About
Us, 2016). British Airways offers customers a global, full-service experience (including
full business and first class), focusing largely on long haul routes.
Vueling offers short haul low-cost flights, focusing strongly on the Spanish
market, with some focus on the rest of Europe (and a few North African cities). While it
is an LCC with unit costs close to that of easyJet, it offers access to VIP lounges and a
rewards program (which is not compatible with those of other IAG subsidiaries). Aer
Lingus strives to provide the “best product in the Irish airline market at a competitive
price,” making it an LCC with focus on some extras (Aer Lingus: Company Profile,
2016). It flies almost exclusively in Europe, with a strong UK presence, but has recently
added long haul flights to ten North American locations.
Iberia focuses on full service flights (albeit stripped down) between Europe and
Latin America. Further, IAG also provides cargo services and, through its Avios
program, offers customers a global “currency” rewards program which includes partners
such as hotel chain Marriott and Avis rental cars (International Airlines Group, n.d., p.
26).
Air Berlin
Based in Berlin, the company offered its 30.3 million passengers a choice of 138
destinations in 2015 (Air Berlin, n.d., p. 16). It is the second largest airline in Germany,
following Lufthansa, and its main routes after German-speaking countries include
Europe, parts of North Africa and the Middle East, and the U.S. In the past, Air Berlin
has positioned itself as an LCC flying to primary hub airports, but is now taking a hybrid
approach, expanding long haul and business class offerings, as well as its Topbonus
loyalty program (Lucky, 2016). It is also part of the Oneworld frequent flyer codeshare
program which includes a host of other international carriers. Moving into 2017, Air
Berlin also plans to create a new business unit for leisure, non-business short haul

18. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 12
flights, and drastically reduce destinations served by 77%, including consolidating hubs
(The New Airberlin | Analyst Presentation, 2016).
Air France - KLM
Headquartered at Charles de Gaulle Airport in France, AFK carried 89.8 million
passengers in 2015 to 320 destinations (in 114 countries), of which 183 are in Europe.
79% of revenue comes from its passenger network, with the remaining derived mostly
from cargo (Martinair subsidiary) and maintenance. It offers loyal customers rewards
through its “Flying Blue” program. Air France and KLM act as traditional FSCs, and Air
France especially has increased exclusive offerings in business and first class (Air
France-KLM, 2016). The group also owns two low-cost, short haul carriers, Hop! and
Transavia. Hop! includes some extras: a snack, seat choice and miles earnings. It
focuses on intra-France travel, with only 10 flight legs dedicated to other European
destinations (Network, 2016). In contrast, Dutch-based Transavia’s destination list is
similar to that of other LCCs focused on Europe, but with a greater focus on Portugal
and Spain. It also offers “Flying Blue” miles, but provides few “frills” (Transavia, 2015).
Ryanair
Based in Dublin, short-haul Ryanair carried 90.6 million passengers to over 200
destinations in 33 countries (exclusively European, in addition to Morocco and Israel) in
2015 (Facts and Figures, 2016), making it the largest short haul carrier in Europe.
Ryanair flies almost completely to secondary, remote airports, and this, along with a
host of other cost-cutting measures and lack of “frills” (point-to-point flight segments,
snacks and beverages for purchase, bag fees, low overhead, and high aircraft
utilization), makes it a leader in offering incredibly cheap airfare. Often shocking the
public, Ryanair’s proposed cost-cutting measures have included such ideas like
charging passengers for bathroom use, though the company has recently announced a
shift to improve customer service (“Always Getting Better”), and initiated a sparse
business class program (McGreevy, 2009). Ryanair was the most profitable European
airline in 2014 by operating margin (Who has the Right Model for European Aviation?,
2015), and it plans to expand aggressively in Germany (Reuters, 2016).

19. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 13
easyJet
Headquartered at London’s Luton Airport, easyJet is the second largest short
haul air carrier in Europe, having flown over 70 million passengers to 136 destinations in
31 countries in 2015. Routes are European, with the addition of Egypt, Israel, and
Morocco (easyJet, n.d.). easyJet is an LCC with several cost cutting features similar to
Ryanair. Unlike Ryanair, however, easyJet flies to primary and secondary airports, has
a strong focus on customer service, and offers business class and has a frequent flier
program.
Lufthansa
Lufthansa is Europe’s largest airline and is headquartered in Cologne, Germany.
In 2015, the Lufthansa Group flew 107 million passengers to 297 destinations, through
its subsidiaries Eurowings, Swiss, and Austrian Airlines, as well as the Lufthansa brand.
Lufthansa also has equity agreements in SunExpress and Brussels Airlines, and 44% of
passenger revenue is derived from European ticket sales. Additionally, the company
operates catering and maintenance business units, as well as cargo operations
(Lufthansa Group, 2016). Lufthansa, Austrian and Swiss Airlines are FSCs, with a focus
on hub airports. The two latter carriers have a strong hold in each of their respective
markets. Brussels Airlines also offers customers a full service experience, with several
routes to Africa from its Brussels hub. Eurowings and Sun Express are LCCs, operating
more point-to-point routes, with some growing focus on long haul (Lufthansa SWOT,
2015). Lufthansa offers a “Miles and More” loyalty program, including a credit card, and
is part of Star Alliance. For more information, see section “Lufthansa Internal
Analysis.”
iii. Competitors’ Strategic Positions
Business Level
As per Error! Reference source not found., and as described in the profiles
above, competitors have various business level strategies. Ryanair offers an extreme
cost leadership strategy, based on keeping input costs extremely low. The resulting low
fares create broad appeal. easyJet also focuses on cost leadership. However, in
providing more included services, and by flying to some primary airports and offering

20. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 14
business class, the company starts to move towards slightly higher cost and somewhat
more of a niche market. Air Berlin has recently announced a shift in direction away
from a more low-cost, broad focus, and will prioritize business travelers, while reducing
destinations. The resulting transition puts Air Berlin between cost leadership and broad
differentiation, leaning slightly more towards broad differentiation. AFK, Lufthansa, and
IAG offer a hybrid strategy, due to the fact that the three groups are traditional FSCs,
but all have ownership of LCC subsidiaries. For example, Air France focuses in
between broad and focused differentiation, due to its higher costs as a legacy carrier
with full service, and a focus on expanding the premium market (for example, an
improved business class with luxurious amenities). However, the company also owns
the subsidiary Hop!, which, as an LCC focusing almost completely on France, practices
a focused low cost strategy.
Corporate Level
According to Rumelt’s corporate strategy classifications, Air Berlin and easyJet
are both single businesses, since their annual revenue is derived at greater than 95%
from passenger traffic (Air Berlin at over 90%, easyJet at 98%). Ryanair, with 25% of
revenue derived from ancillary services such as booking of ground transport to/from
Ryanair’s remote airport locations, and the remaining 75% from airfare, can be
classified as a dominant business. Within the category of dominant, Ryanair can be
further classified as dominant-constrained: “Any dominant firm which diversified by
building on a single strength or resource associated with the original business”
(Christensen, p. 15). In this case, Ryanair is leveraging their air passenger booking
platform to drive further revenue. AFK, IAG, and Lufthansa can also be classified as
dominant-constrained. Each has greater than 70% of revenue from passenger air travel:
Air-France at 79%, IAG at 89% and Lufthansa at 74%. Further, each company has used
their strength in the passenger airline industry to leverage revenue from similar but not
necessarily vertically related sources, in cargo, maintenance, and catering (Annual
Reports, 2015).
Achieving a Strategic Position

21. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 15
The following summarizes the main findings from the VRIO Analysis (see Error!
Reference source not found. for the complete listing of advantageous resources and
capabilities).
Ryanair
Ryanair achieves a sustained strategic position through two means, the most
important of which is its cost-reduction know-how. As the first carrier in Europe to take a
low-cost approach, and modeled after Southwest, Ryanair has cut unit costs to the bone
(Ryanair SWOT, 2014). Due to its first-mover advantage, strong network of only
secondary airports, and continued extreme low-cost innovations, the synergies
achieved are difficult to imitate. Further, Ryanair’s unique leader, Michael O’Leary,
provides strong and extremely focused leadership to carry out this strategy (Facts and
Figures, 2016). Low overhead and salaries, hard for full service but not low cost carriers
to imitate, provides a temporary advantage.
Air France - KLM (AFK)
As an intangible resource, AFK’s brand strength is difficult to imitate, acting as a
source of competitive advantage. The AFK brand ranks highly, and has for decades (the
company was established in 1934); thus, it has high value. Further, through the merger
of two flagship carriers, Air France and KLM (based in The Netherlands), not only was
the brand strengthened, but large economies of scale have been achieved. The group is
now one of the largest in Europe, and maintains control of two of the top five hubs in the
region (Air France-KLM, 2016). AFK also has a well-balanced presence around the
globe, helping insulate it from downturns in any one market.
International Airlines Group
Like AFK, IAG’s British Airways brand is very strong, and having been ranked the
UK’s leading brand in 2015, will continue to provide a source of sustained competitive
advantage (Macalister, 2016). Other sources of sustained advantage include IAG’s
internal shared platform, through which back-office, IT and finance functions,
procurement, and digital synergies are shared among subsidiaries. This leads to large
reductions in redundancies, and better economies of scale, while being difficult to
imitate in terms of size, scale, and specialization. Furthermore, IAG has an extremely

22. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 16
global network, serving most continents, which is incredibly difficult for all but the largest
carriers to maintain (International Airlines Group, n.d.).
easyJet
One of easyJet’s main sources of sustained competitive advantage is its better-
than-average employee relations. Not only are easyJet employees happier than
average, but customer service is improved (Cox, 2014). Since it is not easy to create
good employee relations, especially in the case of an LCC, this can be seen as a
sustained advantage. Additionally, easyJet maintains a highly-specialized and -
integrated web, mobile and CRM system. This system is both internal and customer-
facing, and results in a better understanding of customer needs and added cost
reductions. While the company has several advantages such as low overhead, strong
low cost strategies, good airport contracts and a new fleet, these provide easyJet with
temporary, but not sustained, advantages.
Air Berlin
Air Berlin exploits its control of two main hubs in Germany to maintain a strong
presence in the country. It hopes to use this control to further build out its business
class network. Air Berlin has also developed an internal digital revenue management
system, which has increased revenue, and is difficult to imitate in its specific forecasting
abilities. The company recently fired 80% of top management; next steps are widely
being watched in the European market (The New Airberlin | Analyst Presentation,
2016).
Lufthansa
Lufthansa has been Germany’s flagship carrier since its founding in 1953 and
has used its strong brand reputation and this historical context to create a sustained
competitive advantage. In 2016 Lufthansa was awarded first place as Europe’s ‘Best
Airline Transatlantic’ and ‘Best Airline in Western Europe’ based on 18 million user &
passenger survey responses, demonstrating continued positive public opinion (K,
2016). Lufthansa also maintains its sustained competitive advantage through a
dominant presence at the Frankfurt and Munich hubs, Europe’s fourth and seventh
busiest airports respectively. Lufthansa’s acquisition of Brussels Airlines will further this

23. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 17
dominant presence, adding Brussels Airport to the list. Lufthansa solidifies its strong
positioning with a large and continuing investment in its human capital through the
Lufthansa Business School (Graduate Programs, n.d.).
Brussels Airlines
Brussels Airlines’ strong brand and market-dominating position at its Brussels
hub help the company achieve a sustained competitive advantage. Because of its deep
ties with Brussels Airport, Brussels Airlines has also been able to develop an extensive
network in Africa, a key differentiator from other European airlines and a driving factor in
Lufthansa’s acquisition decision (Brussels Airlines Reinforces Presence in West Africa,
2015). Additionally, Brussels Airlines has been able to secure a unique partnership with
Tomorrowland, the world’s largest Electronic Dance Music festival in Belgium (Boni,
2015). In order to boost customer retention, Brussels Airlines launched its LOOP loyalty
program which already has over 50,000 registered members (Sciot, Daenen, &
Lemmes, 2016).
iv. V - C Analysis
Methodology
The eight value drivers used in our Competitor V-C Analysis, and subsequent
descriptions, can be found in Error! Reference source not found.. These include
categories such as in-flight comfort, customer service, perceived value for money, and
premium services. Value drivers were given weights of importance, then multiplied by
how well airlines perform in each category, producing a weighted score. Each score
was then multiplied by 100. This comparison between airlines is based on one flight
segment. As it was not possible to find one route flown by all airlines, the two routes
chosen were Paris-London and Frankfurt-London (except for Brussels, where neither of
the two chosen routes were available), and an average of the kilometers traveled was
taken, then multiplied by each airline’s cost per available seat kilometer (CASK) to
calculate cost. CASK is defined as operating costs divided by available seat per
kilometer. Price was the price paid by each passenger for the route in question.
Selected Results

24. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 18
According to our analysis, Brussels Airlines has the highest perceived value to
buyers. All references for this section can be found in Exhibit N. This can be attributed
to the fact that the airline is positioned more as an FSC, with a solid standing across the
board in most all value driver categories, while showing similarities to an LCC by
maintaining a high perceived value for money. As such, we consider this to be a hybrid
carrier as well. However, the value the company receives, is the second lowest, for
most likely the same reasons: higher costs due to more full service expenditures,
offered at lower prices.
easyJet has the highest value among Brussels’ competitors. This is due to strong
customer service, a good brand reputation, and a high perceived value for money. P-C
is relatively low. This is similar with Ryanair - it creates a large amount of buyer value in
relation to its cost. The surplus it receives from price - cost is extremely small due to
Ryanair’s extremely low fares, yet Ryanair likely compensates this with high volume.
The company sells a large volume of tickets, carrying about 90 million passengers last
year. AFK’s Transavia subsidiary is able to generate more value than IAG’s Vueling due
to its codeshare agreements (codeshare agreements can be defined as partner airlines
offering flight segments to final destinations, and the ability to earn miles on several
airlines). Customers can earn AFK’s “Flying Blue” miles while flying with Transavia
(which may be used on any AFK brand flight), but Vueling does not offer miles which
are redeemable beyond Vueling. Costs are similar, both likely benefit from scale
economies through their global parent companies, though Vueling is able to grab a bit
more value than Transavia. While Air Berlin creates a high total value, the buyer value
is the smallest of the group, and customers’ perception of value as compared to price is
much lower than that of other competitors. Air Berlin is squeezing customers on price,
and while it looks like the company is gaining a large surplus on P-C, prices on other
routes may not be as high. Lufthansa’s Eurowings also offers buyers a lower perceived
value than that of the other LCCs and Brussels Airlines. Its CASK is one of the highest
in the industry, and as such, it will need to better determine its place in the industry
(Eurowings Develops Innovative Partnership, 2016).
v. Comparative Financial Analysis

25. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 19
Profitability Metrics
A summary of all comparative financial metrics can be found in Error! Reference
source not found.. Profitability from operations was assessed using two metrics: gross
margin and profit margin. Contrary to general trends, a healthy gross margin is not
necessarily indicative of a margin for profit in this industry. Gross margins varied
between 21% and 54% with IAG leading the industry, Air Berlin lagging behind all
competitors, and Lufthansa performing strongly with margins greater than 40%. A
comparison of profit margins reveals that remaining consistently profitable has been a
challenge in the airline industry. Air Berlin, IAG, and AFK have suffered losses in recent
years. Lufthansa has performed relatively well by at least breaking even in each of the
past five years and easyJet and Ryanair have performed very well by capturing the
largest profit margins. Only easyJet and Ryanair managed to surpass the industry
average for global airlines.
Return Metrics
Two return metrics were chosen to compare performance relative to resources
available to each firm: return on assets and return on equity. As seen in Error!
Reference source not found., and similar to the comparison of profit margins, Air
Berlin and AFK perform relatively poorly. Lufthansa and IAG remain slightly positive
overall. easyJet performs the best according to this metric despite Ryanair having a
higher profit margin, informing us that easyJet is putting their assets to use most
efficiently. In terms of return on equity, AFK’s losses cause them to perform very poorly,
Air Berlin is not assessed in four out of the five years due to a negative or near zero
equity balance. easyJet and Ryanair remain the top two consistent performers, but
Lufthansa holds the top spot for return on equity in two out of the last five years.
Liquidity and Leverage Metrics
Three relevant metrics were utilized to determine the relative liquidity position of
each firm: current ratio, quick ratio, and debt to equity ratio (Exhibit L). A comparison of
the firms’ current ratios shows that Ryanair is best able to meet its current obligations,
Lufthansa’s ability to meet current obligations is relatively similar to that of its average
competitor, and no firm is in a substantially poor position. The quick ratio analysis

26. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 20
reveals that Ryanair is most capable to fulfill its measured ability to meet current
obligations due to the liquidity available within its current assets and Lufthansa is slightly
above average. The debt-to-equity ratio shows that Air Berlin and AFK are operating
with the most leverage relative to their competitors. A large amount of leverage is able
to multiply a firm’s profits and losses, which could partially explain why these two firms
have presented such volatile financial metrics. Air Berlin and AFK are not assessed in
three of the five years and two of the five years, respectively, as they presented
negative or near zero equity account balances. Lufthansa and IAG operate with similar
leverage and easyJet and Ryanair operate with the least leverage. It appears less
leverage is correlated with higher returns on a percent basis.
Industry Operating Metrics
Five industry operating metrics common to each competitor were identified and
analyzed to determine the relative efficiency of various operating aspects of each firm:
passenger load factor, passenger revenue per available seat kilometer (RASK),
passenger cost per available seat kilometer (CASK), revenue generated per employee,
and compensation per employee (Exhibit L).
Lufthansa’s passenger load factor of 80.4% (Exhibit L) is weak relative to its
competitors, while easyJet leads the market with levels above 90%. This means that
easyJet is the most efficient at filling all seats on a flight.
Lufthansa is the leading firm in terms of the RASK and CASK metrics, indicating
that they can generate the most revenue per available seat; possibly because they
provide a lot of perceived value to customers and have slightly higher ticket prices, but
either way their profits are average due to higher costs. Ryanair and easyJet perform
relatively lower in terms of RASK and CASK which is indicative of them being LCCs. For
revenue per employee, Lufthansa operates below the €310,000 industry average, at
€268,000, while easyJet and Ryanair lead the market with €590,000 and €478,000
respectively (Exhibit L).
Lufthansa pays employees an average of €67,539, which is above the industry
average of about €53,000 (Lufthansa Group, 2016). AFK pays the most in this market at
€84,148 average salary (CITE AFK Annual Report), while the highly profitable Ryanair

27. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 21
and easyJet pay around the industry average. This indicates Ryanair and easyJet may
be benefitting from a “Southwest” effect, because they can generate the most revenue
per employee while paying their employees the least.
vi. Section Summary
Lufthansa faces continuing threats from LCCs. Ryanair has a hold on extremely
low unit costs, and easyJet has a strong low-cost position with good customer service.
Companies like AFK and IAG are also moving into the LCC market through airline
purchases of their own. The airline market remains fragmented, with the opportunity for
further consolidation. It remains to be seen how many LCCs can profitably compete in
broad, low-cost markets while maintaining some sort of competitive advantage
(geographic, or a strength like customer service, etc.). While most profits in recent years
have come from the LCC market, some carriers, such as Air Berlin - which has been
struggling with a hybrid approach - are moving upstream towards more premium,
business-focused differentiation. Meanwhile, FSCs are expanding their premium and
loyalty offerings. Lufthansa will have to find its place as a group, and for each of its
brands, in an increasingly polarized and diverse market.
E. Industry Dynamics
i. Industry Evolution and Lufthansa’s Position
The air passenger industry has evolved to maturity. At this stage, there is low
differentiation among airline service segments and innovation is sustaining. The mix of
FSCs, LCCs, and hybrid carriers effectively cater to the spectrum of business, leisure,
and cost-conscious traveler needs. Innovation at this time is incremental, focusing on
aspects valued by prevailing customer segments, signaling a rise in buyer experience.
Airlines thus evaluate their strategies and re-position to best compete. This suggests
that although in the mature stage of industry evolution, this industry is not necessarily
stable. Additionally, market growth is largely a function of the buyers’ ability and
willingness to pay, which is greatly affected by macro environmental conditions (such as
economic health or a rise in terrorism).
Following the trend of the industry of modifying service offerings in order to serve
more customers and/or customer segments, Lufthansa, an FSC with an LCC subsidiary,

28. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 22
has chosen to add to its low-cost portfolio by fully acquiring Brussels Airlines.
Considering the stage of the industry, Lufthansa could choose to hone its FSC
capabilities to appeal to more business and comfort-minded customers. However,
because FSC market share has been diminishing as a result of LCC popularity (Error!
Reference source not found.) (Israel, 2015), Lufthansa has decided to strengthen its
stance in multipoint competition by expanding its low-cost flight offerings.
ii. Competitive Dynamics
While regulatory requirements are strict, mainly advocating for the protection of
passengers, operating licenses, financial health, and safety regulations, Europe’s Single
Aviation Market bars monopolistic endeavors, enabling new entrants into the industry
(Thomas, Air Transport: Market Rules, 2016). Evidence of this can be seen in the low
industry concentration of CR5=47% (Lufthansa Group, 2016) and multitude of airlines
operating in Europe. As described in Competitor Analysis, many large competitors are
shifting to strengthen their positions in multipoint competition (FSC and LCC segments)
while some airlines continue to focus solely on one segment. Accordingly, airlines
provide different degrees of value to the customer (Error! Reference source not
found.). In the late 1980s through the 1990s, the airline industry experienced disruption,
first by deregulation (Single Aviation Market) and then by LCC business models.
However, competitive dynamics today focus on service strategies that face little threat
of disruption in the foreseeable future.
F. External Analysis Conclusions
After an analysis of the environment surrounding Lufthansa, it may be a good
strategic move to strengthen its position in the LCC market with Brussels Airlines. The
industry is moderately unattractive in a stage of maturity, which works to Lufthansa’s
advantage as the largest airline in Europe. Macro environmental factors add complexity
to the airline industry, as do the fact that maintaining consistent profit margins is
challenging, but for now European airlines derive substantial benefit from low fuel prices
and low foreign currency deficits. Additionally, Lufthansa currently operates in both FSC
and LCC segments, making it an incumbent in both markets with solid financial
performance. Although Lufthansa’s position in the industry is diluted by the number of

29. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 23
competitors providing various levels of customer value, as an airline with one of the
largest market shares, it has options to diversify and/or add to its offerings.
III. (A) INTERNAL ANALYSIS - Lufthansa
A. Organizational Analysis
i. Goals & Objectives
According to Lufthansa’s 2015 Annual Report, the company’s main goal is to be
the “first choice in aviation for customers, employees, shareholders, and partners”
(Group Strategy, n.d.). In 2014 the company launched a long-term initiative to more
clearly define this overall goal and break it down into main objectives. The initiative is
called “7 to 1 - our way forward” and identifies seven fields of action that have been
applied to every individual business segment across the group. The Lufthansa Group
aims to be customer-centric and quality-focused, explore new concepts for growth, and
intentionally focus on innovation and digitalization. The group and all of its segments
should be effective and lean, and consistently work toward improving efficiency. Finally,
the group aims for strong culture, leadership and “value-based steering” (Lufthansa
Group, 2016, p. 15). Lufthansa’s overall strategy is to remain flexible and rely on their
ability to adjust capacity and resources to maintain a strong position as market
conditions change. The company aims to maintain a solid financial position and efficient
cost structure. Lufthansa expects faster than average growth in the low cost airlines and
service markets and are betting on these spaces for future growth (Lufthansa Group,
2016, p. 88).
Lufthansa sees the success of this initiative and strategy relying on three strong
pillars: their hub airlines, the Eurowings Group, and aviation services. The hub airlines
aim to provide marginal improvement based on their renewed cabin layouts, service
upgrades, optimized route network, fleet and strategic partnerships, and new
personalized offerings for customers. These actions are increasing value for customers
in the FSC market. The Eurowings Group and aviation services aim to provide profitable
growth moving forward. Eurowings has been positioned as a point-to-point offering in a
target market focused on price-sensitive customers. Lufthansa has structured

30. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 24
Eurowings to be scalable such that they have the flexibility to easily integrate new
partners into the group with the goal of becoming the third largest provider of point-to-
point flights in Europe, perfectly aligning with their acquisition of Brussels Airlines. The
company’s aviation services are actively exploring growth in cargo, MRO (maintenance,
repairs & overhaul services), catering and the financial services market. Lufthansa
believes that these business segments provide strong synergies with the rest of the
group and help buffer the cyclical nature of the airline business (Lufthansa Group, 2016,
pp. 8-9).
ii. Organizational Policies, Values, Culture, and Innovation
Lufthansa has 120,000 employees and uses a value-based approach to support
this workforce in continually increasing the company’s value across business cycles.
This value-based management system is seen as an integral part of the company’s
management, planning and controlling processes. Managers are given performance-
related pay that is directly linked to the company’s performance. The company’s human
resource department boasts: “Think the future. Dare to be different. Assume
responsibility” (Lufthansa Group, 2016, p. 62). Pilots, flight attendants and staffers are
all members of employee unions and the company aims to make long-term agreements
with these unions to support predictability and security for both the company and its
employees. However, since 2014 there have been thirteen union strikes by the pilot
union alone over a desire for higher pay, maintaining retirement benefits and a hope to
prevent low-cost expansion. The focus on preventing the expansion of Lufthansa into
the low-cost market was outside of the unions’ right to strike and the courts ruled them
illegal in September 2015 (Maushagen, 2015), but this clearly demonstrates a
misalignment over perceived value creation between employees and management.
Overall, employees on GlassDoor.com rate Lufthansa 3.4 out of 5, based on its culture
and values, work-life balance, senior management, compensation and benefits, and
career opportunities (Lufthansa Reviews, n.d.).
An intentional focus on innovation is identified as one of Lufthansa’s core
objectives; thus, research and development is supported at each individual business
segment (Lufthansa Group, 2016, p. 19) and also in a group-wide unit called the

31. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 25
Innovation Hub. However, it is unclear how much actual innovation results. According to
individual employee feedback, the decision making process is extremely lengthy and
bureaucratic, which greatly limits the ability to innovate. The company’s large size and a
lack of communication and cooperation between different airline groups and levels of
management also creates a traditional environment of “managing the status quo” and
prevents localized problem-solving (Lufthansa Reviews, n.d.). On a group-wide level,
the Innovation Hub is driven by the Strategy and Controlling departments who identify
opportunities during their regular strategy and planning processes. The hub uses
detailed strategy analysis and return on investment calculations, paired with a formal
risk management system, to assess opportunities (Lufthansa Group, 2016, p. 70). This
hub may lead to successful innovation, but the extensive and systematic risk
management process makes is unclear if the true space will truly support repeatedly
trying and failing. From the information publically available, it does not seem as though
Lufthansa’s policies and structure truly support the innovation it desires to achieve.
iii. Ethical & Social Responsibility
Lufthansa has a comprehensive corporate social responsibility (CSR) plan,
including community engagement, economic sustainability, corporate governance and
compliance, and climate, environmental, social and product responsibility. Further,
Lufthansa has committed to a United Nations Global Compact to support collectively
responsible company management. The group has a strategic environmental program
that aims to reduce emissions and have been involved in alternative fuel source and
climate change research for over twenty years. Lufthansa focuses on social and
humanitarian projects, providing relief in times of crisis and using their cargo business
unit to partner with emergency aid alliances, including Aktion Deutschland Hilft and
World Vision Deutschland (Lufthansa Group, 2016, p. 67). Finally, the group has
purchasing guidelines that require suppliers to fulfill various standards and make the
comfort and safety of their customers, crew and staff the utmost priority. These policies
tightly align with Lufthansa’s objective of using “value-based steering” and may help
lead to the development of alternative fuel sources and a competitive advantage in the
future.

32. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 26
iv. Organizational Structure
B. Strategic Position
i. Corporate Level
Lufthansa’s business portfolio consists of Passenger Airline Groups, Logistics,
MRO, and Catering. The Passenger Airline Groups consist of both hub and point-to-
point airlines. Lufthansa Cargo is Europe’s leading freight airline and is focused on
increasing simplification and digitalization of the logistics space (Lufthansa Group, 2016,
p. 50). MRO focuses on civilian commercial aircraft and is working on organic growth
and strategic partnerships (Lufthansa Group, 2016, p. 54). Catering covers the catering
of food in addition to in-flight sales and entertainment, in-flight service equipment,
consultancy services and the operation of lounges. The company is increasingly
focusing on adjacent markets (Lufthansa Group, 2016, p. 57).
A five-member executive board is responsible for managing the entire company,
and uses integrated financial management. Using a dominant-constrained corporate
strategy, the company is diversified around its dominant strength in the passenger
airline sector (See Competitors Business Level Strategies and Error! Reference
source not found. for more details). The diversification of Lufthansa’s business
portfolio results from using a strategy-driven approach, as the units share numerous
links and synergies. Lufthansa uses its hub airlines as a cash cow, aviation services
(including MRO, catering and logistics) as star performers with a high market share in a
high-growth market, and hopes to shift Eurowings from a question mark into a star
performer (Error! Reference source not found.). Financially, all of the company’s cash
flows are collected, centrally managed, and optimized for the company as a whole,
ensuring that they always have sufficient liquidity. The “7 to 1” initiative is implemented
in all business units and they are each managed accordingly.
ii. Business Level
Refer to Competitors Business Level Strategies for more information.
The Passenger Airline Groups are central to Lufthansa’s value creation and
consist of Lufthansa’s passenger airlines, Eurowings and now Brussels Airlines, Swiss

33. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 27
Airlines, and Austrian Airlines (Lufthansa Group, 2016, pp. 48-49). The business unit
has a shared goal of meeting the customer demands of safety, quality, punctuality,
reliability and professionalism. There are extensive synergies amongst the group, with
standardized and synchronized core processes, a uniform network and fleet
management system for all hub airlines, and joint decisions on capital-intensive
products. The Eurowings brand was established in August 2015 and is positioned to
target the price-sensitive, point-to-point leisure travel market in Germany, Austria,
Switzerland and Belgium (Lufthansa Group, 2016). Lufthansa has the goal of growing
Eurowings into the third largest point-to-point carrier in Europe (Lufthansa Group, 2016).
The overall business unit offers a lot of flexibility to customers (Lufthansa Group, 2016).
iii. Partnerships, Alliances, Joint Ventures and Acquisitions
As exhibited by their extensive reach and multi-faceted business portfolio,
Lufthansa has engaged in many partnerships, alliances and acquisitions in its 63-year
history (As Time Flies By, n.d.). For the purpose of this analysis, we will focus in on one
recent acquisition and their current alliances, joint ventures, and internal alliances within
the passenger airline group as a broader context for their acquisition of Brussels
Airlines.
Lufthansa has largely focused on building alliances, joint ventures and
partnerships as a means of expanding its network to improve customer experiences,
flexibility and incentives. Lufthansa founded the Star Alliance in 1997 to reduce costs
and utilize synergies. The alliance enables customers to make connections from one
airline to another for ease of travel, as well as having shared lounges, shared check-in
stations in the same terminals, and increased collective bargaining power (Star Alliance,
n.d.). Today there are 28 member airlines in the Star Alliance, including Brussels
Airlines.
Lufthansa has also developed Joint Ventures in other regions of the world to
expand its reach, including in North America, Japan, China and Southeast
Asia/Southwest Pacific. These entail such close coordination that Lufthansa must get
antitrust immunity from local competition authorities to proceed. The group works
together on capacity and price planning, joint marketing of flights, and revenue

34. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 28
management. These joint ventures allow Lufthansa to utilize the strength that their
partners already have in their respective markets (Lufthansa Reviews, n.d.). Finally,
Lufthansa has developed partner airlines that engage in codesharing agreements and
the honoring of each other’s frequent flyer programs, including Air Astana, Air Malta,
BMI Regional, Jet Airways und LATAM (Partner Airlines of Lufthansa, n.d.). These
partnerships expand Lufthansa’s reach into the Middle East, Northern Africa, India and
South America. Through the use of partnerships, joint ventures and alliances Lufthansa
has created a global flight network and positioned itself as the leading choice for air
travel in Europe (Excellent - Awards Won, 2016).
Under the Passenger Airlines Groups, Lufthansa acquired the majority ownership
of Germanwings in 2009 (Deutsche Welle Staff, 2008), similar to its recent move with
Brussels Airlines. In 2013 they began to transfer all of their non-hub traffic to
Germanwings, and Germanwings reported a positive EBIT for the first time in 2015,
seen as a great success by the Lufthansa Group (Lufthansa Group, 2016). Lufthansa
allowed the airline to continue functioning as an LCC in the market until they decided to
incorporate Germanwings into Eurowings in October 2015 (Airline Route, 2015). By
early 2016 the Germanwings airline was fully operating under the Eurowings name and
branding. The Brussels Airlines acquisition may be modeled after this experience,
increasing fleet size and flexible services to customers, while possibly being folded into
the Eurowings brand and operations. Brussels Airlines will also enjoy the benefit of
Lufthansa’s Joint Ventures and Partnerships that it did not previously have access to as
an independent airline company.
iv. VRIO, Value Chain & BCG Matrix Analysis
For Lufthansa’s VRIO analysis, refer back to Section II.
Lufthansa has created a sustained competitive advantage through its tightly
integrated complementary business units, strong brand reputation, dominant hub
presence at Frankfurt and Munich Airports, and investment in human capital. Through a
strong firm infrastructure (Error! Reference source not found.) and domain expertise
in the passenger airline industry Lufthansa has expanded into the high-growth market of
complementary aviation services (Error! Reference source not found.). The company

35. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 29
has used extensive partnerships, alliances and joint ventures to develop their hub
airlines into a cash cow, while being able to support new investment in Eurowings and
the rapidly expanding LCC market (Error! Reference source not found.). Within this
space Lufthansa is working hard to standardize its fleet and take full advantage of the
economic efficiency opportunities and economies of scale that this enables, reducing
their overall costs. Lufthansa believes that Eurowings has the potential to become a star
performer and seems to be focusing current investments within this space.
III. (B) INTERNAL ANALYSIS - Brussels Airlines
A. Organizational Analysis
i. Goals & Objectives
Brussels Airlines looks to position itself as Europe’s hybrid carrier, offering low-
cost services with superior customer service through tailored product offerings.
Operating out of Brussels Airport (BRU), Brussels Airlines flies primarily in Europe,
Africa, and North America with its fleet of 49 aircraft (Fleet, n.d.). Staffed with over 3,500
employees, Brussels Airlines runs approximately 300 daily flights (Pressroom, n.d.) and
leads in its home hub in BRU with over 33% seat market share (Brussels Airport:
Ryanair Tests Itself, 2015). In 2014, Bernard Gustin, CEO of Brussels Airlines,
announced the airline’s strategy to compete through flexible, modular product offerings
and thus allow the customer to choose for themselves, thereby “differentiating,
segmenting and putting the customer at the heart of everything” they did (Brussels
Airlines Responds to Consumer, 2014). As cited in a presentation by Gustin, the four
pillars of Brussels’ commercial strategy can be described as products, loyalty, web
environment, and competitiveness, all supported by an emphasis on quality service
(Gustin, 2014). The company’s position as a low-cost, high-value airline helped the
company turn a profit in 2015, marking success to their hybrid strategy (Sciot, Daenen,
& Lemmes, 2016).
ii. Organizational Policies, Values, and Culture
Brussels Airlines reiterates its customer-focus culture in its mission statement
that reads: “We want to be the most personal airline, bringing people together and

36. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 30
making travel a pleasure” (Our Mission and Values, n.d.). This is supported by four
values: human, enabling, pleasure, and agile. Gustin highlights these values in the
organization by pushing on the “spirit of an SME” (small and medium-sized enterprise)
and their motto to “be number one, behave as number two” (Borstlap, 2014). Citing their
continuous and transparent communication through tools like Yammer, b.meeting,
b.gazette, and asktheceo, Brussels Airlines’ culture looks to resemble a smaller, more
decentralized organization. Through what Gustin calls their “credible leadership style”,
the company encourages fair feedback and no-blame policies, team empowerment, and
work floor managers. Such decentralization and transparency looks to support
innovation by enabling feedback from the bottom. From its Glass Door profile, all 18
reviews approve of the CEO, and the overall company score sits at a 3.8. These ratings
coincide with Gustin’s claims that many employees enjoy the work but cite it as “hectic”
and “hard work”. One comment states: “Most of the colleagues are giving 200% of
themselves, doing everything to give the passengers a great time.” Another review
comments that “innovation and creativity skills can be used” while another mentions the
company’s “great cost consciousness” (Brussels Airlines Reviews, n.d.). These
responses support directives that service is at the heart of Brussels Airlines’ strategy
and culture—the high-value side of the strategy. On the other hand, employees’ cost
awareness supports the company’s low-cost strategy. Together, employee activities
jointly support the direction set out by Brussels management.
iii. Ethical & Social Responsibility
In addition to their tight-knit culture, Brussels Airlines’ corporate social
responsibility programs include and encourage customers and employees to support
the African population and environment through its b.foundation, Bike For Africa, and
b.green programs. In 2009, Brussels Airlines was awarded the Environmental Award
from Brussels Airport for the airline’s leading role in creating a collaborative decision
making process at the airport, reducing air traffic nuisance (b.green, n.d.). Through its
Bike For Africa program, employees and volunteers raise funds on a mountain bike
excursion throughout parts of Africa (Bike for Africa, n.d.). These funds have been used
towards humanitarian projects that have assisted with maternity and childbearing units
in Muriel Africa and across the Gambia. Additionally, through the b.foundation,

37. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 31
employee charity initiatives are bundled with those of the company, allowing employees
a platform to support their causes. Customers are also able to contribute funds through
designated donation envelopes on long-haul flights (Creating Value for the African
Society, n.d.).
iv. Organizational Structure
The organizational structure at Brussels Airlines appears to be a traditional,
functional structure with a CEO, CIO, CCO and other C-level positions. Based on
employee reviews and Gustin’s presentation, Brussels Airlines’ autonomous culture has
helped create a dynamic and open environment, enabling it to respond quickly to
customer demands. As Gustin has strongly emphasized a need to adapt to customer
demands, this autonomous structure allows the company to adapt to changing trends
and closely embraces the SME spirit (Brussels Airlines Responds, 2014). The downside
to this organizational structure is that it may make it difficult to coordinate new
objectives or discover issues in the field, though this is countered with the company’s
communications tools and culture of transparency.
B. Strategic Position
i. Corporate Level
Brussels Airlines operates as a single business serving the European passenger
airline market and is owned by SN Airholding, a holding company for top-level
companies in the air transport sector. Prior to Lufthansa’s acquisition, SN Airholding
was 45% owned by Lufthansa AG, which the latter purchased in 1999. As part of this
transaction, Brussels Airlines gained access to the Star Alliance group, allowing its
customers to benefit from shared frequent flyer points and an improved destination
network (Star Alliance, n.d.). Similarly, the partnership with Lufthansa helped provide
Brussels Airlines “profit from additional customers for the connections” out of the
Brussels hub. With Lufthansa’s expansive network, the destinations offered to “Brussels
Airlines customers will rise by 133” after the acquisition (Organisation, n.d.). These
offerings help boost Brussels Airlines’ perceived value to customers, a major
component of Brussels’ service strategy.
ii. Partnerships, Alliances, Joint Ventures and Acquisitions

38. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 32
Through other partnerships, Brussels Airlines has been able to create added
value for customers. In one notable case, Brussels Airlines partnered with ID&T (a
Dutch entertainment company) to provide service to Tomorrowland, the world’s largest
electronic music dance festival located in Belgium. From this partnership, six A330
Airbus planes were branded with the Tomorrowland logo, outfitted with an external
sound system, and staffed with a live DJ. Over 17,000 flight packages were sold
targeting young, high-income passengers and helped Brussels Airlines garner over 266
million YouTube views from event videos (Boni, 2015). This partnership helped the
airline gain global brand exposure and attract a new customer segment.
Additionally, Brussels Airlines has teamed up with Microsoft in developing “The
Loft” at Brussels Airport, a premium, digital business lounge featuring a suite of
Microsoft’s latest products (Brussels Airlines Launches, 2014). With the introduction of
the new lounge, revenues for the facility increased by 65% and helped draw in 6,500
more guests per month. As part of the company’s desire to reposition its brand as high
quality without compromise, Brussels has made big strides using its partnerships.
iii. Business Level
Brussels Airlines focuses on a high-value, low-cost position by offering a broad
suite of flight packages and a growing network of destinations, differentiating itself as a
hybrid carrier. Flying primarily in Europe and Africa, Brussels Airlines also flies to North
America and India. On its European routes, Brussels Airlines offers four products:
check&go, light&relax, flex&fast, bizz&class (Brussels Airlines Unveils, 2014).
Check&go targets price-sensitive customers by providing flights as low as €69 but does
not include checked baggage or modifiable tickets. Light&relax targets the next tier with
reserved seating and checked baggage. Flex&fast, the next tier up, includes priority
check-in and seating along with onboard food and refreshments. Bizz&class, the
highest tier, gives passengers access to the Brussels Airlines lounge along with a fine
dining experience and a free middle seat. This range of products allows Brussels
Airlines to compete as a low-cost carrier in the European market but also differentiate it
through its broad line, customization, and quality value drivers.

39. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 33
Similarly, on its long-haul flights, Brussels Airlines has three products targeted
toward different customer preferences: Economy Privilege, Economy, and Business
(Economy, n.d.). In order to provide further value, Brussels Airlines want to broaden its
market scope by adding new destinations (a key part of its growth strategy). In 2015, 14
new routes were launched and another 9 were added in the summer of 2016.
iv. VRIO & Value Chain Analysis:
For Brussels Airlines’ VRIO analysis, refer back to Section II.
Customer service and increased value drivers are at the core of Brussels
Airlines’ value chain (Error! Reference source not found.). Brussels Airlines continues
to add additional destinations year after year, constantly improving the travel
convenience it provides to customers. In its efforts to offer high-value service at the
same price, Brussels Airlines taps into its Belgian partnerships to fortify its position as
the country’s flagship airline, offering healthy local food and Belgian beer on its flights
(Brussels Airlines Teams Up, 2016).
IV. ACQUISITION ANALYSIS
A. Ally or Acquire?
As demonstrated in Error! Reference source not found., this analytical
framework recommends acquisition.
B. Porter’s Tests
i. Industry Attractiveness Test
Brussels and Lufthansa are already functioning within the same industry. Based
on our industry analysis (Error! Reference source not found.), the scheduled air
passenger industry is moderately unattractive. However, because Lufthansa is already
a major player in the still-growing industry, it is justifiable for Lufthansa to further expand
in it. Consolidation for Lufthansa increases its overall market share, which is critical in
the highly-competitive LCC market. The additional 49 aircraft from Brussels Airlines will
increase market scope for Eurowings and allow it to offer extensive service across
Western Europe, making it the third largest point-to-point carrier in the region (Weiss,

40. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 34
2016). Brussels Airlines’ prime access to Brussels Airport adds an additional
competitive advantage as airlines compete for gate space at the main European hubs.
The acquisition of Brussels Airlines also expands Lufthansa’s flight offerings with
access to the African market.
ii. Better-off Test
Based on our analysis of the most likely synergies (Error! Reference source
not found.) and the post-acquisition VRIO analysis (Error! Reference source not
found.), we believe that both Lufthansa and Brussels airlines will be better off after the
acquisition.
iii. Cost-of-Entry Test
The acquisition price of Brussels Airlines is linked to performance-related factors,
but the price ceiling for the acquisition is set at 250 million Euros (Lufthansa Takes a
Strategic, 2008). Assuming Lufthansa pays the maximum possible amount for the
remaining 55% of Brussels Airlines, 250 million Euros, our calculations show that this
acquisition will still pass Porter’s cost of entry test (Error! Reference source not
found.). Based on a 250 million Euro acquisition price, the derived fair value of Brussels
would be 454 million Euros (Exhibit V) while the total fair value of Brussels’ equity
based on a discounted cash flow analysis is 565 million Euros (Exhibit DD). Based on
discounted cash flow analysis, the fair value of 55% of Brussels’ equity is €310 million
(Exhibit V). This analysis was performed before factoring in any synergies. Further, the
fair value of equity represents a conservative valuation measure relative to enterprise
value, because debt borrowings are subtracted in order to calculate value available to
shareholders. Since 310 million Euros is greater than the maximum acquisition price of
250 million Euros, this acquisition passes the cost of entry test.
C. Combined Resources & Capabilities, V-C, and Industry Conditions
Through a combined VRIO analysis, Lufthansa will be able to leverage its
existing market presence and fleet size to expand its scope into Africa, a gap in its
current network. Brussels Airlines offers a strong position at the Brussels hub in which
its existing partnership with the airport has secured it the largest airport market share
and gate access.

41. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 35
Based on the BCG Matrix analysis (Error! Reference source not found.),
Lufthansa may use the acquisition of Brussels Airlines to move Eurowings from a
question mark to a star performer. The missing piece for this move is Eurowings gaining
a large market share and the combination of their two fleets enables Eurowings to meet
its desired goal and move into the star performer category. This is based on the
assumption that Lufthansa decides to fold the majority of Brussels’ fleet into Eurowings
and that the low-cost, point-to-point market continues to grow at a high rate. However, if
Brussels Airlines is entirely folded into Lufthansa’s offerings, Lufthansa risks losing the
added brand recognition and positive public opinion that Brussels Airlines brings to the
acquisition (Error! Reference source not found.). Eurowings is not perceived very
favorably in the market, rating 4 out of 10 for overall reputation based on customer
reviews (Eurowings Customer Reviews, n.d.). On the other hand, Brussels Airlines has
a rating of 6 out of 10 and also has won several awards for best short-haul airline
(Brussels Airlines Customer Reviews, n.d.). This tradeoff is something that Lufthansa
should critically think about when deciding their short- and long-term strategies for the
acquisition.
Based on our V-C Analysis of Lufthansa after the acquisition of Brussels Airlines
(Error! Reference source not found.), the overall value that Eurowings brings to
customers increases. The acquisition of Brussels will provide greater travel convenience
by adding flight destinations in Africa and increased offerings throughout Western
Europe. The acquisition may also increase Eurowings’ premium service offerings
because of Brussels’ more flexible product packages, including business class services.
Overall, the post-acquisition analysis shows Lufthansa’s Eurowings (with the acquisition
of Brussels Airlines) as offering greater value to customers at the same price. In our
analysis we assumed that price would remain unchanged for Eurowings as a worst case
scenario. However, due to expected synergies, the acquisition would likely lead to
decreased costs, enabling Eurowings to drop its price and make its positioning even
more competitive.
D. Linking Corporate to Business-Level - Part C and D (Scenario analysis, NPV
calculations)
i. Discounted Cash Flow Analysis

42. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 36
In order to assess the value of Lufthansa’s acquisition of Brussels Airlines, a discounted
cash flow analysis was used to calculate both standalone valuations for Lufthansa (

43. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 37
Exhibit AA) and Brussels (Exhibit DD), and a combined firm valuation (Exhibit EE
- EE). The combined firm valuation is presented in three different scenarios. First, the
combined firm valuation is calculated under a “worst case”, “better case”, and “best
case” scenario. Furthermore, each case scenario is assessed over a variation of five
different discount rates (Exhibit EE - EE). The base discount rate, weighted average
cost of capital (WACC), is assumed to be equal to Lufthansa’s WACC of 5.12%
because Brussels represents a relatively small acquisition in comparison to the size of
Lufthansa. The first step in determining the WACC was to calculate Lufthansa’s capital
structure, which was found to be 55.38% debt and 44.62% equity (Lufthansa Group,
2016). Next, Lufthansa’s cost of equity was found to be 8.32% using the capital asset
pricing model (CAPM). Lufthansa’s annual report provided the rate of debt as 3.4% and
tax rate as 25%, which allowed us to fill in the remainder of the WACC equation and
arrive at 5.12% (Lufthansa Group, 2016). For Lufthansa, the forecasted revenue growth
rate was determined using the average of the historical compound annual revenue
growth rate, professional analyst estimates, and the projected economic growth rate for
the European region. For Brussels, no analyst reports were available since Brussels is
privately held, so only the firm’s historical compound average revenue growth rate and
the projected economic growth rate for the European region were used to determine the
forecasted revenue growth rate. Other line items were projected as a percentage of
revenue.
There are multiple equations that exist which estimate a firm’s free cash flow. To
determine the method of arriving at an estimated free cash flow for each firm in this
case, the limited information available for Brussels had to be considered to select an
equation which could be derived from published data. To estimate free cash flow, we
started with earnings before taxes, added back net interest, taxes, depreciation,
amortization, change in working capital, and net capital expenditure.
Once Brussels is acquired, four likely synergies were identified which would
benefit the combined firm (Error! Reference source not found.). We expect up to a
0.75% reduction in combined firm operating costs due to fleet standardization and
reduced selling, general, and administrative expenses due to Brussels sharing costs
with Lufthansa. Access to new markets is expected to provide a base increase of up to

44. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 38
1.5% and route optimization will provide revenue synergies of up to 0.5% of combined
firm revenue.
ii. “Worst, Better, Best Case” Scenarios
In the “worst case” scenario, it is assumed that a combined firm will operate at a
level equivalent to that of Lufthansa and Brussels operating separately. A WACC of
5.12% is assumed, but none of the identified synergies are expected to be realized.
This represents a bare minimum of what Lufthansa can expect to extract from this
transaction, in terms of firm value. This scenario provides a combined firm enterprise
value of 19.888 billion Euros and a total fair value of equity equal to 13.447 billion Euros
(Error! Reference source not found.). We estimate the likelihood of this outcome as
15%.
Our estimates indicate that the most likely scenario will be what we define as the
“better case” scenario. The “better case” scenario assumes a WACC of 5.12% and that
50% of the identified synergies will be realized. This imputes a 0.375% reduction in
combined firm operating expenses, a 0.75% base increase, and a 0.25% increase in
combined firm revenue. This leads to an estimated combined firm enterprise value of
27.163 billion Euros and a total fair value of equity equal to 20.722 billion Euros (Error!
Reference source not found.). We estimate the likelihood of this outcome as 75%.
The “best case” scenario represents what we foresee as the best possible
outcome, which is within reason, based on current estimates. This scenario assumes a
WACC of 5.12% and 100% of the identified synergies are realized. If 100% of identified
synergies are realized, the combined firm’s operating costs decrease by 0.75%,
revenues increase by 0.5%, and there is a base increase of 1.5%. This is representative
of the most aggressive estimates that would be justifiable by Lufthansa’s management
team. The combined firm grows to an enterprise value of 34.439 billion Euros and the
total fair value of equity is equal to 27.998 billion Euros (Error! Reference source not
found.). We estimate the likelihood of this outcome as 10%.
V. RECOMMENDATIONS

45. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 39
The acquisition of Brussels Airlines and its assets gives Lufthansa a variety of
strategic opportunities. The following analysis summarizes Lufthansa’s most suitable
short- and long-term options, and explains which strategy we recommend and why.
A. Short-Term Recommendations
As Lufthansa operates in both the LCC and FSC spaces already, the soon-to-be
acquired airplanes, labor, and other resources can be used in very different ways. Our
short-term recommendations align with the different strategies Lufthansa could pursue,
and are as follows.
i. Revise Eurowings’ Product Mix to Learn From and Mimic Brussels
This recommendation addresses Eurowings’ poor performance by having the
company mimic Brussels Airlines’ best practices. Brussels has significantly lower
operating costs, all around, and we expect Eurowings to be able to save a lot of money
by learning from them. In the short-term, Eurowings would formally change its company
values and operations to focus on providing more value for the price. In actions, this
would mean great customer service and a seamless booking and flight experience. This
would also mean synchronizing certain offerings between Brussels Airlines and
Eurowings to increase consistency and variety for consumers. Brussels employees can
host training sessions for Eurowings staff during this time of product mix revision, and
managers from both organizations can meet and learn from one another.
The recommendation to assimilate Eurowings’ products and services to match
Brussels Airlines is aimed at having two high-performing low-cost airlines instead of
one. This recommendation could help streamline operations and a merger down the
road.
ii. Standardize Eurowings Fleet to Improve LCC
The second recommendation expands upon Eurowings’ LCC strategy.
Eurowings, has the worst CASK of its competitors and needs to overhaul their
operations (Error! Reference source not found.). With new airplanes being acquired
through the purchase, Lufthansa could choose to use them to focus on their LCC

46. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 40
strategy instead and standardize their low-cost fleet. Eurowings currently operates four
different types of aircraft from three different manufacturers: Airbus, Boeing, and
Canadair (Eurowings Fleet Details, 2016); 26 of their 36 aircraft are Airbus A320s and
A330s. Brussels similarly operates a variety of aircraft, with a total of 18 of their 50
aircraft being A320s and A330s (Brussels Airlines Fleet Details, 2016).
This acquisition gives Lufthansa the ability to standardize Eurowings’ low-cost
fleet by trading planes between the carriers. Brussels Airlines would swap some of its
A320s and A330s for Eurowings’ non-Airbus aircraft, completing the set. This change
would ideally have little to no impact on value, but should reduce Eurowings’
maintenance, training, and purchasing costs after standardization is complete. As every
process in an LCC is scrutinized to reduce waste and optimize performance, having a
standardized fleet is critical. This could reduce required inventory of spare parts, and
minimize interruptions caused by aircraft delays, unscheduled maintenance, layovers,
or issues of flight crew familiarity of the aircraft. This recommendation would require
Brussels to accommodate substituting airplanes, but otherwise would not include any
other changes to the company.
iii. Revise Offerings to Support FSC Operations
Alternatively, the third short-term recommendation would allow Lufthansa to
focus on their FSC model by assimilating Brussels’ offerings to match Lufthansa’s.
Lufthansa is a dominant player among the European FSCs, and acquiring market share
through an acquisition is both difficult and a smart move for this crowded industry. This
recommendation would attempt to capture more of the FSC segment by revising
Brussels Airlines’ product and service mix to compete with FSCs alongside its parent
airline Lufthansa. Brussels staff would learn about Lufthansa’s operations and best
practices through information sharing. In the short term, some of the longer Brussels
routes can be outfitted with first class and business class. The sooner this happens, the
sooner Brussels can start accepting first class fares. Customer service improvements
and a greater variety of in-flight amenities and food choice would also be strongly
encouraged. This recommendation could also help streamline a merger in the future.

47. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 41
B. Long-Term Recommendations
The hub and aircraft Brussels Airlines adds to Lufthansa Group can be devoted
to any of Lufthansa’s existing airlines. The three long-term strategies follow suit with the
main focuses of the respective short-term strategies.
i. Convert Eurowings to Hybrid Model & Merge with Brussels
This recommendation expands on the hybrid strategy, once Eurowings is more
profitable and reputable, by folding Brussels Airlines into the Eurowings name. Merging
the two companies would expand the fleet size of Lufthansa Group’s hybrid carrier, and
thereby is investment in the strategy.
This move would fully optimize and combine operations, reducing operating costs
and increasing value to consumers by expanding the rewards program, adding
destinations, and increasing service capacity. With a focus on the hybrid airline model,
Lufthansa stands a good chance of increasing its overall market share post-acquisition.
This recommendation also involves consolidating routes to minimize
unnecessary and redundant flights.
ii. Fold Brussels into Eurowings to Expand LCC Model
The second recommendation focuses solely on the LCC strategy in the long
term, instead of a hybrid. Merging Brussels into Eurowings will simplify Lufthansa
Group’s portfolio of current strategies. The aircraft from Brussels Airlines would be
rebranded and operated by Eurowings, in a lean, low-cost environment.
The temptation to invest heavily in LCCs is strong because of the higher average
profit margins (See Profit Margins in Error! Reference source not found.). However,
this recommendation doesn’t completely build on the value-providing expertise of
Brussels Airlines; Eurowings will be competing to become a price leader, thereby cutting
less important, low-value-adding expenses. However, LCCs are taking more of the
market share away from FSCs recently. Evidence shows the LCCs’ market share is still
expanding, having nearly doubled between 2005 and 2013, from 17% to 32% (Error!
Reference source not found.). This recommendation seeks to invest in the LCC
strategy more to capture grab more new customers who value inexpensive fares.

48. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 42
iii. Fold Brussels into Lufthansa to Expand FSC Model
The final recommendation folds Brussels Airlines into Lufthansa’s full-service
airline. This would help Lufthansa expand its route offerings and capacity, thereby
increasing its market share in the FSC sector. This option could slightly increase
Lufthansa’s value to customers with the new destinations and added capacity. This
recommendation also takes advantage of the recent popularity and great performance
of the Lufthansa airline (Error! Reference source not found.)
One main objective would be to take advantage of Lufthansa’s economies of
scale to save even more on costs while increasing their fleet size and further distributing
their overhead costs. Brussels’ operations would be integrated into Lufthansa and
streamlined where possible to implement any possible synergies; like joint corporate
training seminars, centralized HR, accounting, and finance. These cost savings would
be realized after Brussels’ aircraft have been rebranded and converted to mimic
Lufthansa aircraft. This recommendation is necessary to keep the Lufthansa brand
competitive and growing in the FSC segment. With the FSCs’ share in Europe’s
passenger airline market shrinking each year, though, (Error! Reference source not
found.), we don’t choose this as the best recommendation.
C. Strategy Implementation
i. Short-Term Implementation
We recommend that Lufthansa pursue short-term recommendation one to have
Eurowings learn from and mimic Brussels Airlines. We believe Brussels’ strong
reputation and V-C positioning presents greater opportunity than Eurowings with the
LCC strategy. Lufthansa is an expert at being a full-service carrier and has not been
able to achieve true low cost through its attempt at an LCC in Eurowings. The hybrid
model seems better aligned with Lufthansa’s core competencies and has greater
potential for success.
Execution
To implement this recommendation, Eurowings will formally change its vision,
values, and processes, soon after the acquisition, to mimic the way Brussels works and

49. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 43
operates. Brussels provides lounge access at their hub airport and engages in
temporary partnerships to boost sales and reputation, like their Tomorrowland flight
package (Boni, 2015).
To execute, Eurowings would also change the different seat packages, benefits,
and products that Eurowings sells to mimic Brussels’ offerings, like adding the
Bizz&class ticket fare with lounge access and fine dining. Additionally, certain staff and
managers would meet and absorb knowledge and insights from the other company’s
practices related to employee training, customer service responses, customer purchase
experiences, and supply chains. Eurowings will be tasked with pursuing some of the
easiest-implemented synergies quickly to reduce costs and replicate the product mix.
With synchronized operations and inter-organizational learning, Eurowings’ brand
loyalty and perceived value is expected to rise.
Also, as discussed previously, Brussels has a better reputation than Eurowings,
and provides much more value to consumers. Mimicking Brussels’ success in the hybrid
carrier space seems like a strong move forward and, this hybrid strategy is flexible
enough to allow Lufthansa to pivot strategies if the market changes in the future. This
recommendation provides Lufthansa the most flexibility while not jeopardizing Brussels’
current success or changing the customer experience. It simply prioritizes easy cost-
cutting measures and supports the hybrid model offerings.
Timeline
See Exhibit HH for a visual timeline. Employee workshops and knowledge
sharing will commence within the first couple months after the acquisition is finalized.
Senior management will communicate the product mix changes to all employees, and
train everyone to the same standards. Training is expected to finish within six months of
the communication, so that measurable changes to value and cost drivers should be
apparent within a year of the acquisition date. Airplane modifications and infrastructure
changes, like onboard screens and the online booking system, will take place during the
six-month employee training period as well.
Three months before these new changes take effect, a press release will be
published to explain the nature and extent of the coming changes. This information will

50. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 44
be published in a way that is simple for customers to understand, and changes will only
apply for new tickets booked after the effective date. All new advertising will
communicate the added value and variety these changes bring to Eurowings
customers.
Special attention will be given to ensure a consistent and satisfactory customer
experience, so as to retain as many customers as possible through this change. We
expect Eurowings’ operations and performance to be similar to Brussels within two
years of the acquisition date.
V-C Changes
The addition of more varied flight offerings and better customer service in the
hybrid model is expected to yield more positive booking and flight experiences for
customers. Thus, these changes will increase the perceived value to the customer.
Implementing these changes will increase costs at the outset because some
investments in fleet modification and operational changes are necessary. These will be
one-time costs, though, and should not increase typical operating expenses. As
Eurowings succeeds to cut costs and improve its reputation over time, the company’s V-
C disparity will also improve. Performance metrics (like profit margin and CASK from
Error! Reference source not found.) will be monitored during the full two years to
evaluate the short-term success of revamping Eurowings as a hybrid.
ii. Long-Term Implementation
We recommend that Lufthansa Group pursue long-term recommendation one
because the hybrid model utilizes the core competencies of both the Brussels brand
(with its low-cost operational efficiency) and the Lufthansa brand (providing quality
service and high value). In the short-term Eurowings adopted the values that made
Brussels Airlines successful, including quality customer service, competitive prices, and
a diverse product mix. If marketed properly in the first two years of the acquisition,
consumers’ perception of Eurowings will become more favorable as the company
provides the same value that customers have come to appreciate and expect from
Brussels Airlines. Once Eurowings’ brand perception has recovered, Eurowings will
absorb Brussels.

51. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 45
Execution
To execute this strategy, Eurowings and Brussels will publicly announce a
merger of the two companies. A new marketing campaign will inform the public that the
operations of the two carriers will be combined along, with their fleets. It will explain the
nature and extent of the coming changes in addition to the benefits customers can
expect to notice, like reduced costs, consistent flight experiences, and shared rewards
programs between airlines.
Core operational staff, like accounting, finance, sales, and customer service, will
all be relocated to one location where staff can work with and learn from each other,
and the company can maintain consistent training and standards.
Timeline
See Exhibit II for a visual timeline. Performance metrics will be monitored for the
first two years before merging the companies, just in case Eurowings isn’t operating
cost-effectively yet. The merger will be drawn up and announced within two and a half
years of the initial acquisition date, contingent on positive brand recognition. The two
airlines should not merge until Eurowings’ brand perception is on par with Brussels.
Once announced, the merger will be executed within the following year. During this
time, Eurowings and Brussels Airlines’ previous routes will be analyzed and
consolidated to maximize performance and selectively eliminate redundant or under-
performing flights. Final route timetables and popularity will be monitored and adjusted
as needed for the following year, as will the number of staff needed to operate
effectively.
V-C Changes
This recommendation fundamentally expands Eurowings to streamline
operations and costs. Centrally-managed operations will help save money and reduce
fares, while the focus to provide more value to consumers continues. These synergies
would reduce training costs and increase efficiency as employees would be cross-
trained to provide support for both airlines. Thus, we expect a measurable reduction in
C and perhaps a slight increase in V. The expanded destination network, optimization of

52. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 46
routes, and focus on customer service should provide more value to customers, though
estimating the change is difficult.
D. Corporate Social Responsibility and Ethical Decision-Making
As stated in the prior Corporate and Social Responsibility Sections, both
Lufthansa and Brussels Airlines partake in a number of social and ethical initiatives. As
such, the acquisition of Brussels Airlines may lead Lufthansa to carry forth existing
causes that the firm champions. These are most notably programs to support
humanitarian projects in Africa and, uniquely, charities chosen by Brussels Airlines’
employees. The recommendations that follow aim to preserve and build upon each
firm’s legacy, with regard for the current state of the industry.
In the short term, Lufthansa should highlight its commitment to the United
Nations Global Compact, striving for responsible company management. With the
acquisition, Lufthansa will endure a period of scrutiny from many sources, including its
internal affairs, Brussels employees, regulatory entities, and the public, making it
imperative for the firm to practice good management. In an effort to promote unity, and
in light of tragic events involving plane crashes and/or terrorism, Lufthansa may benefit
from launching a company-wide campaign on safety. This campaign would re-affirm
every employee’s commitment to safety and serve as a reminder to customers that
safety is the company’s top priority. Because safety is also at the forefront of each
passenger’s mind, Lufthansa may also gain goodwill by promoting this message.
In the long term, Lufthansa could consider expanding its social cause platform.
Brussels Airlines currently has a program where passengers can contribute to causes
via donation envelopes on long-haul flights (Creating Value for the African Society,
n.d.). Lufthansa could easily employ a similar practice on their flights, with interactive
displays that passengers can peruse to learn about the charities and social initiatives
that Lufthansa supports. Passengers would then have the option to donate to the cause
of their choice, all done in the duration of a flight. This endeavor embodies many
benefits. Lufthansa could achieve a more socially-responsible reputation, raise more
money for the causes, educate the public, and possibly become a preferred airline for
its initiative. For those interested, it might also help customers pass the time in flight

53. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 47
more quickly, learn about global perspectives, and feel good that they are helping a
worthy cause.
VI. CONCLUSIONS
Lufthansa is a major name in the European airline industry and generally has a
good reputation among consumers. This acquisition will potentially allow the company
to expand its market share in one of three sectors: FSC, hybrid, or LCC. Based on the
industry trends and competitor performance, purchasing Brussels Airlines is a good
move for a dominant player at this point in time. Due to Lufthansa’s large commitment
and presence in the airline industry, their next natural step is expanding their operations
to take market share from their competitors. As the shift in passengers’ demands
gravitates toward the hybrid model, and as global air travel is still a growing market,
Lufthansa is well positioned to expand and succeed in capturing new customers. As far
as the value for investors, we don’t see the stock price increasing significantly, but we
would be cautiously optimistic for high returns.

54. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 48
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https://www.brusselsairlines.com/it-it/corporate/company/organisation.aspx
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https://www.brusselsairlines.com/en-be/corporate/company/mission-and-values.aspx
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59. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 53
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60. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 54
VIII. MAIN APPENDIX
Exhibit C – Industry Diagram
Exhibit D – Six Forces Analysis (Levels 1 and 2)
Levels 1 and 2 Analyses for Barriers to Entry
Factors
Underlying
Barriers to Entry
Effect on
Industry
Score
(1-5) Weight Rationale
Limit Pricing Moderately
Unfavorable
4 0.1 In the low-costcarrier industry, incumbentfirms are
already operating atlow prices.At this time, incumbents
are not known to be utilizing limitpricing,as incumbents
are focused on grabbing market share from full service
carriers.
Capital Costs Favorable 1 0.15 The total European airline industry(full service carriers
and low-costcarriers) is estimated to be around €110
billion in 2014 (Air: Internal Market, n.d.). The return on
invested capital stands at9.8% in 2016 (News Brief,
2016),a high since 2000.That being said,capital costs
are high as costs include purchase/leasing ofplanes,
services,and technology, as well as gates at airports.
For example,an Airbus 320 aircraft, popular for short-
haul flights,is on the order of €92.5 million (Airbus,
2016).

61. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 55
Factors
Underlying
Barriers to Entry
Effect on
Industry
Score
(1-5) Weight Rationale
Incumbent
Dedicated Assets
Moderately
Favorable
2 0.15 The mostcritical assetthatincumbents maytie up is
airportchannels.The IATA and EU have developed
methodologyand regulations to fairly allocate slots to
airlines.This results in the inabilityfor a single airline to
monopolize the mostcritical asset.Another critical asset
is the availability of commercial aircraftfor purchase.As
of mid-2015,Airbus and Boeing (the largestcommercial
aircraft manufacturers) are ata 9-year backlog (Trimble,
2015),making it difficultfor a newcomer to purchase
planes.
Restrictive
Government
Policy
Moderately
Favorable
2 0.1 The aviation industryis highly regulated.There are
several regulatory entities and programs including the
European Commission,EU,IATA, Single Aviation
Market, and others.Regulations revolve around
operating licenses,price transparency,public service
obligations,distribution or air traffic between airports,
environmental and emissions,etc., however, allow for
any commercial airline to enter the aviation market,
subjectto rule compliance.
Supply-side
Economies of
Scale
Favorable 1 0.15 Economies ofscale are critical for success in the
aviation industry.Looking at passenger transportation
across the board,achieving high utilization capacities
per plane in flight is necessaryto offset expenses
incurred from capital expenditures,fuel, labor,
technology, maintenance,taxes, and airportfees.
Barriers
Independent of
Scale
Unfavorable 5 0.1 There is low differentiation amongstairlines,further
exemplified by the encroachmentoflow-costcarriers
into the marketshare offull service carriers (Israel,
2015).
Customer
Switching Costs
Unfavorable 5 0.15 Customer switching costs are low as each flight can be
booked independently.
Demand-side
Benefits of Scale
(Network
Externalities)
Moderately
Unfavorable
4 0.1 The effect of network externalities is presentto a degree
- mainlyfrom travelers in groups who want to stay
together. However, the benefits are short-term as the
buyer’s willingness to pay as a resultof network
externalities for a certain airline does notnecessarily
implyloyalty for his/her next flight.
Overall Barriers
to Entry Effect
on Industry
Neutral 2.85 1 More favorable factors such as capital costs and
supply-side economies of scale are balanced by
unfavorable customer switching costs and low
differentiation.
Levels 1 and 2 Analyses for Threat of Rivalry
Factors
Underlying
Threat of Rivalry
Effect on
Industry
Score
(1-5) Weight Rationale
Industry
Concentration
Unfavorable 5 0.15 The industryconcentration for the airline industryas a
whole is a low 47% (Lufthansa,Air France-KLM,
International Airlines Group,easyJet, and Ryanair)
(Lufthansa Group,2016,p. 22). This low concentration
suggests a strong threatto industry profits.
Industry Growth
Rate & Demand
Moderately
Favorable
2 0.15 The industrydemand is expected to grow by 6.9% in
2016,along with an anticipated capacity growth of 7.1%
(Airlines Continue to Improve, 2015). This puts capacity

62. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 56
Factors
Underlying
Threat of Rivalry
Effect on
Industry
Score
(1-5) Weight Rationale
Conditions growth slightlyahead of demand,thus ensuring that
there is enough capacityto meetdemand. It should also
be noted that demand has been growing atan
increasing rate in the pastfew years (Airlines Continue,
2015).However, demand has also been projected to
increase by 50% by 2035,with estimates of12%
demand unable to be met (Airport Capacity, n.d.).
Exit Barriers Unfavorable 5 0.1 Exit barriers are high due to presence ofunions,sunk
costs,service agreements with airports,costoflayoffs
(as well as inabilityto lay off key members ofthe
workforce - flightand maintenance crews).The likely
“exit” method for an airline would be acquisition bya
larger airline.
Commitment to
Preserving
Market Positions
Unfavorable 5 0.15 Rivals are very committed to maintaining and growing
marketpositions.
Diversity of
Competitors
Unfavorable 5 0.1 Firms have differentstrategies when competing,
however, regulations mandate playing by the same set
of rules.
Degree of
Product
Differentiation
Unfavorable 5 0.15 Product offerings can be differentiated in terms of luxury
versus cheap/no frills.However, within these service
segments there is low differentiation across the board.
Fixed
Costs/Variable
Costs Ratio
Unfavorable 5 0.1 Variable costs for airlines are low.Fixed costs account
for the bulk of an airline’s operations,such as aircraft
purchase,maintenance,fuel per plane,amenities,
airportfees, etc. Thus, the ratio of fixed costs to variable
costs is high.
Is capacity added
in large
increments?
Favorable 1 0.1 Capacity for an airline is dictated by the number of
aircrafts housed under the firm,as well as the frequency
of flights.Capacity is typically added per plane,but
airports are a big regulator of capacity. Due to the
Worldwide SlotGuidelines (Worldwide AirportSlots,
n.d.) seeking to distribute and maximize capacity
utilization and efficiencies atairports,airports presenta
bottleneck to capacity. Thus,capacity is not added in
large increments.
Overall Threat of
Rivalry Effect on
Industry
Moderately
Unfavorable
4.15 1 Low industry concentration, low differentiation
among competitors, exit barriers, and competitor
commitment to preserving market positions drive
unfavorable score.
Levels 1 and 2 Analyses for Buyer Power
Buyer Group: Air Passengers
Factors
Underlying
Buyer Power
Effect on
Industry
Score
(1-5) Weight Rationale
Buyer Group: Air Passengers
Concentration
Ratio
Unfavorable 5 0.2 The concentration ratio of air passengers in the air
passenger industryis 100%,greater than the industry
concentration of 47% (Lufthansa Group,2016, p. 22).
Market Growth
Rate
Unfavorable 5 0.15 The marketgrowth rate for Europe is projected to be
2.7% (Air Passenger Forecast,2015),a slower growth

63. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 57
Factors
Underlying
Buyer Power
Effect on
Industry
Score
(1-5) Weight Rationale
rate compared to other regions in the world.
Are there a few
high volume
buyers – evaluate
the % of
Supplier’s Product
Sold to the Buyer
Favorable 1 0.05 The industryis projected to be on the order of 1.4 billion
passengers in Europe during 2016 (Air Passenger
Forecast,2015). It can be inferred that sales are
distributed amongstmanybuyers.
Strategic
Importance of
Buyers to
Suppliers
Neutral 3 0.05 Airlines are somewhatdependenton the concentration
of buyers within a region,to make decisions for route
demand.
Strategic
Importance of
Suppliers to
Buyers
Moderately
Favorable
2 0.15 Airlines are importantto air passengers due to added
value over other modes oftransportation (car,train,
bus,etc.).
Is capacity added
in large
increments?
Favorable 1 0.05 Capacity is not added in large increments,mainlydue to
Worldwide SlotGuidelines (Worldwide AirportSlots,
n.d.) and bottlenecks atairports.
Threat of
Backward
Integration
Favorable 1 0.05 Air passengers do notpose a backward integration
threat to airlines.
Switching Costs Unfavorable 5 0.15 Switching costs are very low for air passengers.Travel
is paid for on a per flightbasis.
Differentiation of
Products/Services
Unfavorable 5 0.15 There is low differentiation within segments offull
service carriers and within low-costcarriers.
Overall Buyer
Power Effect on
Industry
Moderately
Unfavorable
3.85 1 Buyer power is driven by low switching costs and
low differentiation among airlines.
Levels 1 and 2 Analyses for Supplier Power
Supplier Groups chosen for Analysis: Airports, Aircraft Manufacturers, Maintenance and
Repair Operations (MRO), Fuel-related Suppliers, and Other Service Suppliers
Factors
Underlying
Supplier Power
Effect on
Industry
Score
(1-5) Weight Rationale
Supplier Group: Airports
Concentration
Ratio
Moderately
Favorable
2 0.1 In the top five airports with the highestpassenger traffic
in the firsttwo months of2016 (Heathrow - London,
Charles de Gaulle - Paris,Frankfurt Main, Schiphol -
Amsterdam,and Barajas - Madrid) totaled 25% of
passengers flying in Europe. This represents a lower
concentration ratio than the industryconcentration of
47% (Lufthansa Group,2016, p. 22).
Strategic
importance of the
Neutral 3 0.05 Airlines are very important to airports.They share a
symbiotic relationship.

64. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 58
Factors
Underlying
Supplier Power
Effect on
Industry
Score
(1-5) Weight Rationale
supplier group to
the industry (and
vice versa)
Switching Costs Unfavorable 5 0.15 Switching costs are high,due to the loss of
traffic/business an airline would experience ifit
terminated agreements with certain airports.
Threat of Forward
Integration
Favorable 1 0.1 Airports do not pose a credible forward integration
threat.
Differentiation of
Supplier’s
Products/Services
Unfavorable 5 0.3 The mostcritical differentiator for airports is geographic
location and size.
Substitutes for
Supplier’s
Products/Services
Unfavorable 5 0.3 For an airline,there is no substitute for an airport.
Individual Supplier
Power Effect
(Airports)
Moderately
Unfavorable
4.2 0.3 Airports are essential to airline operations.
Supplier Group: Aircraft Manufacturers
Concentration
Ratio
Unfavorable 5 0.3 The leading commercial aircraftmanufacturers,Boeing
and Airbus, presenta duopoly in the marketplace (C.,
2014).It should be noted that China and Russia have
entered into a jointventure to develop wide-body
commercial aircrafts in an effort to take on Boeing and
Airbus (Bloomberg News,2016) as well as others in
Brazil and Canada (C., 2014).
Strategic
importance of the
supplier group to
the industry (and
vice versa)
Neutral 3 0.05 Purchasing/leasing ofcommercial aircraftis critical to
airlines’ business,butthe aircraft manufacturers also
depend on airlines for revenue.
Switching Costs Moderately
Unfavorable
4 0.15 Switching costs are moderate as differentaircraft house
different controls,thus crews would need to retrain with
every aircraft. However, as the Commercial aircraft
industryis seen as a duopoly, there are not many
options to choose from.
Threat of Forward
Integration
Favorable 1 0.05 Aircraft manufacturers do notpose a credible forward
integration threatat this time.
Differentiation of
Supplier’s
Products/Services
Favorable 1 0.15 Differentiation between Boeing and Airbus’ products is
not significant.
Substitutes for
Supplier’s
Products/Services
Unfavorable 5 0.3 For an airline,there are no substitutes for aircraft.
Individual Supplier
Power Effect
Moderately
Unfavorable
3.95 0.3 Aircraft manufacturers make up a duopoly and
aircraft is essential to airline operations.

65. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 59
Factors
Underlying
Supplier Power
Effect on
Industry
Score
(1-5) Weight Rationale
(Aircraft
Manufacturers)
Supplier Group: Maintenance and Repair Operations (MRO)
Concentration
Ratio
Moderately
Favorable
2 0.15 MRO services for commercial aircraftis a marketthat is
increasing with the growth of the airline industry.The
landscape for MRO sees newer aircraftneeding less
maintenance,consolidation offirms,and more original
equipmentmanufacturers (OEMs) providing MRO
services (Shay, 2016). That being said,there are a
number ofMRO firms competing in the space and the
MRO supplier concentration ratio is likelylower or than
the industryconcentration.
Strategic
importance of the
supplier group to
the industry (and
vice versa)
Neutral 3 0.15 MRO is critical to safe and operational aircraftand MRO
firms depend on airline contracts to survive.
Switching Costs Moderately
Favorable
2 0.15 Switching costs are likely low as there are manyMRO
firms in the business.
Threat of Forward
Integration
Favorable 1 0.1 MRO firms do not pose a credible forward integration
threat to airlines.
Differentiation of
Supplier’s
Products/Services
Favorable 1 0.2 MRO firms are differentiated across maintenance
expertise for differing aircraft parts; however,
maintenance itselfis notdifferentiated.
Substitutes for
Supplier’s
Products/Services
Unfavorable 5 0.25 There is no substitute for maintenance and repair.
Individual Supplier
Power Effect
(MRO)
Moderately
Favorable -
Neutral
2.6 0.1 There are a multitude of firms performing MRO,
additionally OEMs are starting to get into the
market.
Supplier Group: Fuel-related Suppliers
Concentration
Ratio
Unfavorable 5 0.3 In terms of fuel suppliers,a quick search on airport-
suppliers.com shows 20 fuel-related suppliers,
suggesting thatthere is a high concentration ratio.
However, the IATA campaigns commercial fuel policies
that seek to regulate fuel costs,supplyreliability,and
industrybestpractices.All that being said,jet fuel
makes up almost30% of airline operating expenses so
fluctuations in price can heavily impactthe firm.
(Commercial Fuel Policy, n.d.)
Strategic
importance of the
supplier group to
the industry (and
vice versa)
Unfavorable 5 0.2 Fuel handlers often supplyother types of fuel for
endeavors outside ofthe commercial airline industry.
Thus,airlines are dependenton fuel suppliers butnot
necessarilyvice versa.
Switching Costs Neutral 3 0.15 Switching costs are likely low unless there are hedging
contracts requiring termination.

66. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 60
Factors
Underlying
Supplier Power
Effect on
Industry
Score
(1-5) Weight Rationale
Threat of Forward
Integration
Favorable 1 0.15 Fuel suppliers do notpose a credible forward integration
threat to airlines.
Differentiation of
Supplier’s
Products/Services
Favorable 1 0.1 There is low differentiation among aviation fuels.
Substitutes for
Supplier’s
Products/Services
Unfavorable 5 0.1 Outside of varying compositions ofaviation fuels,there
are no substitutes.However,in the future there may be
alternative fuels to power commercial aircraft.
Individual Supplier
Power Effect
(Fuel-related
Suppliers)
Moderately
Unfavorable
3.7 0.2 Fuel makes up 30% of an airline’s operating
expenses (Commercial Fuel Policy, n.d.) and
prices are subject to fluctuating oil prices.
Supplier Group: Other Service Suppliers (technological systems, food/beverage catering, etc.)
Concentration
Ratio
Moderately
Favorable
2 0.15 For brevity, service suppliers for flightoperations,
including technologysuppliers,food/beverage suppliers,
and others,have been consolidated into the “service
supplier group.” There are typically many choices for
suppliers in these fields,thus concentration ratios are
not likely high.
Strategic
importance of the
supplier group to
the industry (and
vice versa)
Moderately
Unfavorable
4 0.25 These flightservices are generally essential to flight
operations.
Switching Costs Favorable 1 0.15 Switching costs are likely low.
Threat of Forward
Integration
Favorable 1 0.15 Service suppliers do notpose a credible forward
integration threat.
Differentiation of
Supplier’s
Products/Services
Moderately
Favorable
2 0.15 There is low differentiation among other service
suppliers.
Substitutes for
Supplier’s
Products/Services
Unfavorable 5 0.15 There are no substitutes for these services.
Individual Supplier
Power Effect
(Other Service
Suppliers)
Neutral 2.65 0.1 There are a multitude of service suppliers from
which to contract with.
Overall Supplier
Power Effect on
Industry
Moderately
Unfavorable
3.71 1 High supplier power is driven by airports, aircraft
manufacturers, and fuel suppliers.
Levels 1 and 2 Analyses for Threat of Substitutes
Substitute Groups chosen for Analysis: Trains, Automobiles, and Web-conferencing

67. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 61
Factors
Underlying Threat
of Substitutes
Effect on
Industry
Score
(1-5) Weight Rationale
Substitute Group: Trains
Buyer’s propensity
to substitute
(closeness of the
substitute)
Moderately
Unfavorable
4 0.6 Air travel is typically used to traverse a long distance in
a shortamountof time.Thus,a critical substitute for
distance and time maybe trains.Trains also provide
the traveler with unoccupied time during travel (in
contrastto automobile,where the driver would be
occupied by driving), similar to air travel. Trains also
have more stations than airports have hubs,thus trains
may be more easilyaccessible for travel. Train and air
travel provide different experiences,but the function of
each is similar.
Price/Performance
of the substitute
Neutral 3 0.4 For a brief comparison,travel by train from London to
Paris can range from €66 to €404 (standard to
business premier class) (Eurostar,n.d.) with a train
travel time of approximately2.5 hours.Travel from
London to Paris by air would incur a cost of €40 to
€328 (economyto business class) (Brtish Airways,
n.d.) with an air travel time of less than 1.5 hours.
(Fares were compared for travel on the same day,
December 14,2016).Based on pricing and travel time,
air is a more attractive option with a shorter travel time
and cheaper fare.
Individual Threat of
Substitutes Effect
(Trains)
Moderately
Unfavorable
3.6 0.5 Trains can provide many of the same benefits as
air travel.
Substitute Group: Automobiles
Buyer’s propensity
to substitute
(closeness of the
substitute)
Favorable 1 0.6 Air travel is typically used to traverse a long distance in
a shortamountof time. Thus,a critical substitute for
distance and time maybe automobiles.Automobiles
offer the convenience of immediate accessibility,
privacy, and custom interior.However, deterrents from
this mode of transportation for distances otherwise
traveled by air include long drive times,traffic
conditions,and being occupied bythe act of driving (in
contrastto unoccupied time sitting on an airplane).
Price/Performance
of the substitute
Neutral 3 0.4 For a brief comparison,travel by automobile from
London to Paris would incur a travel cost of
approximately€66 (toll, fuel consumption,and road
tax) with a travel time of 5.5 hours (Maps & Route
Planner,2016).Travel from London to Paris by air
would incur a costof €40 to €328 (economyto
business class) (Brtish Airways,n.d.) with an air travel
time of less than 1.5 hours.Based on pricing and
travel time,air can be a more attractive option.
Individual Threat of
Substitutes Effect
(Automobiles)
Moderately
Favorable
1.8 0.25 Air travel provides unique value over the
inconvenience of automobiles for long distances.
Substitute Group: Web-conferencing
Buyer’s propensity
to substitute
(closeness of the
substitute)
Moderately
Favorable
2 0.4 Web-conferencing as a means to avoid business travel
may be a reasonable substitute for airlines.The World
Travel and Tourism Council cites thatin 2014
business-related travel contributed to 22.3% of
Europe’s Gross Domestic Product(GDP), with leisure
making up the remaining amountofthe travel and

68. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 62
Factors
Underlying Threat
of Substitutes
Effect on
Industry
Score
(1-5) Weight Rationale
tourism pie (World Travel & Tourism Council,n.d.).
This illustrates thata minor portion of existing business
travelers could consider web-conferencing (assuming
that business travelers would have made the switch by
now) - thus,implying that web-conferencing does not
pose a serious future threatto the aviation industry.
Price/Performance
of the substitute
Neutral 3 0.6 Price is very attractive as web-conferencing saves time
and money (only need existing information technology
services).However, users mayexperience decreased
performance ifmore value is derived from visits in
person (such as building relationships,site visits, etc.).
Individual Threat of
Substitutes Effect
(Web-
conferencing)
Moderately
Favorable
2.6 0.25 Web-conferencing cannot be substituted for air
travel in all cases.
Overall Threat of
Substitutes Effect
on Industry
Neutral 2.9 1 Air travel still provides unique value over
substitutes.
Levels 1 and 2 Analyses for Threat of Complements
Complement Groups chosen for Analysis: Airports, Travel and Content
Agencies/Websites, Hotels/Lodging, and Tourist Attractions
Factors Underlying
Threat of
Complements
Effect on
Industry
Score
(1-5) Weight Rationale
Complement Group: Airports
Relative
Concentration
Moderately
Favorable
2 0.2 In the top five airports with the highestpassenger
traffic in the first two months of2016 (Heathrow -
London,Charles de Gaulle - Paris,Frankfurt Main,
Schiphol - Amsterdam,and Barajas - Madrid) totaled
25% of passengers flying in Europe. This represents
a lower concentration ratio than the industry
concentration of 47% (Lufthansa Group,2016, p. 22).
Relative Switching
Costs
Moderately
Favorable
2 0.2 As travelers are more likely to depart from airports
closer to their location base,it is easier to switch
across airlines atan airportthan to switch airports.
Ease of Bundling Favorable 1 0.15 Travelers cannot board commercial airlines without
traversing through an airport.
Differences in Pull
Through (Influence
on Demand)
Favorable 1 0.15 Commercial airlines pull demand through airports.
Asymmetric
Integration
Favorable 1 0.1 With current regulations,itis difficultfor airlines or
airports to invade each other’s’ industries.
Rate of growth of
the profit opportunity
Favorable 1 0.2 Because the aviation industryis growing (Air
Passenger,2015).Size of the value pie is therefore
growing at an increasing rate for airlines and airports.
Individual Threat of
Complements Effect
(Airports)
Moderately
Favorable
1.4 0.3 Airlines cannot operate without airports and vice
versa.

69. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 63
Factors Underlying
Threat of
Complements
Effect on
Industry
Score
(1-5) Weight Rationale
Complement Group: Travel and Content Agencies/Websites
Relative
Concentration
Favorable 1 0.1 There are numerous travel agencies and content
websites - on the firm-, independent-,and just-for-
fun- levels.Thus, the concentration ratio is likely less
than that of the industry.
Relative Switching
Costs
Favorable 1 0.15 Switching costs are low for both airlines and
agencies/websites.However,a user may peruse
more travel websites than airlines when booking a
trip.
Ease of Bundling Favorable 1 0.15 Travelers can book flights and plan trips withoutusing
travel agencies and contentwebsites.
Differences in Pull
Through (Influence
on Demand)
Neutral 3 0.3 Travel agencies and contentwebsites have a hand in
influencing tourism,however it is arguable whether
they play a greater role in the pull-through ofdemand.
Asymmetric
Integration
Favorable 1 0.1 Travel agencies and contentwebsites are notlikely to
enter the airline industry.
Rate of growth of
the profit opportunity
Favorable 1 0.2 Because the airline industryis growing (Air
Passenger,2015),travel agencies and content
websites maysee more opportunities for profit.
Individual Threat of
Complements Effect
(Travel and Content
Agencies/Websites)
Moderately
Favorable
1.6 0.2 Travel websites do not drive demand nor is
there a risk of asymmetric integration.
Complement Group: Hotels/Lodging
Relative
Concentration
Favorable 1 0.15 Based on hotel room data in Europe from Eurostat
and HospitalityOn, the total number ofhotel rooms in
Europe totaled 6,622,628 (Tourism Statistics,2015)
and the number of hotel rooms by the top five hotel
groups amounted to approximately557,000
(HospitalityOn - Think Tank, 2014). From these
numbers,itcan be inferred that the hotel
concentration is on the order of 8%, which is less
than the airline industryconcentration of47%
(Lufthansa Group,2016,p. 22).
Relative Switching
Costs
Favorable 1 0.2 Switching costs are low for both airlines and hotels.
Ease of Bundling Favorable 1 0.15 Flights and lodging can be booked independently.
Differences in Pull
Through (Influence
on Demand)
Favorable 1 0.2 Hotels have little pull-through influence on the
aviation industry.
Asymmetric
Integration
Favorable 1 0.1 Hotels are not likely to enter the airline industry.
Rate of growth of
the profit opportunity
Favorable 1 0.2 Because the airline industryis growing (Air
Passenger,2015),hotels maysee more opportunities
for profit.
Individual Threat of Favorable 1 0.2 Hotels/lodging do not drive demand nor is there

70. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 64
Factors Underlying
Threat of
Complements
Effect on
Industry
Score
(1-5) Weight Rationale
Complements Effect
(Hotels/Lodging)
a risk of asymmetric integration.
Complement Group: Tourist Attractions
Relative
Concentration
Favorable 1 0.1 There are many reasons to engage in non-business
travel, thus the concentration ratio is low.
Relative Switching
Costs
Favorable 1 0.1 Switching costs are low for both airlines and tourist
attractions.
Ease of Bundling Favorable 1 0.1 Booking flights and engaging in touristattractions
happen independentlyof one another.
Differences in Pull
Through (Influence
on Demand)
Unfavorable 5 0.4 For non-business travel (77.3% contribution of travel
and tourism earnings into Europe’s GDP (World
Travel & Tourism Council,n.d.)),touristattractions
may greatly influence the demand for air travel.
Asymmetric
Integration
Favorable 1 0.1 Touristattractions are not likely to enter the airline
industry.
Rate of growth of
the profit opportunity
Moderately
Favorable
2 0.2 Touristattractions and airlines both benefitfrom
growth in their linked industries.
Individual Threat of
Complements Effect
(Tourist Attractions)
Neutral 2.8 0.3 Tourist attractions drive demand, however,
there is no risk of asymmetric integration.
Overall Threat of
Complements
Effect on Industry
Favorable 1.78 1 With the exception of tourist attractions,
complements do not drive demand nor do they
pose a risk of asymmetric integration.

71. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 65
Exhibit E – Six Forces Analysis (Level 3)
Force
Score
(1-5) Weight
Barriers to Entry 2.85 0.2
Threat of Rivalry 4.15 0.25
Buyer Power 3.85 0.2
Supplier Power 3.71 0.2
Airports 4.2 0.3
Aircraft Manufacturers 3.95 0.3
MRO 2.6 0.1
Fuel-related Suppliers 3.7 0.2
Other Service Suppliers 2.65 0.1
Threat of Substitutes 2.9 0.1
Trains 3.6 0.5
Automobiles 1.8 0.25
Web-conferencing 2.6 0.25
Threat of Complements 1.78 0.05
Airports 1.4 0.3
Travel and Content Websites/Agencies 1.6 0.2
Hotels/Lodging 1 0.2
Tourist Attractions 2.8 0.3
Overall Attractiveness of the Industry 3.5
Moderately
Unfavorable
Exhibit F – Distribution of FSC versus LCC Market Share in 2013
Source: Israel, M. (2015) AirlinePROFILER

72. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 66
Exhibit G – Market Share of European Based Airlines
Number of Passengers (2015)
An asterisk (*) indicates numbers based on 2014 data. Source: Wikipedia, 2015.

73. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 67
Exhibit H – Key Characteristics of Full and Low Cost Air Carriers
Full Service Carriers (FSCs) Low Cost Carriers (LCCs)
 Full transfer capabilities, resulting in an
offering of short haul flights, as well
as an expanded offering of long haul
segments
 Focus on primary “hub” airports
 Greater global reach and destinations
 Various aircraft models
 Complimentary services such as in-
flight meals, newspapers, no baggage
fees
 Business and first class, including
lounge access, free food and alcoholic
drinks, and lounge-to-flight private car
services
 Code sharing and greater focus on
loyalty programs, including
 Various fare offerings
 Often engage in cargo/MRO
 Point-to-point flight segments, which do
not allow passengers to transfer; thus,
most flights are short-haul, and provide
less access for business travelers
 Focus on secondary, more remote
airports
 High aircraft utilization and load factor
 Quick airplane turnaround
 High punctuality
 Purchase only one single model of
airplane
 Lower overhead
 Fees for all services and extras beyond
airfare (meals, baggage, etc.)
 Single class configuration, resulting in a
greater percentage of “leisure” travelers
as opposed to business
 Often engage in offering ancillary
services such as hotel room booking
 “Business” class, if offered, is extremely
limited: it is generally comprised of an
assigned economy seat with the
reduction of baggage fees and a snack
 Loyalty programs may be limited to that
one airline, as opposed to sharing with
codeshare partners

74. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 68
Exhibit I – Lufthansa’s Primary Competitors
*Source: Lufthansa Annual Report,
2015

75. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 69
Exhibit J – Porter’s Generic Business Level Strategies: Competitors

76. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 70
Exhibit K – VRIO Analysis: Competitors*
Ryanair
Resource /
Capability
Details Valuable? Scarce
/ Rare
?
Difficult to
Imitate?
Exploited
by the
Firm?
Competitive
Implications
European pioneer
in costreduction
know how and
innovation
Fly only to
secondary
airports,impose
fees for everything
beyond airfare,
high plane
utilization, high
passenger load,
quick turnaround,
in-plane ads
Yes Yes Yes
Exploitation of
organizational
capabilities and
resources, first
mover
advantage
Yes Sustained
Competitive
Advantage
Low overhead Lower pensions
and salaries
Yes Yes No Yes Temporary
Competitive
Advantage
Young fleet of
uniform aircraft
Strong purchasing
power since
buying in bulk
Yes No No Yes Parity
Understanding of
the ancillary(hotel
/ ground transport)
services market
Importantsince
Ryanair flies to
secondaryairports
often far from city
centers where
transportis
needed
Yes No No Yes Parity
Strong, unique
leadership
Michael O’Leary,
quite a character,
has been CEO
since 1994
Yes Yes Yes
Socially
complex
resources
Yes Sustained
Competitive
Advantage
Further Explanations: Due to Ryanair’s hold on secondaryairports,in combination with a hostof pioneered and
innovative cost reducing strategies,we believe that difficulty in fully imitating Ryanair exists.Low overhead costs are
difficult for full service companies to achieve, due to generous pension and salaries established in decades prior
(major recentand numerous personnel strikes atLufthansa and Air France show the difficulty of reducing employee
compensation),yet are easier for low cost carriers to attain.
Air France - KLM
Resource /
Capability
Details Valuable? Scarce
/ Rare
?
Difficult to
Imitate?
Exploited
by the
Firm?
Competitive
Implications
Brand strength 2016:KLM voted
“BestAirline” by a
panel of Dutch
Yes Yes Yes
Causal
Ambiguity
Yes Sustained
Competitive
Advantage

77. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 71
consumers,Air-
France group was
voted #3 in
Fortune’s “World’s
Most Admired
Companies,” Air
France
established 1934
Brand variety
(within one group)
Hop! and
Transavia
subsidiaries
Yes Yes No Yes Temporary
Competitive
Advantage
Cleaner fuels Major investments
in biofuel
Yes Yes No Yes Temporary
Competitive
Advantage
787 Dreamliner
purchases
One of the newest,
quietestplanes on
the market
Yes Yes No Yes Temporary
Competitive
Advantage
Control over two
leading European
hubs
Both Charles de
Gaulle and Schipol
are two of the top
5 largestEU
airports
Yes Yes Yes
Historical
Yes Sustained
Competitive
Advantage
Reputation for
culinary
excellence in
business /first
Creation of menus
by Michelin starred
chefs
Yes No No Yes Parity
Well balanced
global presence
Protects the
companyin case
of regional
downturns
Yes Yes Yes
Organizational
capabilities
Yes Sustained
Competitive
Advantage
Economies of
scale
Realized through
combination oftwo
major flagship
carriers
Yes Yes Yes
Exploitation of
resources
Yes Sustained
Competitive
Advantage
Further Explanations: In terms ofbrand variety, few airlines are large enough to buy air subsidiaries.However,the
effects of brand variety can also be achieved by offering code-share agreements,allowing other airline carriers to act
as partners (for example,a customer can earn miles on Lufthansa ifflying with United,or a long haul flightwill include
a local transfer through a partner), thus imitation is occurring. Economies ofscale are difficultto imitate, as only a
few airline groups ofthis size and scale existin Europe.Fuel efficiency measures (clean fuels,consumption,etc.) are
in place at several airlines,thus imitable.
International Airlines Group
Resource /
Capability
Details Valuable? Scarce
/ Rare
?
Difficult to
Imitate?
Exploited
by the
Firm?
Competitive
Implications
Brand variety Aer Lingus,British
Airways, Iberia,
Vueling
Yes Yes No Yes Temporary
Competitive
Advantage

78. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 72
Autonomous
subsidiaries
Independent
brands are more
agile and able to
adaptto their
markets
Yes No Yes
Organizational
capabilities
Yes Parity
R&D in flight fuel
consumption
management
systems
Investing in data
analytics
technologyto both
save fuel and
lower CO2
emissions
Yes Yes No Yes Temporary
Competitive
Advantage
Brand strength 2015:British
Airways wins
“UK’s Leading
Brand” title
Yes Yes Yes
Causal
ambiguity
Yes Sustained
Competitive
Advantage
Internal IAG
Platform
Synergies and
economyof scale
realized through
shared back-office
functions,IT,
procurement,
finance
Yes Yes Yes
Exploitation of a
resource
Yes Sustained
Competitive
Advantage
Extremely global
presence
Reach a wide
geographyof
customers
Yes Yes Yes
Organizational,
exploitation of
resources
Yes Sustained
Competitive
Advantage
Further Explanations: Like with Air France, brand variety can be imitated by smaller airlines who partner with other
airlines.Developing and investing in internal platforms such as the IAG Platform,and in a heavy global presence,
takes tremendous effort(time,cost, employees,restructuring),leading to a high imitation barrier.
easyJet
Resource /
Capability
Details Valuable? Scarce
/ Rare
?
Difficult to
Imitate?
Exploited
by the
Firm?
Competitive
Implications
Integrated
web/mobile/CRM
system
Customer facing
and internal
benefits
Yes Yes Yes
Exploitation of a
resource
Yes Sustained
Competitive
Advantage
Costsavings
know-how
High fleet
utilization, quick
turnaround
Yes Yes No Yes Temporary
Competitive
Advantage
Low overhead Less costly
pensions
Yes Yes No Yes Temporary
Competitive
Advantage
Focus on
employees
Better relations to
staff than many
low cost
competitors,can
also translate to
better customer
Yes Yes Yes
Socially
complex
resources
Yes Sustained
Competitive
Advantage

79. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 73
service (happier
employees)
Long term
contracts with
primaryairports
Lowers costand
ensures access to
hub airports
Yes No No Yes Parity
Young fleet of
uniform aircraft
Strong purchasing
power since
buying in bulk
Yes No No Yes Parity
Further Explanations: easyJet’s low costknow-how lags that of Ryanair’s,due to less usage ofsecondaryairports
and less innovative (and controversial) costcutting. Long term airportcontracts are valuable but can be negotiated by
others.
Air Berlin
Resource /
Capability
Details Valuable? Scarce
/ Rare
?
Difficult to
Imitate?
Exploited
by the
Firm?
Competitive
Implications
Two key hubs in
Germany
2nd largestairline
in Germany
Yes Yes Yes
Historical
Yes Sustained
Competitive
Advantage
Etihad Airlines:
29% ownership of
Air Berlin
Codeshare and
partner
possibilities
Yes No No Yes Parity
Internal PROS
revenue
management
system
Digital distribution,
forecasting
capabilities
Yes Yes Yes
Exploitation of a
resource
Yes Sustained
Competitive
Advantage
Managerial
turnaround
80% of top
managers were
replaced
Yes Yes Yes
Organization
Remains to
be seen
Parity
Airline leasing No ownership of
planes.Less risky,
covers lack of
capital (The
Economist,2012).
Yes No No Yes Parity
Extensive
employee training
In-house only Yes No Yes
Organization,
sociallycomplex
resources
Yes Parity
Fuel efficient
technology
12% better than
the average
consumed by
German airlines
Yes Yes No Yes Temporary
Competitive
Advantage
Further Explanations: Internal systems,such as Air Berlin’s PROS or the IAG Platform, developed specificallyfor
those carriers,are thus scarce and difficult to imitate.Air Berlin’s radical change ofmanagementposes an uncertain
outcome.Airplane leasing is often recommended for younger or smaller firms who lack cash or unwilling to take on
debt; however, purchasing is cheaper in the long term (over 30 years).

80. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 74
Lufthansa
Resource /
Capability
Details Valuable? Scarce
/ Rare
?
Difficult to
Imitate?
Exploited
by the
Firm?
Competitive
Implications
Brand variety
(within Passenger
Airlines group)
SWISS Airlines,
Eurowings,
Austrian Airlines
Yes Yes No Yes Temporary
Competitive
Advantage
Complementary
Business Units
Logistics,MRO &
Catering
Yes No No Yes Parity
Brand Reputation Germany’s
flagship carrier -
long history & well
established
Yes Yes Yes
Historical
Yes Sustained
Competitive
Advantage
Positive public
opinion:Awarded
first place in two
categories at
Skytrax World
Airline Awards
2016
‘BestAirline
Transatlantic’ and
‘BestAirline in
Western Europe’
based on 18
million user &
passenger survey
responses
(Excellent –
awards won by
Lufthansa,n.d.)
Yes Yes Yes
Causal
ambiguity
Yes Sustained
Competitive
Advantage
Dominant
Presence at
Frankfurt &
Munich Hub
Airports
Holds ~60% of
flights and seats at
the 4th (Frankfurt)
and 7th (Munich)
busiestairports in
Europe
(Listof Busiest…,
2016)
(Airline Analysis,
2009)
Yes Yes Yes
Historical
Yes Sustained
Competitive
Advantage
152 aircrafts from
the A320 family
Economical and
reliable planes -
large setenables
economic
efficiency
opportunities and
economies of
scale,reducing
overall cost
Yes No No Yes Parity
Ownership of
Airbus 380s for
long-haul routes
Largestplane on
the market(526
passenger
capacity) +
customized gates
to accommodate;
quieter and more
fuel efficientthan
Yes Yes No Yes Temporary
Competitive
Advantage

81. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 75
older models;< 10
yrs old
Lufthansa
Business School -
investing in human
capital (knowledge
& culture)
Corporate
university that
offers courses to
employees on
interdisciplinary
topics,on the job
training and
customized
executive
education
(Deutsche
Lufthansa,2010)
Yes Yes Yes
Socially
complex
resources
Yes Sustained
Competitive
Advantage
Further Explanations: Lufthansa creates a sustained competitive advantage through its strong brand reputation,
dominantpresence atpopular hub airports,and strong investmentin human capital.
Brussels Airlines
Resource /
Capability
Details Valuable? Scarce
/ Rare
?
Difficult to
Imitate?
Exploited
by the
Firm?
Competitive
Implications
Strong control and
relations with
Brussels Airport
Brussels Airlines
has largest
passenger seat
marketshare at
Brussels Airport
and strong
contractual ties to
enable fleetand
destination growth
(“Brussels Airlines
Invests”, 2015).
Yes Yes Yes
Historical
Yes Sustained
Competitive
Advantage
Brand strength Awarded “Best
Short Haul Airline”
by Travel
Magazine in 2014
for 11th time and
3rd most
respected Belgian
brand in 2016
(“Once Again”,
2016).
Yes Yes Yes
Causal
ambiguity
Yes Sustained
Competitive
Advantage
Access to African
destinations from
Europe
Brussels Airlines
serves over 14
destinations in
Africa. “It boasts
one of the most
extensive long-
haul networks to
Africa of any
European airline”
(Kjelgaard, 2015)
Yes Yes Yes
Historical,
exploitation of a
resource
(network)
Yes Sustained
Competitive
Advantage

82. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 76
CEO and
Leadership
100% of employee
Glassdoor reviews
approve of CEO.
Bernard Gustin
awarded
“Entrepreneur of
the Year” Lobby
Awards 2014
Yes Yes Yes
Socially
complex
resources
Yes Sustained
Competitive
Advantage
Tomorrowland
Partnership
Partnership and
brand association
to young and hip
event that draws
global attention
Yes Yes Yes
Exploitation of a
resource
Yes Sustained
Competitive
Advantage
Excellent wine
served
Won “Wines on
the Wing” award
for 3rd time in a
row
Yes No No Yes Parity
Product selection Four European
productoptions:
check&go,
light&easy,
flex&fast, and
bizz&class
targeted to
different customer
preferences.
Yes No No Yes Parity
Further Explanations:
*Sources from 2015 Annual Reports, unless otherwise noted.

83. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 77
Exhibit L – Comparative Financial Metrics
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Lufthansa
Group
International
Airlines Group
Air France-KLM easyJet Ryanair Air Berlin
Gross Margin
2011 2012 2013 2014 2015
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
Lufthansa
Group
International
Airlines Group
Air France-KLM easyJet Ryanair Air Berlin
Profit Margin
2011 2012 2013 2014 2015
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
Lufthansa
Group
International
Airlines Group
Air France-KLM easyJet Ryanair Air Berlin
Return on Assets
2011 2012 2013 2014 2015

84. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 78
0
0.5
1
1.5
2
2.5
Lufthansa Group International
Airlines Group
Air France-KLM easyJet Ryanair Air Berlin
Current Ratio
2011 2012 2013 2014 2015
0
0.5
1
1.5
2
Lufthansa Group International
Airlines Group
Air France-KLM easyJet Ryanair Air Berlin
Quick Ratio
2011 2012 2013 2014 2015
0
5
10
15
20
25
Lufthansa Group International
Airlines Group
Air France-KLM easyJet Ryanair Air Berlin
Debt to Equity Ratio
2011 2012 2013 2014 2015

85. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 79
70.00%
75.00%
80.00%
85.00%
90.00%
95.00%
Lufthansa
Group
International
Airlines Group
Air France-KLM easyJet Ryanair Air Berlin
PassengerLoad Factor
2011 2012 2013 2014 2015
€ -
€ 0.0200
€ 0.0400
€ 0.0600
€ 0.0800
€ 0.1000
Lufthansa
Group
International
Airlines Group
Air France-KLM easyJet Ryanair Air Berlin
PassengerRevenue per Available Seat Kilometer
(RASK)
2011 2012 2013 2014 2015
€ -
€ 0.0200
€ 0.0400
€ 0.0600
€ 0.0800
€ 0.1000
Lufthansa
Group
International
Airlines Group
Air France-KLM easyJet Ryanair Air Berlin
PassengerCost per Available Seat Kilometer
(CASK)
2011 2012 2013 2014 2015

86. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 80
€ -
€ 100,000.00
€ 200,000.00
€ 300,000.00
€ 400,000.00
€ 500,000.00
€ 600,000.00
€ 700,000.00
Revenue per Employee
€ -
€ 10,000.00
€ 20,000.00
€ 30,000.00
€ 40,000.00
€ 50,000.00
€ 60,000.00
€ 70,000.00
€ 80,000.00
€ 90,000.00
Compensation per Employee
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
Lufthansa
Group
International
Airlines Group
Air France-KLM easyJet Ryanair Air Berlin
Profit Margin

87. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 81
Exhibit M – Lufthansa Business Unit Financial Analysis

88. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 82
Exhibit N – V-C Analysis: Competitors
NumberValueDriversIncludesImportance
(0-100%)
Rating
(1to5)
Weighted
ValueRating
Weighted
ValueRating
Weighted
ValueRating
Weighted
ValueRating
Weighted
ValueRating
Weighted
ValueRating
Weighted
Value
Rating
(1to5)
Weighted
Value
1In-flightcomfort
Legroom,seatcomfort,
cleanliness7.50%
3
0.225
3
0.225
2
0.15
2
0.15
3
0.22530.22520.1530.225
2In-flightofferings
Foodandbev,entertainment
system,ageoffleet5.00%
2
0.1
2
0.1
2
0.1
2
0.1
2
0.110.0510.0520.1
3CustomerService
Check-inandboardingservice,in
flightservice15.00%
2
0.3
3
0.45
3
0.45
3
0.45
3
0.4540.620.320.3
4Perceivedvalueformoney
Price,feesforcheckedbags,seat
assignment,etc.30.00%
3
0.9
4
1.2
3
0.9
2
0.6
3
0.941.251.530.9
5TravelConvenience
Routes,destinations,frequency,
airportlocation,traveltime,
transfercapabilities20.00%
4
0.8
3
0.6
2
0.4
2
0.4
3
0.620.410.251
6PremiumServices
Businessclass,loungesand
premiumextras,varietyoffare
options7.50%
2
0.15
3
0.225
2
0.15
2
0.15
4
0.330.22510.07530.225
7RewardProgram
Codeshareagreement,loyalty
program10.00%
4
0.4
4
0.4
4
0.4
2
0.2
3
0.320.210.140.4
8Reputationofbrand
Perceptionofsafety,
environmentalpractices,
employeerelations5.00%
3
0.15
3
0.15
3
0.1530.15
3
0.1540.220.130.15
Sum100.00%3.0253.352.72.23.0253.12.4753.3
Ryanair
Eurowings+
BrusselsEurowingsBrussels
AirFrance-KLM
(Transavia)IAG(Vueling)AirBerlinEasyjet

89. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 83
*For Lufthansa Eurowings value driver weight explanation, see Error! Reference source not
found..

90. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 84
Exhibit O – Lufthansa BCG Matrix Analysis
Exhibit P – Lufthansa Eurowings V-C Analysis (Supplemental Information)
Value Drivers: Eurowings Value Add:
In-flight Comfort Airbus A330, Airbus A320, Airbus A319 and Bombardier CRJ900 NextGen
Seat comfort: 3 out of 5 stars
(Eurowings Customer Reviews,n.d.)
In-flight Offerings In-flight magazine
“Travel media” - daily news you can download on your smartphone/tablet
Food offerings:
Basic:nothing - can purchase food or drink on the flight
Smart: “hearty snack”,water bottle and one drink of choice
Best: special a la carte catering selection - choose snack & drink for free
1.7 out of 5 stars
(Eurowings Customer Reviews,n.d.)
Customer Service Basic Accommodations:
Quick notification of any changes,delays,cancellations
Deliver bags on time (goal)
Issue ticketrefund within 7 days (when applicable)
Accommodates all passengers - including disabilities & special needs
Consistencyof service with code sharing partners
(Customer Service Plan,n.d.)
Perceived Value for
Money
Goal - offering the lowestfair
3 out of 5 stars
(Eurowings Customer Reviews,n.d.)
Travel Convenience Currently all short-haul routes within Europe (with intention to expand)
130 + destinations
(Route Network, n.d.)
Premium Services Offer BASIC, SMART and BEST fares
Reward Program Boomerang club (10,000 miles then a free flight)
Miles & More: connected with Lufthansa reward program (FrequentFlyer and awards
program in Europe)
Hotels,rental cars,private jet travel, earn points and can use them for rewards in
any of these spaces
Reputation of Brand Strong - Eurowings is new

91. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 85
Sinking based on customer experience
Overall 4 out of 10
(Eurowings Customer Reviews,n.d.)

92. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 86
Exhibit Q – Lufthansa Value Chain Analysis

93. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 87
Exhibit R – Brussels Airlines Value Chain Analysis

94. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 88
Exhibit S – Ally or Acquire Framework
Dimension of Analysis Recommended
Strategy
Types of
Synergies
Reciprocal Synergies
Access to new markets
Fleet standardization
Route optimization
Reduced SGA
Acquisition
Types of
Resources
Both hard and soft
Hard: Added airline fleet, hub dominance
Soft: Brand, reputation, knowledge, human capital, partnerships
Acquisition or
Equity Alliance
Market
Conditions
Low/medium market uncertainty. Consolidation of airlines has been
slow in Europe compared to in the U.S. However, high fragmentation
of the European market begets inevitable consolidation (Canelas &
Ramos, 2016). Air traffic is projected to grow by 50% by 2035 (Airport
Capacity & Airport Slots, n.d.), subject to unforeseeable macro
environmental factors.
Acquisition
Conclusion: The synergies and market conditions strongly recommend acquisition.

95. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 89
Exhibit T – Synergy Analysis
Synergy Benefit Type Synergy Type Worst Better Best
Access to new markets: better end-
to-end flight offerings
(routes/destinations), including much
stronger presence to Africa from
Europe
Base
Increase
Reciprocal 0% 0.75% 1.50%
Fleet standardization: 40 added
planes are all Airbus A320s, an
economical and reliable plane, ideal
for short to middle length flights
Cost
Reduction
Sequential 0% 0.125% 0.25%
Route optimization: greater control
of Brussels airport, better scheduling
and gate assignments, opportunity to
use Brussels as a hub / synergy with
LH's strong present at FRA and
Munich
Revenue
Increase
Reciprocal 0% 0.25% 0.50%
Reduced SGA Cost
Reduction
Sequential 0% 0.25% 0.50%
Base increase calculated as % of combined FCF
Revenue increase calculated as % of combined Revenue
Cost Reduction calculated as % of combined Operating Expenses
Synergy Analysis
2016F 2017F 2018F 2019F 2020F
Lufthansa Revenue 32,830€ 33,623€ 34,435€ 35,267€ 36,119€
Brussels Revenue 1,319 1,365 1,413 1,463 1,514
Combined Revenue 34,149€ 34,988€ 35,848€ 36,730€ 37,633€
% Applied 0% 0% 0% 0% 0%
Value of Revenue Increase Synergy - - - - -
Lufthansa Operating Expenses 34,260€ 35,088€ 35,935€ 36,803€ 37,692€
Brussels Operating Expenses 1,291 1,336 1,383 1,432 1,482
Combined Operating Expenses 35,551€ 36,424€ 37,318€ 38,235€ 39,174€
% Applied 0% 0% 0% 0% 0%
Value of Cost Reduction Synergy - - - - -
Lufthansa FCF 592€ 607€ 621€ 636€ 652€
Brussels FCF 18 19 19 20 21
Combined FCF 610€ 625€ 641€ 656€ 673€
% Applied 0% 0% 0% 0% 0%
Value of Base Increase Synergy - - - - -
Synergy Value Breakdown By Year (Worst)

96. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 90
2016F 2017F 2018F 2019F 2020F
Lufthansa Revenue 32,830€ 33,623€ 34,435€ 35,267€ 36,119€
Brussels Revenue 1,319 1,365 1,413 1,463 1,514
Combined Revenue 34,149€ 34,988€ 35,848€ 36,730€ 37,633€
% Applied 0.25% 0.25% 0.25% 0.25% 0.25%
Value of Revenue Increase Synergy 85.37€ 87.47€ 89.62€ 91.82€ 94.08€
Lufthansa Operating Expenses 34,260€ 35,088€ 35,935€ 36,803€ 37,692€
Brussels Operating Expenses 1,291 1,336 1,383 1,432 1,482
Combined Operating Expenses 35,551€ 36,424€ 37,318€ 38,235€ 39,174€
% Applied 0.375% 0.375% 0.375% 0.375% 0.375%
Value of Cost Reduction Synergy 133.32€ 136.59€ 139.94€ 143.38€ 146.90€
Lufthansa FCF 592€ 607€ 621€ 636€ 652€
Brussels FCF 18 19 19 20 21
Combined FCF 610€ 625€ 641€ 656€ 673€
% Applied 0.75% 0.75% 0.75% 0.75% 0.75%
Value of Base Increase Synergy 4.58€ 4.69€ 4.81€ 4.92€ 5.04€
Synergy Value Breakdown By Year (Better)
2016F 2017F 2018F 2019F 2020F
Lufthansa Revenue 32,830€ 33,623€ 34,435€ 35,267€ 36,119€
Brussels Revenue 1,319 1,365 1,413 1,463 1,514
Combined Revenue 34,149€ 34,988€ 35,848€ 36,730€ 37,633€
% Applied 0.50% 0.50% 0.50% 0.50% 0.50%
Value of Revenue Increase Synergy 170.74€ 174.94€ 179.24€ 183.65€ 188.16€
Lufthansa Operating Expenses 34,260€ 35,088€ 35,935€ 36,803€ 37,692€
Brussels Operating Expenses 1,291 1,336 1,383 1,432 1,482
Combined Operating Expenses 35,551€ 36,424€ 37,318€ 38,235€ 39,174€
% Applied 0.75% 0.75% 0.75% 0.75% 0.75%
Value of Cost Reduction Synergy 266.63€ 273.18€ 279.89€ 286.76€ 293.80€
Lufthansa FCF 592€ 607€ 621€ 636€ 652€
Brussels FCF 18 19 19 20 21
Combined FCF 610€ 625€ 641€ 656€ 673€
% Applied 1.50% 1.50% 1.50% 1.50% 1.50%
Value of Base Increase Synergy 9.16€ 9.38€ 9.61€ 9.85€ 10.09€
Worst case defined as no synergies realized
Better case defined as 1/2 of identified synergies realized
Best case defined as full amount of identified synergies realized
Synergy Value Breakdown By Year (Best)

97. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 91
Exhibit U – VRIO Post Merger Analysis
Lufthansa (after merger with Brussels Airlines)
Resource /
Capability
Details Valuable
?
Scarce
/ Rare
?
Difficult
to
Imitate?
Exploited
by the
Firm?
Competitive
Implications
Brand variety
(within Passenger
Airlines group)
SWISS Airlines,
Eurowings,
Austrian, Brussels
Airlines
Yes Yes No Yes Temporary
Competitive
Advantage
Complementary
Business Units
Logistics,MRO &
Catering
Yes No No Yes Parity
Brand Reputation Germany’s flagship
carrier - long history
& well established
Yes Yes Yes
Historical
conditions
Yes Sustained
Competitive
Advantage
Positive public
opinion
‘BestAirline
Transatlantic’ and
‘BestAirline in
Western Europe’
based on 18 million
user & passenger
survey responses
(K, 2016)
Brussels Awarded
“BestShort Haul
Airline” by Travel
Magazine in 2014
for 11th time and
3rd mostrespected
Belgian brand in
2016
(Brussels Airlines
Customer Reviews,
n.d.).
Yes Yes Yes Causal
ambiguity
Yes Sustained
Competitive
Advantage
Dominant
Presence at
Frankfurt, Munich
& Brussels
(acquired)
Airports
Holds ~60% of
flights and seats at
the 4th (Frankfurt)
and 7th (Munich)
busiestairports in
Europe + 33.8% at
the 21stbusiest
airportin Europe
(Listof the Busiest
Airports in Europe,
n.d.)
(Anna.Aero, 2009).
Yes Yes Yes
Historical
conditions
+
acquisition
Yes Sustained
Competitive
Advantage
192 (152 + 40
acquired) aircrafts
from the A320
family
Economical and
reliable planes -
large setenables
economic efficiency
opportunities and
Yes No No Yes Parity

98. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 92
economies ofscale,
reducing overall
cost.
Ownership of
Airbus 380s for
long-haul routes
Largestplane on
the market(526
passenger capacity)
+ customized gates
to accommodate;
quieter and more
fuel efficientthan
older models;< 10
yrs old.
Yes Yes No Yes Temporary
Competitive
Advantage
Lufthansa
Business School -
investing in
human capital
(knowledge &
culture)
Corporate university
that offers courses
to employees on
interdisciplinary
topics,on the job
training and
customized
executive education
(Deutsche
Lufthansa AG,
2010).
Yes Yes Yes
Social
Complexity
Yes Sustained
Competitive
Advantage
Access to African
destinations from
Europe
Brussels Airlines
serves over 14
destinations in
Africa. “It boasts
one of the most
extensive long-haul
networks to Africa
of any European
airline.”
Yes Yes Yes
Historical
conditions
+
acquisition
Likely Yes Probable
Sustained
Competitive
Advantage
Further Explanations: Blue text indicates changes in VRIO analysis with the acquisition ofBrussels Airlines.
Lufthansa’s main resource gains through the acquisition are access to African destinations,dominance atBrussels
Airport and increased pointto point offerings.The realization of benefits from these resources will be dependenton
Lufthansa’s short- and long-term strategies following the acquisition.
Exhibit V – Cost of Entry Test
Maximum acquisition cost 250,000€
% of Brussels acquired 55%
Derived current fair value
of firm based on
acquisition price 454,545€
Total fair value of equity
based on DCF 565,016€
Fair value of % acquired
based on DCF 310,759€
Acquisition cost is linked to performance-related factors, but price ceiling is 250m Euros
Cost of Entry Test (in thousands)

99. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 93
Exhibit W – Post Merger V-C Analysis
*See V-C Competitors for methodology.
Exhibit X– Lufthansa’s Revenue Growth Rate
See Financial Appendix.
Exhibit Y – Lufthansa Weighted Average Cost of Capital Analysis
See Financial Appendix.
Exhibit Z – Lufthansa’s Free Cash Flow Derivation
See Financial Appendix.

100. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 94
Exhibit AA – Lufthansa Discounted Cash Flow Analysis
20122013201420152016F2017F2018F2019F2020F
TotalRevenue30,135€30,027€30,011€32,056€32,830€33,623€34,435€35,267€36,119€
ChangesinInventoriesandWorkPerformedbyEntityandCapitalised113158212203184188193198202
OtherOperatingIncome2,7852,0431,8902,8322,5592,6212,6842,7492,815
CostofMaterialsandServices(17,946)(17,498)(17,283)(17,640)(18,914)(19,371)(19,838)(20,318)(20,808)
Staffcosts(6,741)(7,356)(7,335)(8,075)(7,920)(8,111)(8,307)(8,508)(8,714)
Depreciation,AmortisationandImpairment(1,839)(1,767)(1,528)(1,715)(1,841)(1,885)(1,931)(1,977)(2,025)
OtherOperatingExpenses(4,885)(4,756)(5,088)(6,106)(5,585)(5,720)(5,858)(6,000)(6,145)
ReturnofEquityInvestmentsAccountedforUsingtheEquityMethod3191771118385878991
ResultofOtherEquityInvestments633344104142434445
NetInterest(372)(346)(256)(170)(309)(317)(325)(332)(340)
OtherFinancialItems(48)(83)(564)520(57)(58)(60)(61)(63)
EBT1,296€546€180€2,026€1,070€1,096€1,123€1,150€1,177€
NetInterest(+)372€346€256€170€309€317€325€332€340€
(1-TaxRate)1,2516693271,6471,0351,0601,0851,1121,138
DepreciationandAmortization(+)1,8391,7671,5281,7151,8411,8851,9311,9772,025
ChangeinWorkingCapital(-)(1,302)(1,460)(774)(1,271)(1,302)(1,333)(1,365)(1,398)
NetCapex(-)(499)(1,263)(1,083)(1,012)(1,037)(1,062)(1,087)(1,114)
FreeCashFlow635€(868)€1,505€592€607€621€636€652€
LufthansaGroup-DiscountedCashFlowAnalysis
WACC5.12%
LineItem
NPVForecastedCashFlows€2,676
ChangesinInventoriesandWork
PerformedbyEntityandCapitalised
TerminalValue21,273OtherOperatingIncome
PVofTerminalValue16,569CostofMaterialsandServices
EnterpriseValue€19,245Staffcosts
TotalBorrowings(6,370)
Depreciation,Amortisationand
Impairment
TotalFairValueofEquity€12,875OtherOperatingExpenses
TerminalGrowthRate=2%ReturnofEquityInvestments
AccountedforUsingtheEquity
Method
ResultofOtherEquityInvestments
NetInterest
OtherFinancialItems
ChangeinWorkingCapital
NetCapex
Negativepercentagesrepresentexpenses
Average%ofRevenue
Assumptions
-3.08%
-3.87%
-0.17%
-0.94%
0.12%
0.25%
-17.01%
-5.61%
-24.12%
-57.61%
7.79%
0.56%
EnterpriseValueandEquityValueCalculation

101. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 95
Exhibit BB – Brussels Airlines Revenue Growth Rate
See Financial Appendix.
Exhibit CC – Brussels Airlines Free Cash Flow Derivation
See Financial Appendix.

102. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 96
Exhibit DD – Brussels Airlines Discounted Cash Flow Analysis
20112012201320142015E2016F2017F2018F2019F2020F
Revenue1,036.48€1,113.48€1,138.16€1,138.16€1,274.00€1,318.76€1,365.10€1,413.06€1,462.71€1,514.10€
EBITDA(79.18)(79.54)(15.64)6.6970.2442.0643.5345.0646.6548.29
DepreciationandAmortization(7.66)(12.21)(12.53)(15.68)(13.74)(14.23)(14.73)(15.24)(15.78)(16.33)
EBIT(86.85)(91.75)(28.17)(8.99)56.5027.8328.8129.8230.8731.95
EBI42.3820.8721.6122.3723.1523.96
NetInterest(0.20)(0.01)(1.93)(1.71)(1.08)(1.12)(1.16)(1.20)(1.24)(1.29)
NetIncome(87.05)€(91.77)€(30.10)€(10.70)€41.30€19.75€20.45€21.16€21.91€22.68€
20112012201320142015E2016F2017F2018F2019F2020F
EBIT(86.85)€(91.75)€(28.17)€(8.99)€56.50€27.83€28.81€29.82€30.87€31.95€
EBI(65.14)(68.82)(21.13)(6.75)42.3820.8721.6122.3723.1523.96
DepreciationandAmortization(+)7.66€12.2112.5315.6813.7414.2314.7315.2415.7816.33
ChangeinWorkingCapital(-)(41.02)38.48(26.35)(11.12)(11.51)(11.91)(12.33)(12.77)(13.22)
NetCapex(-)(21.80)(1.83)10.13(5.22)(5.40)(5.59)(5.79)(5.99)(6.20)
FreeCashFlow(119.42)€28.05€(7.29)€39.78€18.19€18.83€19.49€20.17€20.88€
Numbersfor2015Earenotofficial,butwerebackedintobasedonlimitedavailabledata.
WACC5.12%
NPVForecastedCashFlows104.98€
TerminalValue681.67
PVofTerminalValue530.95
EnterpriseValue635.93
TotalBorrowings(70.92)
TotalFairValueofEquity565.02€
LineItem
Average%
ofRevenue
DepreciationandAmortization-1.08%
NetInterest-0.08%
ForecastedEBITDA3.19%
Assumptions
BrusselsAirlines-DiscountedCashFlowAnalysis
EnterpriseValueandEquityValueCalculation

103. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 97
Exhibit EE – Combined Firm Valuation (Worst Case)

104. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 98
Exhibit FF – Combined Firm Valuation (Better Case)

105. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 99
Exhibit GG – Combined Firm Valuation (Best Case)

106. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 100
Exhibit HH – Timeline for Short-Term Recommendation
Exhibit II – Timeline for Long-Term Recommendation

107. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 101
IX. FINANCIAL APPENDIX
Exhibit V – Lufthansa’s Revenue Growth Rate
2006200720082009201020112012201320142015AverageCAGR
TotalRevenue19,849€22,420€24,842€22,283€26,459€28,734€30,135€30,027€30,011€32,056€
Growth%12.95%10.80%-10.30%18.74%8.60%4.88%-0.36%-0.05%6.81%5.79%5.47%
Source:LufthansaAR2007-2015
2015A2016F2017F2018FAverageCAGR
KeplerCheuvreux32,056€30,981€31,850€31,850€
Growth%-3.35%2.80%0%-0.18%-0.21%
CreditSuisse32,05631,29931,63332,567
Growth%-2.36%1.07%2.95%0.55%0.53%
MorganStanley32,05630,96731,21231,999
Growth%-3.40%0.79%2.52%-0.03%-0.06%
UBS32,056€31,541€31,942€31,973€
Growth%-1.61%1.27%0.10%-0.08%-0.09%
0.07%0.04%
201520162017Average
EuroAreaProjections2.0%1.7%1.5%1.73%
Source:IMFWorldEconomicOutlook
HistoricalCAGR5.47%
AnalystEstimatedCAGR0.04%
AverageEuroProjection1.73%
Average2.42%
Average
AnalystEstimates
LufthansaGroup-ConsolidatedHistoricalGrowthRate
EuropeanEconomicOutlook
LufthansaGroup-Estimated
FutureGrowthRate

108. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 102
Exhibit W – Lufthansa Weighted Average Cost of Capital Analysis
Exhibit X – Lufthansa’s Free Cash Flow Derivation

109. LUFTHANSA GROUP’S ACQUISITION OF BRUSSELS 103
Exhibit Z – Brussels Airlines Revenue Growth Rate
Exhibit AA – Brussels Airlines Free Cash Flow Derivation
2011 2012 2013 2014
EBIT (86.85)€ (91.75)€ (28.17)€ (8.99)€
(1 - Tax Rate) (65.14) (68.82) (21.13) (6.75)
Depreciation and Amortization (+) 7.66€ 12.21 12.53 15.68
Change in Working Capital (-) (41.02) 38.48 (26.35)
Net Capex (-) (21.80) (1.83) 10.13
Free Cash Flow (119.42)€ 28.05€ (7.29)€
Tax Rate Assumed to be 25%
2011 2012 2013 2014
Current Assets 334.85€ 389.48€ 375.99€ 467.85€
Current Liabilities 246.15 259.76 284.75 350.26
Working Capital 88.70€ 129.72 91.24 117.59
Change in Working Capital 41.02€ (38.48)€ 26.35€
Capital Equipment 31.13€ 52.93€ 54.77€ 44.64€
Net Capex 21.80€ 1.83€ (10.13)€
2012 2013 2014 Average
Change in Working Capital 3.68% -3.38% 2.32% 0.87%
Net Capex 1.96% 0.16% -0.89% 0.41%
Brussels Airlines - Free Cash Flow Derivation
Brussels Airlines - Change in Working Capital and Net Capex
% of Revenue