What do the classic perfume Chanel Number Five, Duracell batteries and an iPod have in common?
The answer is they all feature in the Lufthansa brand museum as examples of successful products that have built up an image people are prepared to pay over the odds for.
At its training academy in the small German town of Seeheim, located in a beech forest half an hour’s drive out of the city of Frankfurt, Europe’s largest airline has been thinking hard about its image.
One of the results of this is to create its own museum of brands aimed at showcasing what makes a successful brand and how Lufthansa and its subsidiaries present themselves to the world.
Interactive displays around the brightly lit, airport-style lobby invite guests to identify a range of products by touch, taste, smell and sound alone as well as asking them to guess identity of well known products when the brand names have been removed.
“We put Chanel Number 5 in the museum because the bottle has remained unchanged since it was first made nearly a century ago and yet it still feels modern,” says the museum curator Karin Randall.
“We have Duracell because it is a product which trades on its reliability. Customers are prepared to pay a significant premium for this kind of battery – sometimes almost double other similar products on the market because it has built up a name for its reliability.
"And we have the iPod because in a short time Apple has succeeded in creating one of the must successful brands in the world to which customers have tremendous brand loyalty and which carries a significant premium with all of its products and creates its own demand," Ms Randall adds.
And, separated off from the main museum, the company has created rooms for some of its own airline brands: Lufthansa Airlines; Swiss International Air Lines; and the company’s low-budget carrier germanwings; as well as presentations of video and light displays examining the needs and aspirations of the company’s different groups of customers.
Unlike Volkswagen's AutoMuseum upon which the concept is loosely based, Lufthansa's brand museum is strictly open to staff and guests only and photographs of the venue are strictly forbidden. Until The National and select other press were shown round recently, no journalists had been allowed into the venue.
“We use the museum to give staff a good idea of what it is we are trying to achieve in the company,” says Ms Randall.
“The brand rooms act as a sort of mood board to show all of the things we are trying to express through the brand.”
To that effect the Swiss room is plastered with images of mountains, Swiss flags and chocolate to show the concept of Swiss hospitality the airline hopes to bring to customers when they fly with the carrier, while and the germanwings room gives an idea of the funky no-frills offering Lufthansa hopes will attract short-haul and budget passengers.
A Lufthansa room contains frequent references to the airline’s distinctive yellow and blue livery, its appeal to business-class passengers and history of reliability.
Lufthansa has traditionally faced a few key difficulties with it’s a brand identity. The company was established in Berlin in 1926 and served as the German national flag carrier for the next 20 years – much of that time under Nazi rule – until all services were suspended when the country was defeated at the end of the Second World War.
Then, in the 1950s, even before West Germany was granted sovereignty over its airspace, staff from the pre-war Lufthansa group helped to found a new national flag carrier, which eventually acquired the Lufthansa name and logo. The company expanded rapidly in the jet age and was operated as a vast state-run enterprise until it was privatised in the 1990s.
But today the company’s soul searching comes from an altogether different angle.
In a world where traditional airlines are increasingly being squeezed, especially in the West, at one end by new budget airlines and from the other by fast-growing Arabian Gulf and Asian carriers, Lufthansa and its competitors are having to question what exactly it is that they stand for, what they can offer passengers and whether they will even continue to exist in another decade.
“Over the past decade the industry has transformed,” says Sadiq Gilliani, Lufthansa Group’s senior vice president and chief strategy officer.
“European network carriers are facing a structural crisis.
“The airline industry is being disrupted by new business models requiring large network carriers to adapt their business,” he says.
“In the US market, airlines have already started to deal with these problems and the market over there has become twice as consolidated as Europe and there are now far fewer airlines.”
When compared with other similar sectors the airline industry is far less consolidated with the top 10 players accounting for only about 40 per cent of the total market. This compares with about 90 per cent in the cruise line sector, 80 per cent in the hotels industry and 60 per cent in the car rentals sector. The message is clear – expect a lot more airline takeovers in the coming years as only the strongest survive.
Mr Gilliani points to IATA numbers showing that during the period 2004 to 2008 North American airlines lost US$19.2 billion in their home market, making it the least profitable region around the world for airlines while, during the same period, Europe was the most profitable, netting its domestic airlines a total $10.3bn.
However, in the years 2009 to last year, as North American airlines have been forced to consolidate, profitability has risen, making it the second-most profitable world region, netting $4.8bn, while increasing competition in Europe means it has taken over as the least profitable region for airlines, losing $1.4bn.
The dip in profits for airlines in Europe has been reflected in Lufthansa’s slumping profits in 2010 and 2011. The company has also had to put up with a night-flight ban between 11pm and 5am at its Frankfurt hub and is hit by much higher taxes than its Gulf rivals.
The increasingly gloomy outlook prompted Lufthansa in 2011 to start implementing a controversial cost-cutting drive aimed at repositioning the company to put it on a better footing to compete with both its budget rivals and the likes of this country’s Emirates Airline and Etihad Airways as well as Qatar Airways, which have been steadily eroding its international market share.
The drive included about 800 measures to improve earnings and cut costs. Ultimately this will mean 3,500 job losses, while the savings will help to fund the group’s largest ever fleet renewal.
But despite the efforts, the company has so far still reported disappointing financials. In February Lufthansa said operating profit for last year fell 36.1 per cent to €524 million (Dh2.6bn) as increased fuel bills bit deep into the company’s takings.
“We must fight for Lufthansa,” says the outgoing chief executive Christoph Franz at the airline’s Seeheim training academy.
“The profits we have been making are not enough.
“They [the Gulf carriers] are a challenge and they will stay a challenge,” Mr Franz adds.
“We feel that we are increasing our competitiveness with regard to the consistency to our quality product offering and at the same time we are also working to improve our cost position.”
“There is no deviation from our plans,” he says.
“If we continue like this [before the efficiency drive] we will have to shrink. That’s the real reason why we want to change mentalities within the company.”
business@thenational.ae