Germania Fluggesellschaft Mbh (a)

Abstract

Students conduct game-theoretic analyses as they examine the situation of Germania Fluggesellschaft MBH at the launch of its first scheduled flight service on the Frankfurt-Berlin route in the fall of 2001. Entry into this market will bring Germania into direct competition with Deutsche Lufthansa AG, which currently holds a monopoly on the route. Students perform strategic analyses from the viewpoints of both competitors, to explore the strategic implications of repeating the same game several times (i.e., explore the difference between games and supergames), to discover the strategic role of reputation in repeated interactions between players, to understand the value of deterrence and evaluate the threat of predatory pricing, and to create a successful business model for entry into a market that is dominated by a large, monopolistic incumbent. See also the B case (UVA-QA-0621).

Excerpt

UVA-QA-0620

Rev. Nov. 5, 2009

Germania Fluggesellschaft mbH (A)

In the fall of 2001, Dr. Mustafa Muscati, CEO of Germania Fluggesellschaft mbH (Germania), was making final preparations for the launch of Germania's scheduled flight service on the Frankfurt–Berlin route. In order to succeed, Germania would have to compete with Deutsche Lufthansa (DLH), Muscati's former employer, which currently held a monopoly on passenger service between Frankfurt and Berlin. Germania first started regular flights in 1992, ferrying government officials between Bonn and Berlin after German reunification in 1990 when the capital was moved from its “temporary” seat, in Bonn, back to Berlin (see the map in Exhibit 1). Germania was the sole operator of this “Beamten-Shuttle” until Deutsche BA joined it in 1996. Germania's contract with the German government was guaranteed until the end of 2002. By the end of 2001, Germania was expected to have operated more than 6,000 of those flights.

Founded in 1978 by its primary owner, Dr. Hinrich Bischoff, Germania leased most of its 27 aircraft to tour operators and other airlines. Its fleet included 14 state-of-the-art Boeing 737-700s and six older Boeing 737-300s, which were gradually being phased out. About three-quarters of Germania's flight capacity was contracted to TUI AG, a member of Preussag AG (EUR18 billion in assets). TUI was the largest German provider of package holidays, with a nationwide chain of travel agencies (selling EUR1 billion in DLH tickets annually), and had its own ambitions to enter the market for scheduled flights.

Deutsche Lufthansa AG

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Keywords: economic policy, entrepreneurial management, entrepreneurship, game theory, market position, market segmentation, marketing strategy, price leadership, pricing, small business, strategic market planning