Depreciation at Deutsche Lufthansa AG PESTEL Analysis / PEST & STEP / MBA Resources
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Introduction to PESTEL Analysis
PESTEL Analysis / PEST / STEP Analysis for Depreciation at Deutsche Lufthansa AG
At Oak Spring University we have updated the Depreciation at Deutsche Lufthansa AG PESTEL Analysis is light of emerging geo strategic and geo-political factors such as Russia Ukraine war, tensions between China & Taiwan, chances of stagflation, interest rates hikes, volatility in the financial world etc.
Case Study Description of Depreciation at Deutsche Lufthansa AG
As one of the most highly capital-intensive industries, airlines require a substantial investment in physical assets to fund operations. These assets, characterized by property, plant, and equipment (PP&E) on the balance sheet, typically comprise more than half of the total assets of an airline. As a result, depreciation of these assets constitutes a major operating expense. Although methods and estimates used for determining depreciation expense can differ across industries, it is not uncommon for similar divergence to occur among companies within the same industry as well. Aircraft-related depreciation expense is determined by estimating the useful life and the residual value of the aircraft. These estimates can vary widely amongst airlines as a result of many factors including differences in corporate strategy, flying patterns, and fleet composition. As a result, differing practices and expectations can have a significant impact on each airline's reported financial results.
Introduction to PESTEL / PEST Analysis of Depreciation at Deutsche Lufthansa AG
To conduct PESTEL / PEST analysis of Depreciation at Deutsche Lufthansa AG in the current macro environment, we have analyzed Political, Economic, Social, Technological, Environmental, and Legal factors that impact the business environment in which Depreciation at Deutsche Lufthansa AG operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
Political Factors that impacts Depreciation at Deutsche Lufthansa AG
What are Political Factors in Depreciation at Deutsche Lufthansa AG PESTEL / PEST Analysis
The Political factors that influence Depreciation at Deutsche Lufthansa AG macro business environment are -
Russia – Ukraine War
The Russian Ukrainian war has brought back geopolitics in front and centre of international business once again. A lot of major companies including – McDonalds, Nike, Starbucks, BP, Shell, IKEA, Toyota etc have already left Russian markets and it has put added pressure on other companies to leave the Russian market.
Lockdowns in China
– As the Chinese government likely to continue its zero Covid policy well into 2023, Depreciation Expense needs to have strategy not only regarding local lockdowns in the Chinese market but also its impact on its global supply chain. In the industry, Depreciation Expense needs to have a diversified and nimble supply chain to meet the challenges of both upcoming US recession and supply chain disruptions oriented from China.
Decline of Hong Kong and Impact on access to Chinese market
– As China has completely taken Hong Kong in its orbit, the earlier advantages of Hong Kong as an independent, rule of law oriented financial hub has been questioned. This can lead to decline in Hong Kong and difficulties for the western companies such as Depreciation Expense to have easy access to not only Hong Kong market but also the vast Chinese market.
Geo-political blocks and competition
– Geostrategic block will lead defragmentation of the existing supply chain networks and business environment. For example United States government is providing tax payers resources to companies to develop its own chips in the US rather than being overly dependent on the supply from Taiwanese companies. This will lead to more robustness in supply chain but also lead to less efficiency.
Rule of law and WTO
– The emergence of rival factions with the West on one side and China and Russia on the other side, it could lead to deterioration of the Rule of Law in the business world. It can lead to the weakening of World Trade Organization rules and norms. Secondly it could lead to a geostrategic and geo-economic race that could not only jeopardize the global climate goals but also international cooperation.
Supply Chain Constraints and Reset
– Covid 19 has exposed the world’s dependence on China and how dependent companies such as Depreciation Expense are reliant on the Supply Chain oriented from China. Depreciation Expense needs to diversify not only to other countries but also to other continents so that Supply Chain disruptions in one part of the world don’t impact the overall business of Depreciation Expense in the industry.
Increasing role of government
– Geostrategic uncertainty often lead to increasing role of governments in the business and financial world. For example most of the western companies have taken government lead to pull out of the Russian market. Secondly a lot of companies are hesitant to enter the Chinese government given the increasing geostrategic competition between United States and China.
Development of Quad
– The development of Quad Plus grouping in the Indo Pacific will disrupt the existing supply chains of not only companies such as Depreciation Expense but also all its value chain partners in the region. This can lead to Cold War style grouping where Quad members such as US, Japan, India, and Australia , in collaboration of partners such as Singapore, Philippines, South Korea, Taiwan build its own supply chain ecosystem that competes with China. It will be both a geo-strategic disruption and geo-economic disruption.
Weaponization currency and energy
– In response to the Russian invasion of Ukraine, most of the western governments has weaponized the currency system and international finance systems through sanctions and restrictions. It can have strong impact in the short term to weaken Russian government access to its resources, but it will also dilute the confidence in international financial system for various other countries. Countries will think twice about keeping their foreign exchange reserves in US dollars. The weaponization of energy by Russia will result in EU countries moving away from the Russian gas and oil, thus putting high pressure on energy prices. It will lead to not only high prices for customers in the developed market but also high level of inflation in the developing world.
Energy diversification
– European Union dependence on Russia for its gas and energy requirements has not only resulted in increasing heating costs for households but also has put German and EU countries industries in a perilous situation. This has led to an energy diversification drive not only in European Union but also in other parts of the world.
Economic Factors that impact Depreciation at Deutsche Lufthansa AG
What are Economic Factors in PESTEL Analysis / PEST / Macro Environment Analysis
The Economic factors that influence the Macro environment of Depreciation at Deutsche Lufthansa AG are -
Gas prices & inflation in EU
– Apart from France, most of the European Union countries are facing acute energy shortages, rising heating prices because most of the heating gas is supplied by Russia, and high inflation because of supply chain constraints.
Emerging markets balance sheet post Covid
– In the late 2019, everyone was looking towards emerging markets for growth. Covid has severely damaged the emerging economies balance sheet. Countries such as Turkey, Argentina, are having inflation in 60% range, almost 30 emerging countries are facing balance of payment crisis according to Bloomberg study, and high inflation is resulting into society wide protests from Albania, Sri Lanka to Colombia and Peru.
High inflation and high employment
– The high inflation and high employment levels will put pressure on the wages and salaries, so impacting the overall profitability of the Depreciation Expense in the current market conditions. High inflation will result in high costs and high employment in the economy will result in higher salary and wages cost structure for Depreciation Expense in the industry.
Consolidation in banking sector
– Even though the banks’ balance sheet in the current recession is lot stronger compare to the Great Financial Crisis of 2008, it will still impact the poorly performing banks and lead to further consolidation in the banking industry. It may again create an environment of Too Big to Fail players in the banking sector.
Mortgage Rates Increase
– The mortgage rate increases of just 1.5% has increased the monthly payment by 50% on the 30 years mortgage in United States. This will not only increase the rate of foreclosure but also dampen the consumer spending purse. The increase in mortgage rates will not only impact the housing market but also will be reflected in the sales of automobile, consumer durables, and other big ticket products.
Increasing cost of capital
– Technology companies’ stocks on an average has corrected 25-50% in the first half of the 2022. This indicates two trends – increasing cost of capital so investors are looking not only for growth targets but also profitability. Secondly increasing cost of capital will impact the capital expenditure of the existing players, thus increasing competition in the sector from smaller players.
Consolidation in the industry
– During the economic downtrends, there is often consolidation in the various industries as inefficient players are gobbled up by the outperforming players in the sector. Depreciation Expense needs to look for players that can complement their existing business model in the industry.
Dangers of stagflation
– United States economy along with a number of EU economies are on the verge of stagflation, where there is rising cost of living crisis, at the same time slowing down economy. This will put more pressure on governments to provide more money to the end consumers. For example government of California is sending energy cost alleviation checks to the citizen, which in theory are designed to help the vulnerable section in the society.
Liquidity in the EU market
– As of July 2022, EU central bank has not started its monetary tightening cycle. This can result into flight of capital from Europe to US. Already the Euro has depreciated considerably in comparison to the dollar. The present liquidity in the EU markets is coming at the cost of currency depreciation. Sooner or later the EU central bank has to intervene. This will impact Depreciation Expense European business.
Bank of Japan yield curve management
– The Bank of Japan has decided not to increase the rates, but to manage the yield curve by providing more liquidity. With debt to GDP at more than 220%, Bank of Japan strategy may result in disruptions in the bond market and overall financial uncertainty.
Race to increase interest rates
– As the Federal Reserve has started raising interest rates, various other central banks have also started raising rates to avoid currency depreciation. One of the prime examples of this trend is the Swiss central bank that has increased the interest rates first time in more than 20 years in June 2022.
Social Factors that impact Depreciation at Deutsche Lufthansa AG
What are Social Factors in PESTEL Analysis / PEST / Macro Environment Analysis
The Social factors that influence the Macro environment of Depreciation at Deutsche Lufthansa AG are -
Increasing rents
– As the houses prices have sky rocketed because of lower supplies, and high inflation, the rents have gone up by 10-30% in various cities across the country. This can lead to higher rate of homelessness as according the Guardian report – more than 20% of the people are already late on their rental payment by May 2022.
Food shortages
– The emerging economies are about to face a perfect storm – fragile balance sheets because of Covid, high inflation because of the supply side constraints, and food shortages because of the Russia – Ukraine war, as both these countries account for almost 25% of the total global wheat exports. Most of the wheat from Russia and Ukraine are exported to Middle Eastern countries and poor African countries.
Dehumanization of workers
– According to a study published in Harvard Business Review, Dehumanization of the workers in the gig economy is not a bug but a feature of the business model of these companies. According to Professor Eric M. Anicich, gig economy work is designed to obliterate the uniqueness of work experience, future aspiration of the workers, and bring in insecurity through easy replacements.
Social Unrest such as Sri Lanka
– The economic distress across various emerging and developed economies is rupturing the social fabric of these countries. Sri Lanka is a prime example where economic mismanagement and external factor lead to not only default but also economic hardships and protests. Like Arab Springs, this can be replicated in various other emerging and developed economies because of rising cost of living, higher fuel prices, food shortages, housing shortages, and rationing.
Changing demography
– As the baby boomers are retiring fast, the changing demographic is resulting into higher pressure on not only social spending but also on working population. According to Wall Street Journal, 58% of the people over 80 in 2022 are living alone, which at present comprise just 4.7 million people at present. According to American Association of Retired Persons, this number will go up more than 10 million in next 15 years. It will result in market transformation across the board.
Hybrid workforce
– Increasing fuel prices and lockdown experience of past two years has resulted into greater emphasis on the hybrid work environment. A number of companies such as Twitter, Etsy etc have allowed employees to work in hybrid environment for next few years. This transformation in work place will have long term changes not only in the organizational culture but also on the wider society.
Housing prices decline
– The increase in interest rates to reduce the inflation will result into higher mortgage payments, leading to more house foreclosure and price decline in the housing market.
Polarization in politics
– The politics across the world has become polarized now then even five years ago. So we have US-China trade war in international arena, the Russian boycott after the invasion of Ukraine, Brexit fallouts in United Kingdom, and domestic pressures on politicians across the European Union. This polarization makes taking collective decisions difficult, resulting in short term decisions with long term consequences.
Household savings rate
– The household savings rate has dramatically shrunk amidst the inflationary pressures. The US household savings rate will put pressure on not only normal spending rates but also on the individual safety net in the volatile times.
Gig economy impact
– The Uber Files reveals the fact that gig economy is leading not only to the dehumanization of the work force but also how these big tech companies are influencing the rules and regulations in the communities that they operate in. The gig economy business model is purely built on the exploitation of the work force. It will likely to face strong regulations in the coming years as more and more people will rise against the gig economy.
Technological Factors that impact Depreciation at Deutsche Lufthansa AG
What are Technological Factors in PESTEL Analysis / PEST / Macro Environment Analysis
The Technological factors that influence the Macro environment of Depreciation at Deutsche Lufthansa AG are -
Unravelling of the old growth model
– The old growth model was liquid markets, low cost of capital, growth focused, less focus on profitability has started to unravel as the cost of capital is increasing with Fed increase the base rates. The increase in cost of capital will lead to investor prioritizing profits and returns over long term growth. This may result in smaller and more focused investments rather than betting on companies such as Uber, Airbnb, Wework for long term returns.
Falling cost of Marketing
– With each digital advancement stage the cost of reaching the final customers is rapidly decreasing. The Google ads enabled small businesses to reach to the customers directly, the Facebook advertisement helped individual entrepreneurs to build online communities and reach out the customers in a social setting, now Tiktok is enabling brands to reach the customers at a far lower cost than both Google and Facebook, by making ads interesting and playful.
Cyber security considerations
– Given the increasing tensions between West and Russia / China , the western companies should be ready for not only cyber security threats and attacks emerging out of hackers from these countries but also from the state actors. The colonial pipeline disruption had illustrated that fact how the core infrastructure is vulnerable to cyber threats.
Diverse Standards of products
– The Russia Ukraine war will lead to divergence in the standards of the product as each major power now is trying to have its own standards. We are already witnessing it in the 5G installation and expansion strategy across the world. The 5G standards of Huawei and the Western Companies are different. The diverse standards of products and platform will make globalization more difficult in the coming years.
Blockchain evolution
– The crypto currency and NFT crash has left a lot of individual users a bankrupt. But companies such as Depreciation Expense can use the underlying technology such as blockchain to build more customer relevant products and features. One of the areas where blockchain can help the organization in reducing piracy of the products and to keep better track of the supply chain.
Tiktok marketing
– As Tiktok now is the most used app in the world, companies can easily reach their customers using Tiktok marketing products. Tiktok advertisement costs are significantly lower than the marketing costs of other platforms such as Google Ads, Facebook Ads etc.
Growing role of social media and influencers
– Social media influencer marketing has taken off in the last three years. Companies can tap social media influencers not only to reach customers directly but also to build a community that can feed product ideas and trial runs.
EU online regulations
– The GDPR and other privacy related regulations coming from EU are now adopted in almost all parts of the world. This will increase not only the cost of doing business for various companies but also increase the risk of legal repercussions in case of data leaks and such cyber security infringements.
Increasing focus on profitability
– As the interest rates are increasing in broader economy, investors will focus on profitability. This will most impact the technology sector that is built on growth first profitability later model. The increasing focus on profitability will lead to – smaller investments, lower valuations, reduced risk appetite, and lower investment in speculative sectors.
Marketing in Metaverse
– As the previous examples of SIMS and other virtual environment have illustrated, there will be a lot of opportunities for companies such as Depreciation Expense to have a comprehensive marketing strategy. It can help Depreciation Expense to create more touchpoints, increase brand interaction, provide customers with more product options, provide immersive brand experience etc. Going by the current trends the marketing on the Metaverse will be comparatively cheaper on the digital platform.
13. Netflix tie-up with Microsoft – As the biggest digital streaming platform is now open for advertisements; it will provide companies such as Depreciation Expense new opportunities to reach to its final consumer.
Environmental Factors that impact Depreciation Expense
What are Environmental Factors in PESTEL Analysis / PEST / Macro Environment Analysis
The Environmental factors that influence the Macro environment of Depreciation Expense are -
Supreme court decision on environmental regulations
– The Supreme Court ruling that can reduce the capabilities of Environmental Protection Agency to regulate the emission of greenhouse gases can result into not only higher emissions but also challenges to other similar laws and regulatory bodies such as Clean Air Act, Clean Water Act etc.
Paris Climate targets
- Climate targets that are set in Paris Climate summit are now almost out of the window for most countries because of both the increase in prices of oil and gas, and shortage of the inventory in the market. This has resulted into countries restarting shut down coal plants, boosting productions from fracking, holding huge inventories in stores given high uncertainty in geopolitical environment. This will impact the poorest countries the most.
Increasing regulations architecture
– As geopolitics challenges and environmental considerations grow among both the government agencies and wider consumers, there will be a growing call for government action in form of more and tighter regulations. This will increase the cost of doing business for companies especially operating in the environmental sensitive industries such as mining, fossil fuel etc.
ESG driven investing environment
– Three of the biggest investment companies - BlackRock, the Vanguard, and the UBS group are considering ESG strategies of organization for the purpose of investment in those companies. This will increase pressure on companies across the board to have more comprehensive strategies as the three companies have an investment portfolio of more than 23 trillion USD.
Climate Change
– Climate change is one of the biggest challenges that businesses across the world will face in coming decades. We have already started seeing impact of extreme weather on supply chains
Oil and Environment
– The shortage of gas and energy because of the Russian refusal to supply has made Germany go back to coal. Now there is less resistance among politicians to put more regulations on the fossil fuel players. In fact the fossil fuel players are the biggest beneficiaries of the Russia Ukraine war. The war has increased their profitability, reduced the threat of regulatory action, and brought back the companies on the decision making table.
Energy reduction in operation
– As countries have pledged aggressive carbon emissions target for the upcoming decade, corporations needs to not only reduce more energy efficient products but also to reduce energy requirements in operations and production processes.
Proliferation of diverse standards
– As the world is again entering into great power struggle between United States and China, we will have a world divided into blocks and various countries using different standards for products and services. This will not only increase cost of capital but also will limit the supply chain options for businesses.
Legal Factors that impact Depreciation at Deutsche Lufthansa AG
What are Legal Factors in PESTEL Analysis / PEST / Macro Environment Analysis
The Legal factors that influence the Macro environment of Depreciation at Deutsche Lufthansa AG are -
Rule of law in polarized world
– As the international rule based architecture is challenged by countries such as Russia and China, it will become increasingly difficult to set global standards, manage free trade, keep open seas, and build an environment of trust where everybody sees an interest in maintaining the current rule based system.
Challenges to World Trade Organization
– As more and more western companies are pulling out of Russia, companies from other parts of the world will also face serious risk of secondary sanctions if found doing business with the Russian companies. This will lead to an environment where the current architecture of World Trade Organization and its rules will start crumbling on the edges.
Destabilization of existing global order
– Russian invasion of Ukraine has dramatically destabilized the existing rule based global orders. In the new global orders, international institutions will have fewer levers to manage the actors in the international arena. For example United Nations has been unable to influence the behaviour of Russian authorities regarding food shortages in the Middle East and African countries. The weaponization of currency by the western players will undermine the current financial system too as developing countries looking for other options apart from US dollar reserves.
Decentralized currency and challenges
– Bitcoin and other decentralized currencies will pose new challenges to not only the current financial system but also to the wider geo-economics of the world. Countries such as El Salvador adopted Bitcoin as a legal tender, it was considered a next step in crypto currency adoption, but it has failed miserably. Post adoption Bitcoin has lost 70% from its top and jeopardize the financial stability of the whole country.
Regulating digital business models
– There are increasing legal challenges not only for the big tech firms but also for the new technologies that are coming up with new digital models. Most of these models are old fashioned Ponzi schemes masquerading as technology driven innovative solutions. Legislators across the world need to take actions to protect not only to protect the citizens from these global Ponzi schemes but also provide enough space for genuine innovative technologies to blossom so that they can create new knowledge base and jobs in the economy.
Increase in Intellectual Property Rights thefts and piracy
– As the world divides into various power zones, there will be increasing attacks on the intellectual property rights and piracy because governments in one corner will have no regards for the intellectual property rights of the companies from the rival countries. This will lead to more trade protection, less innovation, and increasing legal battles among corporations.
Increasing challenges in emerging economy
– Emerging economies are facing not only after effects of the Russian war in Ukraine, but also the slowing growth in economies in post Covid environment. These two situations have not even played out completely, early data suggest that US economy is going into recessions which can lead to balance of payment and forex exchange crisis for the emerging economies as Foreign Institutional Investors will leave the emerging markets.
Anti-trust in tech industry
– As companies like Amazon, Apple, and Microsoft cross 1 trillion US valuation, there are increasing chances of emerging monopolies in various sectors. For example Amazon has now acquired players in grocery retail, healthcare, along with Prime Videos and its dominance in books. This provides it opportunities to use customer data collected from one business to dominate other business.
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