Question based on financial management

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Reference no: EM1370873

Financial Management

Considering that airlines compete based on routes, flight times, and price; will the Investment Lufstansa is making in its airport lounges, will the Return on that Investment be positive, negative, or neutral? Defend your position.

ROI = Profit / Investment = Turnover x Margin
Turnover = Sales / Investment
Margin = Profit / Sales

BACKGROUND: Lufsthansa is investing in Luxury Lounges. Starting on March 3, 2009 at Frankfurt Airport, Lufthansa's first-class passengers will have access to a new 12,000-square-meter lounge featuring a full-service spa, spacious bathrooms with whirlpool tubs, and a bar offering 84 different single-malt whiskeys.

Consider that (1) Lufsthansa is (a) targeting a segment of its market and (b) switching its promotion from the quality of its (i) airplanes or (ii) flight service to lounge facilities; and (2) the ease to which the differentiated product can be duplicated.

Reference no: EM1370873

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