LH Cargo Sees Bright Light at the End of the Tunnel

“Here comes growth again,” stood as promising header on the invitation Lufthansa Cargo had sent to trade journalists, to deliver insights on new market perspectives and inform about the carrier’s own biz ambitions. This relates to volumes and earnings alike.

 

Source: Heiner Siegmund; Business is heading in the right direction, stated LH Cargo’s VP Sales and Product, Andreas Otto
Source: Heiner Siegmund; Business is heading in the right direction, stated LH Cargo’s VP Sales and Product, Andreas Otto

The hope for burgeoning business times in cargo is back again, at least within Lufthansa Cargo’s top management. The shift in opinion from reluctance to optimism was illustrated by LH Cargo’s Executive Board member Andreas Otto last week in an aircraft resembling ambience at Burghof near Frankfurt, while addressing trade journalists. Herr Otto’s main message to the twenty-plus participants: In a year-over-year comparison LH Cargo expects to move five percent additional air freight in 2014,
This confident estimate is based on the carrier’s own data and figures stemming from market observers like Seabury, Ifo Institute, and some others. They forecast a worldwide GDP growth of 3.2 percent on average – a plus of 0.8 percent to 2013. Especially the economy in some key regions will gain momentum, predicts Otto. Among the most promising markets spotted by him are Latin and North America, Asia-Pacific and surprisingly also Africa. LH Cargo didn’t have the latter mentioned continent much on the screen so far, admitted Otto, but announced changing awareness by keeping a very close eye on Africa in the future.
He also announced, without revealing specific or indicating any names, that LH Cargo intends to closely partner with at least one passenger airline in the course of this year for jointly managing cargo transports. This way “we can expand our current network, offer clients additional capacity, and penetrate into new markets without investing much in costly assets,” explained Florian Pfaff, VP Area Management Germany at LH Cargo.
Asked about his airline’s ranking at its German home market Andreas said that LH Cargo was able to gain additional market shares during the past months, totaling currently 25-plus percent. This moderate upswing is result of his firm’s own efforts but also influenced by the fact that some smaller competitors went out of business lately.  

Source: Heiner Siegmund; Andreas Otto (left) and Florian Pfaff informed the media
Source: Heiner Siegmund; Andreas Otto (left) and Florian Pfaff informed the media

Freighter aircraft generate poor margins
Herr Otto further said that achieving profits through pure freighter operations has become extremely challenging these days because of the ongoing overcapacity and the unabated high pressure on yields. Obviously, transporting shipments in the lower deck compartments of Lufthansa’s passenger fleet is the better option for generating earnings, which he indicated according to latest trends. Having said this he hastened to add that unlike other cargo carriers LH Cargo does not intend stepping out of the freighter business.
Currently, the carrier is operating sixteen fully written-off MD-11Fs and two brand new Triple Seven freighters. The next 777F out of a firm order of five is expected to join the fleet at the beginning of March, with number four following this summer and the last cargo aircraft arriving in 2015.
With regards to the future fleet he left it open whether five additional options for Boeing Triple Seven freight planes will be converted into firm contracts. This costly step depends very much on future market developments and positive outlooks on the profitability of the freighter fleet. 
Although Otto did not reveal any precise figures he indicated that in fiscal 2013 LH Cargo generated a net profit in the higher double-digit million euros region. Precise figures will be presented by the airline’s top management during the annual press conference to be held in March.

Night flight ban impairs earnings
Otto did not hold back on the fact that the night flight ban at his airline’s home base Rhine-Main airport is costing LH Cargo roughly €50m per year. In earlier estimates the management always spoke of a €40m shortfall in annual profits as result of lost business caused by the Frankfurt-imposed curfew.
Soon, things could get even rougher if Hessian’s new coalition of Conservatives and Greens succeeds in reducing Rhine-Main’s operating times again in their fight to further lower noise emissions as aggressively demanded by residents. If so, the flow of Germany produced shipments to 24/7/365 operating Amsterdam Schiphol would inevitably become a mighty stream, Otto warned, deteriorating Frankfurt’s status as major cargo gateway even further and damaging particularly LH Cargo’s role as global network carrier.

Heiner Siegmund