LH Cargo is Revolutionizing its Network Strategy

The freight carrier intends to continuously up its offer of main deck capacity on routes outside its home market Germany. The most recent examples of this new strategic approach, servicing destinations like Stavanger and Manchester, were explained by Achim Martinka, VP at Lufthansa Cargo -The Americas in a press conference last week in New York.

LH Cargo’s VP The Americas Achim Martinka  /  source: hs
LH Cargo’s VP The Americas Achim Martinka / source: hs

If the impression is right, a new era of near revolutionary thinking (outside the box) has begun at Lufthansa Cargo, ending old habits and aiming at capturing additional market share away from traditional routes. The new risk-taking philosophy was best illustrated last November by the carrier’s decision to link Stavanger and Houston by operating a freighter once a week between the oil hubs, Texas and Norway. “We decided to open up this route without any firm commitment of guaranteed basic loads by one of our global partners. A step we wouldn’t have dared taking up to that point,” according to Mr. Martinka.

More ‘Stavangers’ to come
To date cargo-only flights, for time sensitive transport of offshore drilling equipment scheduled between the two leading centers of the global oil and gas industry have fully paid off, assures the manager. This trail blazing route appears to be the starting point for similar network decisions aiming at capturing new business areas like oil and gas, perishables or pharmaceutical products in different markets outside of Germany. A glimpse at LH Cargo’s current route map which includes a number of planned services across the North and South Atlantic show the new network approach. 

LH Cargo adds Natal’s Augusto Severo Airport to its network  /  source: Infraero
LH Cargo adds Natal’s Augusto Severo Airport to its network / source: Infraero

Ready to go farther
The Houston-Stavanger decision was followed by re-integrating the Colombian capital Bogotá into the carrier’s South American flight schedule last January. The next step was 29 April when LH Cargo started connecting Dallas and Chicago with Manchester in the UK; offering main deck capacity. “Similar to Houston-Stavanger, the flights to Manchester demonstrate our commitment to directly link markets located outside of Germany,” were stressed upon by Achim. “It’s not only the classic German-U.S. routes. We are ready to go beyond!” 
Finally, Natal in the northeast of Brazil will become a new freighter destination, served once a week by an MD-11F starting June 7. According to Mr. Martinka: “Northeast Brazil's Natal is located en route from Viracopos (near Sao Paulo) to Frankfurt, so no detour of our freighter is needed flying back from Brazil."
In his presentation he pointed out the large demand of Natal’s agricultural industry to transport a wide variety of seasonal products to the European consumer markets such as papayas, passion and citrus fruits.
Introducing new routes is only one side of the coin, stopping services on short notice when flights turn out to be unprofitable after the trial phase is the flip-side). This happened in the case of Lima, Peru for instance; LH Cargo left after financial expectations were not met.

Flexible route policy is a key success factor
Particularly in Latin America, where carriers are constantly challenged by the imbalanced traffic flow resulting from seasonal agricultural production and the poor export of industrial goods, a flexible network strategy is needed to add to their bottom line. “The way we react to this is with a number of triangle flights such as Frankfurt-Viracopos-Buenos Aires and back or multiple-stop services linking Europe with Mexico, Ecuador, Colombia and Puerto Rico before heading eastbound across the Atlantic again” Mr. Martinka explained. If it were up to his airline these freighter flights from Puerto Rico (Rafael Hernández Airport) back to Europe would end in Amsterdam instead of Frankfurt, which LH Cargo is forced to do now. 
A more than bizarre situation caused by the Dutch government that prohibited the carrier to operate commercial services between the Caribbean Island and Amsterdam Schiphol in an attempt to protect KLM-Martinair interests, despite the fact that aviation in Puerto Rico is subject to U.S. regulation. Therefore, the open skies treaty between the EU and the U.S. should be applied, argue LH Cargo and its lawyers.

Weak euro hampers U.S. exports
As things stand, Dutch judges will have the final word permitting or ultimately forbidding LH Cargo to fly directly from Puerto Rico to Amsterdam. Currently, the proceedings are pending at the The Netherlands Supreme Court.
When asked about his airline’s market performance in North America Achim Martinka spoke of an increasing imbalance of flows and further yield erosion as result of the strong dollar against the weakening euro. This shift in exchange rates led to U.S. exports recently becoming 27% more expensive with EU imports decreasing by 21% respectively.
He mentioned the low fuel prices and the week-long strikes of harbor workers at U.S. west coast ports that led to increased demand for air transportation, having a stimulating effect on air freight “even for goods produced in the Far East that were flown via Europe to destinations in the U.S.”
Despite huge overcapacity and an increasingly challenging market situation LH Cargo managed to defend its number one position in the U.S. accounting for 19% of the total tonnage flown on transatlantic routes. 

LH Cargo aims at 100% eAWB delivery
During his presentation Achim further touched on the standardization of booking processes by his airline. “We recommend to our customers, that they send their data completely digitalized. After we take care of the Air Waybills and decide if they need to be printed in the old fashion way when flown to certain destinations or preferably not,” he explains. Today, more than 50% of all AWBs accompanying a shipment still have to be printed out. “By 2016 we expect the majority of Air Waybills will be digital.”

Smooth rollout of new IT system
iCap, Lufthansa Cargo’s new Integrated Cargo Application Platform  plays a key role in this switch from paper to digital. “Currently, we are still in the middle of the IT system’s rollout process, without any customers really noticing this in their daily exchange with us,” Mr Martinka added. Developed by Indian firm IBS Software, iCap is currently replacing Lufthansa Cargo’s Unisys-based Mosaik application that was implemented more than 30 years ago.
Rounding things up at Manhattan’s Library Hotel Achim said that his airline’s network to North and Latin America comprises of 372 weekly freighter and passenger flights, offering a total transport capacity of 7,290 tons on both main and lower decks. However, these figures will go up soon with the new passenger flights to Tampa, Florida, Mexico’s Cancun and Panama City on LH’s priority list.
Panama in particular “is a very interesting destination from the cargo perspective,” the manager adds. That’s why he and his team are now looking for a local operator to partner with to secure reliable regional feeder and distribution services.

Heiner Siegmund  

Write a comment

Comments: 0