Exclusive - LH Cargo Adjusts Fleet Capacity as Part of Savings Program

Disappointing financial figures prompted the carrier to set up a new austerity program, called “C 40”, to ensure sufficient liquidity to implement their ambitious investment plans in the years ahead. Part of the structural adjustments is a tentative reduction of the freighter fleet.

From 12 down to 11 - LH Cargo’s MD-11 freighter fleet is shrinking  -   pictures hs
From 12 down to 11 - LH Cargo’s MD-11 freighter fleet is shrinking - pictures hs

Lufthansa Cargo’s ailing traffic results, presented on October 29th by Lufthansa (the parent organization), do not permit undertaking the major expenditures needed to stay innovative and therefore competitive in the long run.

The cargo carrier’s malaise started last May showing a steady decline in sales and revenues which continues to today. This despite low fuel prices which are a blessing for the airline industry, improving their margins. However, the decrease in kerosene prices prompted a number of market players to up operations, exacerbating an already existing overcapacity and leading to further rate reductions. 

Zero sum game
So the additional benefits achieved by favorable fuel prices are eaten up by shrinking rates, making it a zero-gain game for many commercial carriers over the last few months.   

Closing the expanding gap between shrinking operating profits and the money needed to finance the carrier’s investment plans listed in the LH Cargo 2020 Program, the management unveiled details of their impending “C 40” savings plan to ensure meeting the company’s targets despite critical market conditions.  

For an MD-11F the death knell will sound
One of the key features of the “C 40” agenda is to save €40 million each consecutive year with the intended capacity adjustment of getting rid of two of LH Cargo’s fourteen MD-11Fs – with 12 in operation and two back-ups for when additional capacity is urgently needed. 

Consequently, starting next year, LH Cargo will operate eleven MD-11Fs, with one in reserve capacity.

No changes are foreseen for the sub-fleet which consists of five Boeing 777Fs. As a result, LH Cargo will operate a mixed fleet with 16 all-cargo aircraft in total, one less than today.  “This step reflects the ongoing under-utilization of transport capacity, reduces our maintenance costs, saves fuel and ups the load factor of our remaining freighter fleet,” states LH Cargo’s Head of Communication Michael Goentgens.

LH Cargo’s Head of Communication Michael Goentgens
LH Cargo’s Head of Communication Michael Goentgens

Examining all processes
All in all, “C 40” is intended to lower the carrier’s unit costs substantially through internal structural changes. The details the program will ultimately have, in addition to the fleet alignment, are largely unclear at this point in time. “We are examining all cash-relevant processes, including our decentralized marketing activities in various traffic areas around the globe, to save money,” Mr. Goentgens exemplifies.

He assures that the program does not have a negative impact on the products or services offered by LH Cargo to their clients. It will be finalized and put into practice in the spring of 2016 after all the processes have been thoroughly examined with regard to potential savings.

Operational profit expected
Touching on the current walkout by Lufthansa’s flight attendants Michael speaks of “regrettable impairments,” causing the delay of some shipments transported in the holds of Lufthansa’s passenger fleet on routes not operated with freighters.

The manager further outlined that LH Cargo will remain profitable in fiscal 2015 despite harsh market conditions. Nevertheless, he added that the annual surplus will fall short of the operating profit of €100 million achieved in 2014.

Heiner Siegmund  /  Michael Taweel

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