LH Cargo’s Financial Situation Gets Tighter

The cargo carrier’s operational profit has been substantially diluted in the first nine months of 2015. Special write-downs will further affect the earnings negatively, announced Executive Board Member Martin Schmitt. Various countermeasures initiated by the management are aimed at bettering the carrier’s financial situation in the long run, together with a strong fourth quarter.

CFO Martin said that LH Cargo is going through belt-tightening times  -  pictures hs
CFO Martin said that LH Cargo is going through belt-tightening times - pictures hs

Lufthansa Cargo has come under pressure. The reasons are diverse:

  • State-aided competitors from the Gulf region or Turkish Airlines Cargo, constantly adding more capacity to the market are increasingly capturing parts of the cargo cake.
  • China’s exports keep on contracting, reducing the tonnage available.
  • Homemade problems like the repeated strike actions by Lufthansa’s pilots and cabin crews have also affected the air freight business negatively since about 50 percent of LH Cargo’s volumes are transported in the lower deck compartments of the passenger fleet.

Sinister mélange
All this has sent the carrier’s earnings south - an ongoing trend since last May.
CFO Martin Schmitt spoke of a sinister mélange his airline is currently facing. Shown by the adjusted EBIT that was roughly halved to €35 million in comparison to the previous year figure (€69 m).
Moreover, the financial result will further be weakened in the region of €70 million by a number of write-down effects on investments in LH Cargo’s projected future World Cargo Center that had been deferred for some time by its parent Deutsche Lufthansa AG.

Countermeasures are under way
To stop the downturn LH Cargo has initiated a number of countermeasures. “We are not a mass carrier, but will focus on special products like pharmaceuticals, perishables, express, automotive or highly valuable goods,” said Martin. Simultaneously, a new cost-saving program, named C-40, has been set up, becoming effective in May of next year. C-40 is aimed at bringing annual cost reductions of €40 million from 2018 onwards. Currently, an internal investigation is under way to identify areas where cutbacks make sense. Mainly affected will be the administrative area, by reducing administrative and staff expenditures, he indicated.
Further to this, two more of the carrier’s MD-11 freighters will be sidelined right after the high season has ended to improve the average load factor, which is currently 65 percent. Once done, it will bring the Douglas sub-fleet down to 11 units, with an additional freighter held in reserve.

LH Cargo’s MD-11 freighter fleet is shrinking, with eleven still flying
LH Cargo’s MD-11 freighter fleet is shrinking, with eleven still flying

Enhanced cargo processes at FRA intended
In his overview given in Nairobi, CFO Schmitt also pointed out that in close cooperation with Frankfurt airport operator Fraport AG a program is under way to increase the attractiveness of the location. “It’s our main global hub so we are highly interested in fast, reliable and efficient ground processes going hand in hand with the local customs authorities, forwarding firms and handling agents.” Schmitt confirmed to CargoForwarder Global that the 2012 court imposed permanent night flight ban at Rhine-Main results in his airline having a yearly revenue shortfall in the region of 30 to 40 million euros. How many customers LH Cargo has lost to competitors offering night flights at Liege or other nearby located 24/7 operating airports as consequence of Frankfurt’s curfew he could not precisely define.

New cargo partner decision is still outstanding
Mr Schmitt mentioned in his presentation that the plans for an additional joint venture partner still stands, but the decision as to whom it might be has so far not been revealed. He confirmed that the deal will be concluded before the end of this year. Asked whether United Airlines Cargo LH Cargo’s new partner, he declined to answer.

JV AeroLogic has become a success story
In contrast to this Schmitt described the AeroLogic joint venture between LH Cargo and DHL Express (50/50%) as an “extremely successful project.” “While DHL Express utilizes the 8 of Boeing 777Fs in its fleet during the week, we operate the aircraft during the weekends, when we need capacity most.”
Asked about the new pricing scheme effective since 25 October consisting of a net rate and a combined airfreight surcharge (covering security and fuel expenditures) Herr Schmitt claimed that the first results are encouraging. “We haven’t experienced any detrimental market effects.” In the same breath, he applauded the renewal of the IT platform by replacing the old Mosaik system by a new basic software developed by experts from India. “This 115 million euro investment greatly improves our interactions with clients or customs authorities, adding to our reliability and enhancing our services,” Schmitt applauded.

New app shall improve services
On the fringes of the Nairobi meeting, LH Cargo’s Head of Communication Michael Goentgens announced the introduction of a new e-services application. It can be downloaded on any mobile device by everyone interested, giving users access to LH Cargo’s electronic functions. Mailings inform them pro-actively about relevant transport processes. “The new app provides a direct added value for our clients and partners,” assures Michael. According to him, the electronic tool is a cornerstone within his airline’s 2020 savings and enhancement program.

Heiner Siegmund

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