LH Cargo’s Sweet-Sour Perspective

Herr von Hoensbroech is a straight-talking man who calls things by their real names. So he did at the ACD gathering in Frankfurt last week, attended by 70-plus members and guests. His presentation named “Airfreight in Germany, Challenges & Chances,” showed that European cargo carriers, including his own airline are caught in a defensive struggle that he expects to get even tougher. “Just take a look at Air France-KLM Cargo that used to be the world’s largest cargo carrier back in 2004. Meanwhile they have hardly any freighters left in their fleet,” stated Alexis. How the cargo world has since changed is documented by statistics. According to latest data, the pole position in flown air freight tonnage is taken by Emirates, whereby other Gulf carriers like Etihad and Qatar Airways but also Turkish Cargo keep moving forward at great speed.
He presented his audience with figures which showed that despite the present crisis, air cargo to-and-from Europe has moved from almost negligible figures in 1970 up to an expected 15 million tons by the year 2020. However, an increasing portion of these volumes is flown by non-EU airlines.

Capacity keeps increasing at great speed
Firm aircraft orders placed by the aforementioned carriers at Boeing or Airbus further evidence the ongoing traffic shift away from Europe, towards the Middle East. While the fleets of EU airlines will grow by 15 percent within the next 20 years, their Gulf competitors will double their current assets. This has already affected both the flows of passengers and cargo consignments and will increasingly continue so. This all the more since Turkey, Dubai, Qatar but also China are investing huge sums to enlarge their airports at great speed or build them from scratch, like Istanbul’s Black Sea project. Once this facility is operational it will be able to handle up to 150 million passengers yearly and process at least 4 million tons of cargo.

Ruinous price war
Particularly the Arabian Gulf airlines, strongly backed by their governments and local financial institutions try increasingly to capture market shares evidenced by the low rates they offer their cargo clients. Herr von Hoensbroech commented: “They offer the market prices which they are unable to make any profits with.”

Domestic problems
These external challenges go hand in hand with home-set obstacles like the ongoing absence of a Single European Sky, sky-rocketing traffic control charges, operational restrictions at big hubs like FRA or the EU’s intention to impose an emission trading scheme. “Every single one of these measures we could come to terms with but the sum of all loads is the key component, putting brakes on us,” stated the manager. He admitted that the continuous pilot strikes and a week-long walkout last November of Lufthansa’s cabin personnel has affected the cargo business negatively. Alexis further states that: “about 50 percent of our total tonnage is transported in the holds of Lufthansa’s passenger fleet.”  

Optimistic outlook despite all obstacles
So what does all this mean to LH Cargo and their future role as one of today’s still leading cargo airlines?
At this point of his presentation, Herr von Hoensbroech switched to a more optimistic perspective. “Our strategy ‘LH Cargo 2020’ is based on three pillars: efficiency, growth and creating customer value,” he stated. Adding to this that parts of the program are in full swing. This accounts particularly for a brand new IT system named iCap which LH Cargo invested estimated €120 million in. iCap is a key component for digitalizing air freight processes, reducing transaction costs and speeding up the flow of goods. This technical and operational tool is meanwhile in place. Further to this, pacts with ANA Cargo and United Cargo have been inked, offering the market metal neutral capacity on trade lanes between Europe and Japan and Europe and the U.S., respectively served by the trio. Within the next few months an additional alliance alike the one with ANA Cargo and United Cargo will be announced, said the LH manager, without delivering any specifics.

FRA to became state-of-the-art cargo hub
“We want to become an airline that’s ‘Easy to Deal with’,” von Hoensbroech exclaimed, announcing a new service-related element of the ‘2020 program’ by directly addressing the many forwarding agents among the ACD members. Becoming market leader in special products like pharmaceuticals or express, including tailored services offered to clients was another strong feature standing on Alexis’ agenda to be practically accomplished. Part of the carrier’s future-oriented program are also measures to develop Frankfurt as the most attractive gateway for air freight globally. There is an enhancement program under way that will produce valuable results within the next 12 months, to speed up ground processes, digitalize cargo flows along the entire supply chain, including trucking by telling drivers heading to FRA the precise time for unloading or loading their goods at their ground handler of choice.

Uniform 777 freighter fleet
Asked by ACD participants about any fleet plans Alexis said that LH Cargo intends operating an all-Boeing 777 freighter fleet, without going into further details. The attending managers interpreted this as indirect hint that LH Cargo intends to convert their pending five 777F options into firm orders at Boeing. “In contrast to some competitors we will remain being a main deck capacity provider,” the executive assured.

ACD Germany looks at a positive 2016 program
Winnfried Hartmann, the current ACD President thanked Mr  von Hoensbroech for his interesting outlook and at the same time informed the club’s members that 2016 will start with the following first quarter meetings:

• 26 January - The Annual members only meeting with the election of a new Board.
• February  - Presentation by Nils Haupt of Hapag-Lloyd on Seafreight versus Airfreight
• March - The ACD will be present at the IATA WCS in Berlin and initiate its own panel discussion.

Heiner Siegmund  /  John Mc Donagh