The German freight carrier expects to capture new business in America’s southern Hemisphere and the Caribbean region in the months ahead. Its hopes are mainly based on the expansion of passenger flights which will increase the lower deck capacity usable for cargo transports. However, the rate situation remains extremely challenging.
Brazil continues as a big disappointment from the cargo carrier’s point of view. The economy of South America’s largest country by territory and inhabitants nears its fifth year of stagnation and
tends to slow even further, as recently indicated by the Ministry of Economy. Neither the soccer World Cup in 2014 nor the upcoming Olympic Games held in Rio have given the local industry and
trade firms a dynamic push. Consequently, air freight continues to suffer as do other businesses as well. In the eyes of a freight carrier the only consolation is that imports into Brazil are
still going fairly strong while exports remain very weak. However, flying acceptable amounts of tonnage into Brazil, while returning home with poor loads makes it hard to earn money on any
Brazilian sector these days. Brazil’s government aggravated the carrier’s woes by prohibiting them to levy any surcharges. Instead, they are forced to offer the market all-in rates which leads to
a lack of pricing transparency, making calculations a high-risk gamble for each of them.
Perishable biz is picking up
The situation is anything but amusing, confirms Lufthansa Cargo’s Director South America, Caribbean and Florida, Gunnar Loehr, admitting that his airline is facing tough times. “Pharmaceuticals are faltering, so do most industrial goods,” he says. They account for nearly 50 percent of his carrier’s business. A glimmer of hope comes from fruits and vegetables which tend to pick up, stimulating exports. “In view of this trend we decided in June of last year to serve Natal once a week, capturing on the perishables business,” states Gunnar. The surrounding region plays an important role in the farming of papayas, mangos and other tropical fruits. Meanwhile the Natal service seems to have paid off: “we are well established in this particular market,” confirms the manager.
Panama City added to the network
In total, LH Cargo operates five weekly freighter flights between Frankfurt and Viracopos in Brazil, with two continuing to Montevideo and Buenos Aires, two flying directly back to Germany, while one is routed to Natal before returning to Frankfurt. In addition to these freighter services there are numerous passenger flights operated by the airline linking Germany with Latin America, widening the cargo spectrum through the lower deck capacity offered on the aircraft.
The latest destination added to the network is a Panama City passenger service which is operated five times weekly with an Airbus A340 since 2 March. “Panama is an important transit point for ocean freight and interesting for air freight as well,” states Herr Loehr.
He expects to transit large numbers of shipments in Panama City which originate in Colombia and Ecuador and then fly them in the holds of the A340 to Europe.
This way, some of the flower business stemming from Latin America’s Pacific Rim will be maintained after LH Cargo decided to stop serving Bogota and Quito by their regular freighter ops since the beginning of March.
Sales agents stay on board
Commuting services are provided by partnering carriers, in first place Star Alliance member Copa Airlines which has set up a hub and spoke system at Panama City. Optionally, LH Cargo cooperates with LAN Cargo and other partners by transiting Latin American produce bound for the European market in Miami. “Although we don’t operate line-haul flights to Colombia and Quito any longer we remain available for our customers by feeding into our online stations nearby and offering freighter charters if demanded by clients. We continue to be represented by our long-time local sales agents. This, because they are very familiar with our business and the market specifics and can book consignments by using our traditional LH020 air waybill number.”
Gunnar’s EW challenge
As his biggest challenge in the months ahead he mentions the Eurowings’ project upping the lower deck capacity substantially and which LH Cargo is responsible for marketing. This concerns flights to typical leisure destinations in the Caribbean such as Punta Cana, Varadero or Puerto Plata. “Our most pressing task is to quickly set up a GSA network to fill the aircraft’s holds with freight.”
With the addition of the line-haul flights operated by Eurowings’ A330s, Gunnar is positive to up LH Cargo’s market share in Latin America this year. This is also aided by the fruit business in Brazil and the Argentinian situation where the economy is slowly recovering after former president Cristina Kirchner was voted out of the Casa Rosada.
Pressure on prices and margins remains severe
Wrapping things up it can be said that the Latin American air freight business remains as being extremely challenging. It requires much flexibility on the part of carriers operating these routes.
The South American economies, especially that of Brazil remain under pressure and cash flows are becoming an increasing problem. It would be deadly if, as was in the past the case in Venezuela, if carriers were restricted or even forbidden to transfer revenues out of the region. The rate decline is not just a South American dilemma, but one which considering the high number of flights into the region, places carriers on an even higher competitive footing with each other.