LH Cargo Sees Light at End of Dark Tunnel

Lufthansa’s freight arm nine-month revenues have declined by almost 16 percent to €1.5 billion. This result reflects the ongoing overcapacity, sluggish demand and the cutthroat global competition. All three factors lead to enormous price pressure. As a consequence, the carrier posted an operating loss of €69 million, €104 million down y-o-y.

The LH Cargo Center in FRA is facing technical upgrades. Plans for an LCC Neo are shelved until further notice  -  picture: LHC
The LH Cargo Center in FRA is facing technical upgrades. Plans for an LCC Neo are shelved until further notice - picture: LHC

Best month
The figures presented today (2. Nov) illustrate that LH Cargo is navigating through a difficult period with no real turnaround of market conditions in sight. However, what’s making the LHC executives cautiously optimistic, are the September results – the best month in 2016, so far. This ray of hope together with the increase of transport demand, triggered by the accelerating peak season, raises expectations for a better trend through to year-end, according to the company. 
The bottom line, however, is that there is little prospect of ending the full financial year in the black, no matter how well the carrier performs to the 31st of December. Fact is that the remaining 8 weeks cannot compensate for the losses incurred during the first three quarters.
You do not need to be clairvoyant in order to see this.  

Middle ground
Insufficient funds to finance major infrastructure projects or costly fleet renewal programs have forced compromises in LH Cargo’s game plan, ranging somewhere between maximal solutions and minor spending. 
This clearly illustrates their decision to freeze their costly LCC Neo project and modernize their large cargo center at Frankfurt Airport instead, breathing new life into the rather old facility.
The renewal program has already started, replacing old technologies with computerized systems. This way, the outdated conveyor technology and ground infrastructure together with a digitalized storage system can be put in place. The long-term goal, for up to the next 3 years, is to implement a computerized production planning and control system and thereby improve the individual processes and flow of shipments within the facility and from there to airside and land-side gates.
How much “LCC Light” will cost or what the center’s name might be one day, remains in the bottom drawer for the time being. But it will be a fraction of the enormous costs, once projected for the LCC Neo, estimated by people close to the case to be over €800 million.

Alliances vs single source offer
Another important component of LH Cargo’s efforts to better weather the storm is the carrier’s alliance with ANA Cargo, Cathay Pacific Cargo and – soon to become operational – United Cargo, all based on metal neutrality. “That gives us access to the partner’s network as they conversely can utilize ours,” states LHC speaker, Andreas Pauker.
Hopes have also been pinned on two new products, that develop well, states Andreas. These are “td-basic,” aimed at upping standard freight volumes considerably and “myAirCargo.” A personalized exclusive service enabling passengers to book large or heavy items that don’t fit in the aircraft cabin as freight and to have them transported door to door. 
However, there is no news about the carrier’s fleet policy. “We will stick to rolling over our MD-11Fs and replace them with Boeing 777Fs, but for the time being I cannot deliver a timeline,” he says. This means, no further triple-seven freighters will be added to the current 5 unit fleet. Andreas left open when options for the remaining 5 aircraft standing as option in Boeing’s order books will be exercised.
This too, seems to depend on the carrier’s future financial situation.

Heiner Siegmund  /  Michael Taweel

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