LH Cargo Aims to Make the Carrier Great Again - Part 1
After years of revenue stagnation Lufthansa Cargo aims to get back on track for lasting growth. The carrier’s magic word is ‘Cargo Evolution’, containing a bundle of measures targeted at upping sales and enhancing profitability. It’s their way to try and make the freight company great again.
Speaking of a ‘challenging’ year 2016 may well be seen as an understatement. More accurate would be calling the last twelve months a ‘devastating period’ for many cargo carriers, including Lufthansa Cargo. The gap between capacity on offer and demand widened substantially during the first three quarters of the year with an opposite trend starting only last September. Consequently, rates went south dramatically, dropping from an average of €1,65 and bottoming out at €1.44 on average some weeks ago. This is an average drop of -16% Soeren Stark said, executive board member operations at LH Cargo. “Compared to the years before, this has impacted substantially on our financial and earnings position,” the manager admitted while presenting his carrier’s future strategy to the members of the German Air Cargo Club (ACD) in Frankfurt last week.
LH Cargo expects losses in the double-digit million range
49 year-old Soeren started his career at Lufthansa’s catering daughter LSG Sky Chefs, moved on to Lufthansa Technik Logistik Services and from there to Hamburg-based Lufthansa Technik before succeeding Karl-Rudolph Rupprecht last April as executive board member operations at LH Cargo.
In his overview given to the roughly 70 ACD members he admitted that for the first time since 2009 the generated revenues are below his carrier’s costs in 2016, although since September the wind has changed notably, but the turnaround came too late to end up in the black in fiscal 2016.
Zero growth for 2016 on the cargo side. That’s the message to Lufthansa shareholders and the trade. Mr Stark’s figures highlight this trend for almost all legacy carriers compared to double-digit increases for Middle- and Far East competitors.
“Cargo Evolution” is the new keyword
Since it is unlikely that yields will recover remarkably in the near future, Lufthansa Cargo’s cost cutting program saving €80 million each year is key to get back on track and regain profitability.
It is complemented by their growth strategy called “Cargo Evolution” that is aimed at increasing sales, stimulating the business, enhancing productivity and profitability. The main steps presented in order to reach new glory again are:
- lean operational and administrative processes, coupled with modern ground infrastructure,
- innovative and tailored products to penetrate new markets and attract additional customer segments,
- both deepen and extend partnerships with cargo divisions of other carriers (ANA, Cathay, United) based on metal neutrality and a common cash box to widen the allies global network beyond their individual reach and – last but not least –
- the fast promotion of digitalization to speed up processes by data exchange among all participants of a given supply chain. An encrypted ‘Logistics Data Cloud’ will be implemented accessible by all LHC clients for exchanging information.
A question of ‘when’, not ‘if’
While touching fleet issues the manager confirmed his company’s ambitions to operate a uniform fleet of Boeing Triple Seven freighters, thus confirming intentions to get rid of the remaining dozen MD-11Fs and replace them successively by 777Fs. Currently, LHC operates five Triple Seven freighters with five options standing on Boeing’s order books. The rollover issue is not a question of ‘if’ but ‘when’ he stated, leaving open the timeframe for the decision. This depends primarily, as it seems, on the fuel price development. In case kerosene costs rise sharply, which they surely will, operating MD-11Fs becomes even more uneconomical at a certain price level due to higher consumption in comparison to the 777Fs.
In addition to this, Soeren indirectly confirmed rumours that original plans to build a LCC Neo called new Lufthansa Cargo Center at FRA have been largely put on the back burner due to high costs (approx. €1.2 billion) and his company’s lack of profitability. Instead, a modular structured warehouse complex will be initiated, tailored as far as possible to future business developments.
Heiner Siegmund / John Mc Donagh