LH Cargo Slides into the Red

Lufthansa Cargo posts losses amounting to €50 million in fiscal year 2016 following earnings of €73.5 the year before. The financial result is a combination of unfavourable market conditions caused by overcapacity and declining yields and one-time expenditures under the carrier’s C40 restructuring program.

LH Cargo’s average load factor increased slightly in 2016  -  photos: hs
LH Cargo’s average load factor increased slightly in 2016 - photos: hs

While the Lufthansa Group reports an adjusted EBIT of €1.75 billion, demonstrating its financial strength despite costly pilot and cabin crew strikes as well as higher fuel expenditures, its freight arm LH Cargo overshadows the overall positive 2016 results. The freight carrier’s revenue went south 11.5 percent year-on-year, totaling €2.1 billion, pushing earnings steeply down.
In contrast to this dire financial outcome, the revenue freight ton-kilometers (FTK) remained stable in 2016, standing at 8.3 billion. The average load factor reached 66.8 percentage points (+0.5%), thus slightly exceeding last year’s level.
 
Two related external factors mainly influenced LH Cargo’s 2016 figures negatively: the continued overcapacity in key markets and their constant pressure on yields, sending tariffs down on most intercontinental trade lanes. Presumably, this situation won’t change in the months ahead.

Lufthansa Cargo CEO Peter Gerber  -  photo: hs
Lufthansa Cargo CEO Peter Gerber - photo: hs

€32 million restructuring costs
If these unfavourable external circumstances weren’t enough to spoil the freight airline’s annual results, there were a number of internal course setting decisions costing LH Cargo millions, as spokesman Andreas Pauker points out. Employee severance indemnities in accordance with the savings program C40 that comprises the axing of up to 800 jobs were a major cost factor, which had a negative impact on the annual balance sheet but will lead to a sharp drop in costs from 2018 onwards. The restructuring of the second management level, cutting it out completely, was not paid out of the petty cash either, Andreas holds. 

Back in the black before the end of this decade
Touching the 2017 outlook LH Cargo is cautiously optimistic. The volume increase that started in Q4 of last year continued unabated in the first weeks of 2017 and the carrier’s new product td.Basic, introduced to the markets last autumn, has attracted new customer groups. On top of this, the C40 cost cutting measures will bear first fruits although it will come fully into effect in 2018, saving €80 million annually. The LHC management expects to return to profitability within the current decade. 

 

Lot of work ahead for Peter Gerber and the LHC management

Asked by CargoForwarder Global about the management's expectations for 2017 and beyond, CEO Peter Gerber of Lufthansa Cargo delivered these statements: 

"There is a lot of work to be done this year, as we plan to make air freight even better and more efficient. We have taken the first decisive steps in this direction like adjusting our strategy to make our company leaner and by widening our product range."

Peter went on to say: "This benefits our customers in many ways: We have now become even faster, more flexible and we can offer clients even more indiviual solutions tailored to their needs."

He further points out that LHC has expanded its reach in 2016 by adding Eurowings long-haul route to the freight airline's network. Also, the freight company has reinforced its partnership with ANA Cargo and Cathay Pacific Cargo.

Tasks standing next on his management's list are a pact with United Cargo, and in close cooperation with forwarding agents "to leverage the huge potential of our sector's ongoing digitalization."

 

LH CEO Spohr announces permanent modernization
Cost discipline is a topic ranked high not only on the freight carrier’s agenda but also
a key target of the entire Lufthansa Group, as CEO Carsten Spohr emphasized today (16 March) while commenting on his company’s financial results. Herr Spohr stated: “We will consistently continue to modernize the Lufthansa Group. We aim to be the first choice – for our customers, our employees, our shareholders and our partners. To achieve this, we will continue to focus on cost discipline, so we can create possibilities for profitable growth in the future.”

The Lufthansa Group generated revenues of €31.7 billion in 2016, a decline of 1.2 percent on the prior-year result. Adjusted EBIT for the year amounted to €1.75 billion, down 3.6 percent. This means that earnings before strike costs of €100 million in 2016 came in at the previous year’s level. The Adjusted EBIT margin for 2016 was 5.5 percent, a decline of 0.2 percentage-points.

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Munich beats Frankfurt
For the first time the carrier’s Annual Results’ Media Conference was being held in Munich, not Frankfurt. Besides the growing role MUC plays for the operational activities of the LH Group, the decision to choose Munich as platform for the announcement of the financial and traffic figures can be interpreted as the beginning of a major quarrel with Rhine-Main operator Fraport. The FRA management triggered the conflict when deciding to offer newcomer Ryanair landing fee discounts in the region of 50 percent compared to bills presented to their main client LH. In an immediate reaction, LH told Fraport that they will only pay the fees offered to Ryanair, not a cent more.
If so, the next conflict is just around the corner. But this time the antipode is not the pilot union Vereinigung Cockpit (VC) but the Fraport management.

Brussels Airlines posts net profit
In concurrence with Lufthansa’s financial announcement LH Group member Brussels Airlines also presented their 2016 figures. The carrier posted an operational profit of €20.4 million and a net profit of €15 million, after a deduction of 2.5 million euro which the airline will redistribute to its personnel in recognition of the tremendous efforts made after 22 March 2016 when terrorists attacked the airport. This led to a 12-day closure of BRU, causing a sharp decrease of passenger numbers and cargo consignments in the aftermath of the blasts.

Heiner Siegmund

Write a comment

Comments: 2
  • #1

    Abdullah Youssef (Thursday, 16 March 2017 20:19)

    Obvious that LH cargo has those losses, they do 5 flights a week out of Cairo, Egypt at rates of up to 40 % less than all other carriers, camouflaged in their so called cheaper to door services. This makes all carriers and agents in Egypt suffer because of LH's tricky low rates. The LH shareholder and LH staff ( 800 jobs away) pay the price of the bad management at LH cargo.

  • #2

    Heiner Siegmund (Friday, 17 March 2017 11:01)

    Dear Abdullah
    Thx for delivering your view.
    We passed on your comment to LH Cargo for informing them and enabling their managers to react.
    Kind regards, Heiner