LH Cargo Back on Way to Profitability

After suffering severe financial setbacks last year caused by global overcapacity, decreasing volumes and dramatic rate declines, the Lufthansa Cargo patient is on the road to recovery again. However, it’s still a long and stony path the carrier has to go to regain pecuniary success.

According to CEO Peter Gerber, LH Cargo has plans in the drawer to introduce a new e-Commerce product  -  photos: hs
According to CEO Peter Gerber, LH Cargo has plans in the drawer to introduce a new e-Commerce product - photos: hs

CEO Peter Gerber and CFO Martin Schmitt started off Lufthansa Cargo’s annual press conference held last week in Frankfurt with positive news. Despite accrued losses of €50 million in fiscal 2016, there is a bright light at the end of the dark tunnel, the managers indicated. Having said this Gerber shifted into attack mode by pointing out that topics like fleet innovation and the building of a new cargo terminal at the airline’s FRA hub are tasks standing high on the management’s agenda.
Regarding the fate of the freighter fleet he confirmed that LH Cargo has no intentions to step out of freighter ops. The combination of LHC managed main deck capacity and the utilization of lower deck compartments offered by Lufthansa’s passenger aircraft is ideal for fast and seamless carriage of air freight, he emphasized. Risking this proved model by stepping out of freighter ops wouldn’t be very wise, Peter stated.
 
Not a question of if, but of how many
The executive went on to say that latest at the beginning of 2018, maybe even this year, LHC will decide how many additional Boeing 777 freighters are to be ordered and when is the right time for the new equipment to start commercial operations. "A fleet decision is needed and this is clearly on our agenda," confirmed Herr Gerber.
However, he refrained from mentioning an exact number of additional Triple Seven freighters LHC intends to purchase. Although he didn’t comment speculations, it can be expected that it will be between 5 and 7 units, adding to the existing 5 Triple Seven freighters already in service at LHC. If so, this would roughly match the capacity of the current fleet consisting of 5 B777Fs and 13 MD-11Fs, whereas from the Douglas freighter model three will leave the fleet by the end of this year, Gerber confirmed.

Does LHC join the AeroLogic bandwagon?
In an interesting aside, the manager did not rule out that at least some of his company’s future B777 freighters might be operated by AeroLogic. He confirmed that DHL Express and LH Cargo are currently in talks about the further development of their freight subsidiary (50/50%) whose fleet comprises 8 Triple Seven freighters. He spoke of the joint venture, started in 2007 as a "successful model," which is worth to be developed further.
His reference to AeroLogic could be an indication of joint fleet activities, reducing LHC’s expenditures since the AeroLogic B777Fs operate at a lower cost base compared to LH Cargo’s own freighters.  

CFO Martin Schmitt expects LHC returning to profitability in 2019 latest
CFO Martin Schmitt expects LHC returning to profitability in 2019 latest

A lot depends on market developments
Touching the market situation and giving a tentative outlook Gerber and Schmitt spoke of a slight recovery that started during the second half of last year and continued throughout the first months of 2017. However, the recovery came too late to offset the losses suffered during the first six months in 2016, leading to the above-mentioned annual deficit of €50 million, LH Cargo’s first negative balance since 2009.
Looking ahead, both managers spoke of an ongoing recovery but warned of volatile market situations that might shade the positive development. If all goes well, fiscal 2017 could end with a black zero for LHC, followed by operations returning to profitability a year after. Herr Gerber pointed out that his management’s positive outlook is not only based on market recovery perspectives but that his company’s own restructuring program called C40 will be a substantial contributor to the predicted financial turnaround. C40 as the cost-cutting scheme was called when implemented but soon replaced by a nameless successor aimed at doubling the savings efforts for reaching €80 million per year, will have its full effect from 2018 onwards.  
At the press meet, both executives pointed out that last year LHC suffered extraordinary one-off charges amounting to €30 million as result of compensations paid to 800 employees whose jobs were cut or to those that opted for a severance pay in case of early retirement. Affected were all staff members born before 1964, Gerber said.
 
New freight terminal is not a phantom debate any longer
CEO Gerber further announced that by the end of this year, construction plans for a new air freight center at Rhine-Main Airport will be tabled by his management. He indicated that it will be of smaller dimensions compared to the formerly intended, €750 million costing LCCneo. Main difference to the originally planned facility, that became victim of the cutbacks is the modular design of the intended freight terminal, thus allowing its gradual enlargement should tonnage throughput increase notably in the coming years.
The future cargo hall is to replace the carrier’s old Cargo Center at FRA that is technically outdated, offering no growth capacity.

Growing the group
Asked about the fate of Brussels Airlines Cargo after LH purchased the remaining 51% in the Belgian carrier, Peter remained rather vague. "We have to evaluate the existing GSA contract and decide after what to do." Nevertheless, he left no doubt that Brussels Airlines Cargo will become part of the Lufthansa Cargo group eventually in one way or another.
Simultaneously, he announced plans to intensify the cooperation with Swiss World Cargo. He confirmed, however, that the cargo division of LH daughter Swiss will keep their own brand and air waybill code in future times, thus not amalgamating with LH Cargo as Austrian Airlines Cargo did. 

Heiner Siegmund

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