Exclusive – LH Cargo: LCC Neo Transforms Into LCC Evo – PART 2

Following PART 1 of our LH Cargo Exclusive, published last week, CEO Peter Gerber surprisingly announces in this follow-up report a root-and-branch-transformation of the carrier’s existing Cargo Center at FRA Airport. This implies that initial plans for building a new freight terminal from scratch belong to the past. In his meeting with CargoForwarder Global, the executive also revealed specs on his carrier’s upbeat business situation.

Once the LCC is refurbished, productivity, on-time performance and handling quality will go up, expects LH Cargo CEO Peter Gerber  -  photos: hs
Once the LCC is refurbished, productivity, on-time performance and handling quality will go up, expects LH Cargo CEO Peter Gerber - photos: hs

Less expensive Evo to replace old Neo planning
For many years, LH Cargo has been talking about constructing a new freight terminal on their home base at Frankfurt Airport. However, those days the plans popped up at an inappropriate moment when the carrier’s revenues were declining, prompting the financial controllers to shelve the project estimated to have cost one billion euros. 
Now the u-turn. With profits going up again, a new concept emerged from the ashes – dubbed LCC Evo. “Internally, we define the project as LCC Evo, whereby Evo stands for Evolution,” explains the manager. Once built, it will fulfill the increasing requirements of the carrier’s customers, while offering exceptional performance at lower per capita costs, CEO Peter Gerber holds, without detailing the expected expenditures. All he said is that “our LCC Evo will be much less expensive than the formerly planned LCC Neo.”
 
The top men must still give the green light
The new scheme is based on modular architecture with its different segments to be integrated gradually into the existing LH Cargo Center without disturbing the daily handling processes.
What’s still missing for a final go-ahead is the consent of LH Cargo’s Supervisory Board. This, especially in view of the carrier’s outstanding cargo financial performance showing net profits of €99 million in the first nine months of this year, with revenues increased by almost 16 percent on a yearly comparison, at €1.64 billion. “With the most promising 4th quarter still to come,” Herr Gerber is pleased to say.

 

Cargo has become a cash machine
Final figures will be presented on March 15, 2018, at the Lufthansa Group’s annual press conference. Thanks to the favorable rate development and the overall increase in air freight demand, market observers expect LH Cargo to post net profits in the region of €150 million in fiscal 2017. An estimation Mr Gerber refrained from commenting on.
The financial turnaround started in summer of 2016 and continues uninterrupted month by month up until today.


As main drivers, LH Cargo identified the European, Chinese and northern Asian markets, which perform very well, while North America shows a satisfactory development.
Secondly, a substantial number of ocean vessels were taken out of service, reducing the capacity on offer for sea freight. “This helped and still helps air freight quite a bit,” holds Peter.
Thirdly, e-commerce is going through the roof, upping cargo volumes substantially.
A fourth factor favoring LH Cargo’s upswing comes into play, induced by the Gulf carriers and Turkish Airlines that haven’t emerged from the valley of tears they are seen to be in since months.
 
From negative to positive
Peter Gerber concludes: “All external factor have changed from negative to positive lately, stimulating our business.” This includes the carrier’s performance in the U.S. market that is still running according to expectations despite the protectionist policy President Trump is pursuing seen by his “America comes first” policy and his slashing of international trade agreements. 
However, internal factors have also contributed strongly to LH Cargo’s latest upswing, predominantly the so-called C40 cost savings program. Although only half-way completed, it has already led to savings of €40 million this year. An amount that is expected to be doubled in the course of 2018, leading to continued cutbacks of €80 million each consecutive year. 
Under the restructuring program, Lufthansa Cargo will axe up to 800 jobs worldwide in order to reduce costs, whereby about 50% of the job cuts have been made already.

Heiner Siegmund

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