The Lufthansa Group of airlines reinforced its leading position in the European air freight landscape and as a key global cargo player. This is evidenced by the 2018 annual results released today (14 March) by the LH management. The rather slack state of the global economy in Q4 of last year didn’t obviously impact the LH Group’s logistics activities negatively. In contrast, effects of an economic slowdown are only shown since January 2019.
In fiscal 2018, Lufthansa Cargo generated an operating profit totaling 268 million euros, an increase of 2 percent over the previous year. Revenues in the logistics business segment went up by 7
percent to 2,7bn euros. The market environment was characterized by high transport demand for air freight, leading to a strong rise in yields, Lufthansa stated in their financial overview. On
APAC routes LH Cargo’s net traffic revenue leaped 12 percent y-o-y, reaching 1.1bn euros, this way surpassing revenues generated between Europe and The Americas, totaling 1.0bn euros, up 6
percent to 2017.
Besides these positive external factors mentioned above, a number of internal strategic decisions were responsible for the positive development, such as these three, for example:
Cost cutting measures
The harsh cost cutting program which was implemented in 2016 and ended last October led to annual savings of 80m euros. 800 jobs were axed, reducing LH Cargo’s headcount to currently 4,500. Despite the saving plan’s termination, strict cost controls will remain in place in 2019 and beyond. The emphasis will be on optimizing processes and the efficient use of production resources, announces LH’s management.
JVs with new partner airlines
The joint ventures are based on capacity sharing agreements (metal neutrality) signed with ANA Cargo, United Cargo and Cathays Cargo on key routes between East Asia and Europe respectively North America and Europe. These not only spurred the participant’s earnings but enhanced particularly LH Cargo’s market position in both central Europe and on a global scale.
Digitalization pays off
Of main operational and financial advantage was and still is the ongoing renewal of the IT infrastructure. The project is aimed at networking LH Cargo electronically with all members of the supply chain, from booking through delivery. A key tool that has simplified processes, upped the transparency of transports, saved time and money and will reap even greater benefits in 2019. Meanwhile, almost three quarters of all shipments are booked and documented electronically. This figure is also a result of an educational process because since last October, LH Cargo charges 12.00 euros per paper-based consignment.
LH Cargo contributed the lion’s share to the satisfying 2018 logistics results presented by LH today. However, Austrian Airlines, Brussels Airlines, Eurowings, and leisure carrier SunExpress whose freight businesses are managed by LH Cargo have also contributed their part to the good figures. Not to forget Leipzig-based joint venture partner AeroLogic owned 50/50 percent by DHL Express and LH Cargo, ULD manager Jettainer or LHC subsidiary time:matters, responsible for customized logistics solutions.
Market conditions are deteriorating
In 2019, LH Cargo focuses, among other things, on modernizing their fleet. This is seen by the integration of two brand new B777 freighters which arrived in February and March, complementing their fleet of five Triple Seven freighters. Further to this, the freight Crane leased another B777F that flies in AeroLogic colors but whose capacity is entirely managed by LHC. A fourth B777 freighter is to follow, arriving in fall and flying in AeroLogic livery.
In the meantime, however, market conditions have deteriorated, as indicated by Brian Pearce, Chief Economist for IATA. In his presentation at the IATA-organized World Cargo Symposium in Singapore this week, Pearce predicted cargo growth reaching only two percent in 2019. This halves previous estimates tabled last fall. Which influence on global trade the tariff dispute between Washington and Beijing will have in the months ahead, the ongoing Brexit drama and the rise of nationalistic policies in some of the EU countries such as Italy, Hungary or Poland remains to be seen, he said.
End of comfort zone
All these are luring risks for global trade hard to accurately forecasting. As to IATA’s Mr Pierce, his bleak outlook is affirmed by LH Cargo’s February figures. While the carrier offered the market 7.7 percent more transport capacity as result of their fleet increase, cargo sales went south by 3.5 percent in RTK terms. Hence, the load factor decreased by 7.5 percent, averaging 64.4 percent.
Seems that the road ahead will become bumpy for the air freight industry, forcing their players to step out of the comfort zone.