Today, the cargo arm of the German carrier presented its second best financial results ever, with the adjusted EBIT for 2018 reaching 263 million euros, up 5 million euros on 2017.
Subsidiaries such as Jettainer, PACTL, time:matters or JV AeroLogic contributed 37 million euros to the carrier’s 2018 earnings.
However, profits won’t continue to rise at this rate forever, seen by the many challenges the entire industry is facing in 2019.
The fat years seem to be over in air freight, evidenced by constantly shrinking demand for cargo transports since last December. There is a lot of uncertainty in the market, with players looking
into the crystal ball to find signs of hope for a new upswing.
Confidence, not despondency, was the guiding principle of LH Cargo CEO Peter Gerber in his presentation on the occasion of LH Cargo’s annual press conference held at Frankfurt today (18 March). There is a lot of short-term uncertainty in the markets that might jeopardize long term decisions and negatively affect investment decisions. It’s a typical roller-coaster ride for the industry, which is characterized by cyclical ups and downs, emphazized both LHC executives. In which direction the business heads depends on a number of developments, said Mr Gerber. Such as the outcome of the trade conflict between China and the U.S. but also Germany that is threatened by tariffs U.S. president Trump might impose on German manufactured cars. The political shutdown in the U.S. and it’s impact on the government spending is another uncertainty. Thirdly, Brexit unsettles international markets as well.
In contrast to these rather short-term issues there are some mega trends that spur the air freight business in the years ahead, said Herr Gerber. The growing world population that will expand the global economic cycle further, higher incomes in many regions leading to more consumption, the number of patent applications broadening the production range, to name but a few positive developments that will impact the cargo industry positively.
“If you ask me, what happens in the next three months, I honestly don’t know,” stated LH Cargo’s helmsman. “But in the next five years there will be considerable growth,” he added.
Based on these expectations, LH Cargo decided to grow its capacity, adding two Boeing 777Fs to the fleet, complemented by two leased Triple Seven freighters that will fly in the livery of joint venture partner Aerologic (50/50% DHL Express/LHC), but whose capacity will be managed entirely by Lufthansa Cargo.
Further to this, Gerber pointed out that the carrier’s network and reach has grown lately and will continue to expand. “Brussels Airlines Cargo was fully integrated in our company, making us much stronger in Africa,” he said. The lower deck capacity of the passenger fleets of other group members such as Eurowings, SunExpress, Austrian Airlines and Tyrolean Airways are managed by LH Cargo as well. Sister Company Swiss WorldCargo will keep its brand and own AWB number but LH Cargo’s and Swiss WorldCargo’s sales will be harmonized within the next 5 years, Herr Gerber announced.
Extremely helpful for expanding the carrier’s global footprint are also the joint ventures signed with ANA Cargo, United Cargo and Cathay Pacific Cargo. “There is still some work to be done but we are on the right track,” he said.
Another factor supporting his company’s business is Lufthansa's decision to grow their A350 passenger fleet by ordering a further twenty of the type as well as ordering twenty Boeing 787-9 aircraft from the U.S. manufacturer. Below the line “this ups the lower deck capacity we can market and adds new destinations to the network we service,” explained the executive.
FRA night flight ban costs LH Cargo 40m euros each year, Gerber
He went on to say that the renewal of Frankfurt’s Lufthansa Cargo Center based on modular principles will begin next year and be completed in 2024. The investment of 400 million euros will pay off, the LHC management is convinced. It will speed up the throughput remarkably and improve the handling quality once operational.
Touching digitalization, Peter Gerber said that the e-AWB penetration has reached 73.9 percent, shown by latest December figures.
Still on digitalization, he announced a fully automated “Rapid Rate Response” for clients eager to book capacity for example via spot pricing tools, such as cargo.one. The modernization of the Global Revenue Management is another task standing on LHC’s agenda. This applies to a digitalized “check-in process” for air freight as well, as does the renewal of the carrier’s IT infrastructure, applications and the staff’s work places, including trainings courses for the personnel.
The ongoing support of social commitments is another cornerstone of the carrier’s path into the future. “We want to live up to our responsibilities,” he stated. Doing so by supporting Cargo Human Care, a charity initiated by Lufthansa Cargo MD-11F captain Fokko Doyen, comforting Kenyan orphans, enabling them a sustainable future.
Focus on maximizing yields - not volumes
LH Cargo’s CFO Dr. Martin Schmitt pointed out when presenting the 2018 figures that the in-house aim is to maximize yields before volumes. This he stated is apparent when looking at yields generated by the express and special products sector. He also pointed out that although the C40 savings program has officially ended, that it continues to contribute savings of up to 80 million euros each year.
Revenues for 2018 increased and costs were kept to a minimum.
Total revenue for the LH Cargo Group reach 2,713 million euros - a 7% increase on 2017.
The EBIT figure was more or less on par to 2017 at 263 million euros whereas adjusted EBIT was shown at 372 million euros - +2% on 2017.
Total operating expenses went up by 8% over the previous year to 2,538 million euros. The main contribution to the increase was the rise in fuel costs which went up by 16% to 379 million euros and so called charter expenses that rose by 23% to 839 million euros.
Cargo capacity offered by LH Cargo increased in 2018 by 5.3% which resulted in a reduction of the load factor by 3.2% to an average of 65.9% compared to 69.1% in 2017.
All in all a good year for LH Cargo and Mr Gerber praised the team by stating that "our employees have shown full commitment and done an amazing job for our customers. The result gives us additional momentum for new investments in the future," he added.
Heiner Siegmund / John Mc Donagh