The logistics unit of Lufthansa suffered a sharp drop of its adjusted EBIT, declining to 15 million euros (prior-year period: 127 million euros). Reduced demand and plummeting tonnage on routes between Europe and Far East are the main catalyst for the slide in sales. And the "valley of tears" has not yet been traversed.
The good news first: Lufthansa Cargo keeps generating profits. The bad news is, however, that strong economic headwinds continue shaking the carrier. These are prompted by external sources, thus
not really influenceable by the freight airline’s management.
Important stumbling blocks for turning a hesitant to a more favorable business climate are, among others, the tariff conflict USA-China, the impending hard Brexit, imminent trade disputes between Washington and Brussels and the diverse political conflicts in the Middle East.
Particularly the spluttering of the Chinese economy, mainly triggered by Washington’s punitive tariff policy, has impacted trade flows between China and Europe, sending them south. This decline in demand for air freight on routes linking both key markets is the main cause for Lufthansa Cargo’s rather poor half year-figures presented today (30 July). Similarly, in the broader APAC region, including Japan, South Korea, Singapore among others, LH Cargo generated revenues of 465 million euros, down 13 percent, with RTKs down 7 percent y-o-y.
This is especially so because China and to some degree also the neighboring APAC region is Lufthansa Cargo's strongest market together with the U.S. If the business does not run well on trade lanes to and from Shanghai, Beijing, Singapore or Hong Kong, it immediately impacts the carrier's results negatively.
Another weak spot during Q1 and Q2 was Mexico where LH Cargo suffered a double-digit decline in both imports and exports.
In contrast, the carrier’s North America business ran and keeps running fairly well, as internal sources have confirmed.
More than a short market dent?
"The big boom in 2017 and 2018 is history. Since last December, transport volumes worldwide are falling, which we are also clearly feeling," stated CEO Peter Gerber of Lufthansa Cargo some weeks ago. Ever since, nothing much has changed.
He spoke of a market dent, which is characterized above all by political uncertainties. They prevent investments and cloud the consumer climate.
Lufthansa share value declined
All in all, Lufthansa Cargo’s results are in line with those of parent Lufthansa and the entire group which reports a significant drop in profits in the second quarter. Although sales of 9.6 billion euros were about four percent higher than in the same quarter last year, the operating profit, adjusted EBIT, fell by 25 percent to 754 million euros. The surplus even slumped by 70 percent to 226 million euros due to an already announced tax provision.
"Our result is influenced by tough competition in Europe with high overcapacity," said CFO Ulrik Svensson. He went on to say: "We expect that the European market will continue to be burdened by the price war until at least the end of 2019." Especially in Germany and Austria, competition with the expanding low-cost carriers is tough.
Following the presentation of the financial results, Lufthansa shares lost 0.85 percentage points, standing at €14.28 at 14:15 CET