Even as the global business climate is characterized by uncertainties attributed to the ongoing US-China trade war and the impending move by Great Britain to leave the European Union, German carrier Lufthansa Cargo has its gaze on two regions that are inherent with strong growth – Asia Pacific and North America.
Lufthansa Cargo CEO Peter Gerber said the carrier’s two-year long boom – he described December 2017 as the “peak of the peaks” – had ended, with the first months of 2019 showing clear signs of a slowdown.
“Yes, there are uncertainties facing us – the US-China trade war, Brexit, China’s economic slowdown – but we also see hope in the Asia Pacific and North American markets,” Gerber said in an interview with Asia Cargo News on the sidelines of the carrier’s annual press conference in Frankfurt earlier this year.
While the US-China trade war was creating uncertainties and could affect global trade, Brexit would hardly have a direct impact on Lufthansa Cargo. But, as Gerber put it, Lufthansa Cargo was prepared in the event of chaotic conditions arising from a disorderly Brexit.
However, Gerber also pointed out that flexibility was the mantra that characterized its extensive network of freighter connections. “Flexibility is key to meeting customer requirements. We have added a number of freighter connections. The new summer schedule will include the capacity of two brand new Boeing 777F freighters recently delivered to Lufthansa Cargo and our associate AeroLogic. Our overall capacity will be boosted by 10% in our new summer schedule,” he said.
The carrier has increased its frequency to Asia: two new flights a week will be added from Frankfurt to Tokyo-Narita. Besides the daily 777F aircraft, an MD-11F aircraft will now also connect Tokyo Narita with Frankfurt via Novosibirsk, offering an additional cargo capacity of 170 tonnes. Furthermore, Osaka Kansai will be flown thrice instead of twice weekly with an MD-11F. Seoul Incheon will also be connected on the outward leg from Frankfurt, increasing Lufthansa Cargo’s total number of South Korean frequencies to nine a week. Lufthansa Cargo will fly to Hong Kong with an MD-11F daily instead of six times a week, offering an additional 85 tonnes of freighter capacity per week on this route. The cargo carrier will add new connections to Mumbai, with seven weekly flights; flights from Frankfurt to Chennai and Ho Chi Minh City will be doubled, with an AeroLogic 777F calling on those cities twice a week.
“I see great potential in the ASEAN region which is an attractive market. We have two cargo flights to Vietnam. We are constantly reviewing our operations in the region,” Gerber said. “While I see huge growth potential in Asia, I am, particularly, upbeat about the growth dynamics in the ASEAN region, which is characterized by free trade.”
Gerber said that Vietnam was presently “outperforming” Thailand and Indonesia, although he called both attractive markets. “Malaysia can also contribute to strong growth,” he added.
Lufthansa Cargo’s second weekly freighter service to Ho Chi Minh City, was launched at the end of March to meet the rising demand attributed to Vietnam’s strong growth.
“Remember, free trade fosters growth,” Gerber observed. The European Union was showing keen interest in boosting trade and economic ties with the ASEAN Community. “This is a positive sign,” he noted.
Lufthansa Cargo’s partnership with United Airlines has further progressed, with most of the stations in Europe and the USA having been already incorporated. Other European and US feeder services are expected to be integrated by mid-2019. North America is another promising region, with Gerber confirming that Atlanta will be served seven times a week instead of the previous six, while Chicago will have 12 flights a week from summer instead of eight until now.
Nevertheless, changes are also expected in the aircraft deployed on the Central and South American routes. A 777F aircraft will be used in the future for the new direct flights to Mexico City and on the rotations from Frankfurt to Buenos Aires via Viracopos and Montevideo, and from Frankfurt to Viracopos via Curitiba, as well as on the direct flight from Frankfurt to Viracopos, with a stop in Dakar on the return leg. This, Gerber emphasized, would considerably reduce the flying time between the two continents by several hours.
Pharmaceutical transportation, an important business segment for Lufthansa Cargo, accounts for the largest single product category transported on the cargo carrier’s freighter aircraft.
Lufthansa Cargo’s partnership programme, initiated in early 2015 with ANA Cargo, has been extended to Hong Kong’s Cathay Pacific Cargo.
Some two years after the pair first put handling under one roof, resulting in a single location for drop-off and pick-up for both airlines, their joint business agreement (JBA) now connects Hong Kong directly with Frankfurt and 12 major European cities. Customers can now book freighter, bellyhold, and road feeder services for either carrier.
Cathay Pacific and Lufthansa Cargo have also worked closely together on IT and service enhancements since signing the original agreement in May 2016.
Gerber pointed out that Lufthansa Cargo would continue to “optimize” the freighter fleet, implying that outdated freighter aircraft would be phased out. Plans early in the year called for two MD-11F aircraft to go out of service by the end of 2019 as part of a slow retirement of the fleet by the year 2025, but the airline announced in June that it may retire its entire MD-11F fleet by the end of 2020.
Gerber said that Lufthansa Cargo intends to digitalize its relationship with all the players in the transport chain. Indeed, digitalization is seen as the key pillar of its strategic Cargo Evolution program, and is given higher priority both in Lufthansa Cargo’s organization and in its project portfolio. The carrier attaches priority to upgrading the IT infrastructure and the ongoing digitalization of customer interfaces, with the aim of networking the company digitally with all the participants in the transport chain, ranging from booking to delivery. However, Gerber would not disclose the exact sum invested in digitalization.
Gerber said that almost three-quarters of all bills of lading are now produced electronically. “Digitalization means our customers benefit from greater transparency, higher speeds, better quality, more flexibility and greater efficiency,” he maintained. Indeed, full digitalization of sales was on the cards as also the entire booking engine which would also include associate airline Swiss International Air Lines. The staff received intensive digital training.
The company is also building up its cool supply chain. A large part of the cargo carrier’s traffic is handled at Frankfurt airport, where the Lufthansa Cargo Center, with a €400 million (US$448 million) investment, will be modernized by 2024. Nevertheless, Gerber also said that in Frankfurt, the night flight ban imposed to protect the residents around the airport from aircraft noise reduced the carrier’s earning potential by €40 million (US$45 million) annually. “That is still a nightmare,” he said.
Gerber said that Lufthansa Cargo’s 2018 revenue of over €2.7 billion (US$3.03 billion) and profit of €268 million (US$300.3 million), was the second best result in the cargo carrier’s history.
By Manik Mehta
International Correspondent | Frankfurt