Lufthansa Cargo achieved the second-best result in its history in 2018, with an adjusted EBIT of €268 million (US$303 million).

The result represented a year-on-year increase of 2%.

“I have to admit I didn’t expect that, especially after a very good 2017,” said Martin Schmitt, board member for finance and human resources at Lufthansa Cargo. “This was the second good year in a row.”

While revenue rose by about 7% compared to 2017 and revenue cargo tonne-kilometres increased by 1%, yield rose by 6.7%, contributing to the improved performance in 2018.

“Our clear strategy last year was to maximize the yield, not the volume,” Schmitt said.

Freighter capacity was 4.6% higher and demand rose 2.6%, while belly capacity was up 6.4% but demand fell by 1.5%, mainly because of new passenger routes to leisure destinations where it was more difficult to sell freight.

The overall load factor decreased by 3.2 percentage points to 65.9%.

Meanwhile, unit costs for the year were lower by 0.4%.

“A very large part of the reason behind the lower unit costs was because of our ongoing C40 cost-reduction programme, which aimed to reduce yearly costs by €80 million (US$91 million),” said Schitt. “We expected to arrive at the figure this year, but in fact we were already very successful last year.”

He added that, instead of hiring a consultant, Lufthansa Cargo had asked its employees for ideas on how to reduce waste in its processes and systems. In total, 170 measures have been implemented over the last two years.

Looking ahead, the carrier is wary of the many unknowns in 2019 that could affect not just the air cargo business, but the global economy as a whole, the most high-profile ones being the US-China trade dispute and the UK’s withdrawal from the EU.

“On the one hand, we have clear views on what is necessary for long-term action, on investments and global trends, but on the other hand, we have short-term uncertainty,” said Peter Gerber, CEO and chairman of the executive board of Lufthansa Cargo. “This is something which may jeopardize the needs for long-term action. This means that we don’t have a clear view how 2019 will go. Everybody feels uncertain and so everybody is cautious. When everybody is cautious, business slows down.”

But Gerber isn’t overly worried, saying that ups and downs are typical for the industry, and that the important thing is to remain flexible so that when something changes, the company is able react very quickly.

“It’s a kind of roller coaster and when you look at our results over the last decade, you always see that we have very good years, crisis years and normal years,” he said. “But all in all, there have been many more good years than crisis years and we have shown a sustainable profitability through the cycle. We have to keep this in mind when we talk about our plans for the future.”

In terms of the core business, Lufthansa Cargo expanded its network considerably when it began marketing the belly capacity of Brussels Airlines in September 2018, adding a range of African destinations to the offering.

Gerber said that Swiss WorldCargo will remain as a separate brand with its own AWB number because it is doing very well and has high customer satisfaction, but will align its processes and IT systems with Lufthansa over the next five years.

Lufthansa is adding capacity too, having taken delivery of its sixth Boeing 777F in February 2019, with another one joining the fleet at the end of March. Aerologic, Lufthansa Cargo’s joint venture with DHL Express, also added its 11th 777F in January and is due to receive an additional one later this year. The capacities of both these new Aerologic 777Fs will be marketed exclusively by Lufthansa Cargo.

As part of its fleet renewal, Lufthansa Cargo sold two of the remaining 12 MD-11Fs in 2018 and will take them of out of service during 2019.

On the passenger side, a growing fleet of new Airbus A350-900s is also offering more attractive freight capacity from Munich.

At the hub in Frankfurt, the carrier is renewing its Lufthansa Cargo Center in a €400 million (US$453 million) project called LCCevo, consisting of a part-by-part renewal of the facilities within the current buildings.

The planning stage is expected to end at the end of 2019, with initial operations beginning in 2022 and project completion scheduled for the end of 2024.

Gerber stressed the importance of digitization, saying that the concept of the electronic air waybill has taken root among most of Lufthansa Cargo’s customers, even though the global average penetration rate is still approximately 61%.

“We had a lot of problems climbing up but the good news is that we’ve now made it,” he said. “We introduced a paper air waybill fee in October 2018 and I think this really helped everybody to stick to the idea of 100% eAWB penetration. I’m proud to say that we reached 73.9% at the end of 2018, and that now we’re number two in the world by eAWB volume, after our partner Cathay Pacific. This year, we’re shooting for 80% or more.”

The carrier is using the eAWB as the basis for all the digitization it is doing in its handling system, gathering digital data and using software to take things further.

With a new digital check-in process called PreCheck, Lufthansa Cargo is now able to offer completely paperless booking and handling for standard cargo.

According to Jan-Wilhelm Breithaupt, vice president of global handling management at Lufthansa Cargo, 13 stations across the EU and US are already equipped with PreCheck, with 19 more to be added this year. The rollout will extend to Asia in 2020.

Breithaupt added that about 11% of all Lufthansa Cargo international AWBs in Frankfurt are currently being processed with PreCheck.

Other digital enhancements include the renewal of the company’s booking engine, as well as Rapid Rate Response, which will enable fully automated spot pricing starting this autumn.

“This will be a very big step in the air cargo industry and we’re very much looking forward to it because it will not only help our customers, but also let us display these automatic rates on other platforms,” said Gerber.

Overall, Lufthansa Cargo is still confident that air freight is essential for an accelerating world and can benefit from opportunities presented by shorter times to market, the growing population of people who have money to consume, and an increasing tendency for people to source globally via the Internet.

“The mega trends are still intact, so if you ask me what will happen with air freight in the next five years, it’s quite easy for me to predict that there will be considerable growth,” Gerber said. “I couldn’t say what will happen in the next three months, but I do believe there are a lot of reasons for a long-term optimistic outlook.”

By Jeffrey Lee

Asia Cargo News | Frankfurt