To counter the developments that led to a decline in last year’s results, Lufthansa Cargo has decided to implement a range of measures which centre around a cost-reduction drive and innovation in product development. The German carrier is also pressing ahead with initiatives from the Lufthansa Cargo 2020 future programme, including close partnerships with other airlines.
Management is not expecting a marked improvement in market conditions in the foreseeable future.
“We will still be operating in an extremely challenging market environment in the years ahead,” declared LH Cargo chairman and CEO Peter Gerber at the presentation of the 2015 annual results. “But we have a clear strategy that has been set up to facilitate sustainable and profitable growth again. With innovative products, superb service and competitive cost structures, we will make the most of the advantages offered by our Frankfurt base.”
LH suffered a 2.3% decline in cargo volume, and load factors sank 3.4 percentage points to 66.3%. Whereas the carrier’s available freight ton kilometres (FTKs) went up 2.1% last year, sold FTKs declined 2.9% and revenue fell 3.3%. The airline’s earnings before interest and taxes dropped a dizzying 97.6%.
“Last year was not an easy one for the air freight industry,” said Gerber. “Turbulence in the Chinese market and the strong US dollar, which affected a lot of industries, stretched us all to our limits. Strikes called by the Vereinigung Cockpit pilots’ union and the cabin crew union UFO also weighed heavily on us at Lufthansa Cargo.”
He stressed that LH Cargo would remain flexible and continue to operate close to the market in 2016. The carrier is withdrawing two MD-11 freighters from its fleet to beef up capacity utilization on the freighter routes. This brings its fleet to five Boeing 777 freighters as well as 12 MD-11Fs. On top of this, there are capacities via its AeroLogic subsidiary, a joint venture with DHL.
Despite the weaker result, LH Cargo is sticking with its 2020 future strategy, Gerber emphasized. “We have set the right course, and the first plants of Lufthansa Cargo 2020 are starting to bear fruit,” said Gerber. He pointed to fuel savings with its 777F contingent and to the partnership with All Nippon Airways Cargo, saying it had gotten off to a good start.
The carrier is also looking to expand its access to external capacity, chiefly by the plan to develop close cooperation with the cargo division of United Airlines. In addition, LH Cargo has taken the cargo capacity of Eurowings under its wing and will market the low-cost airline’s lift on long-haul routes.
While staying the course, management felt a need for additional initiatives to strengthen its position in the market. One key area there is a cost cutting programme that aims to shave at least €40 million (US$45.8 million) off annual expenditures by 2018.
“We clearly have to further strengthen our competitiveness on the cost side as well if we are to be in a position to grow profitably again in our core business,” said Martin Schmitt, board member in charge of finance and human resources. “This is how we will generate the profits we need to fund investment in the future of our company.”
A second key plank is the development of new service offerings. In addition to enhancements of its existing portfolio, LH Cargo has trained its sights on the transport needs of private travellers, especially Lufthansa passengers. Through the myAirCargo product, passengers and private individuals can send any kind of personal item via air freight.
“Lufthansa Cargo has often been a pioneer in the past when it comes to developing and launching new products and services,” said Gerber. “We want to live up to this again with myAirCargo.”
The carrier’s cargo network is also expanding. Only days before the presentation of its annual results, LH Cargo announced a string of new routes kicking off on March 27. This includes a weekly all-cargo flight to Moscow, with continuing service to Turkmenistan and Azerbaijan. The airline also unveiled a weekly freighter to Doha, and a direct flight to Seattle with 777F equipment from Aerologic. That plane continues to Los Angeles.
777Fs are fielded to boost lift on routes from Frankfurt to Tokyo, Seoul and Beijing, while freighter flights to Hong Kong are going up to a daily frequency, and Ho Chi Minh City gets a second weekly freighter service.
By Ian Putzger
Air Freight Correspondent | Toronto
