EUROPEAN AIR CARGO~ Lufthansa Cargo cautiously optimistic

In his semi-annual "Meet the Trends" media briefing held in Frankfurt, the head of Lufthansa Cargo delivered a mixed review of the coming fortunes of the air cargo industry, but remained what would best be described as 'cautiously optimistic".

Kicking off on a positive note, Lufthansa Cargo board member, product and sales director, Andreas Otto noted that the, at times, extreme volatility of the air freight market had become more stable in recent years, although at a relatively low yieldlevel.

Air freight rates between Germany and Hong Kong were, in November, at only EURO0.30 per kilogram and EURO0.80 per kilogram on the Germany-Japan trade, for instance. But Otto was optimistic that high single digit yield growth could be achieved on key trade lanes.

Continuing high fuel prices would help to continue stabilising the market he said, as it would help push out fuel inefficient freighters, as well as some carriers who could no longer continue to operate in the high cost environment.

While professional fuel hedging was "crucial" for airline profitability he also highlighted that continuing to operate old aircraft such as the B747-200 or similar, would be "ruinous".

"Trends suggest there will be continuing pressure on yields, but with high fuel prices, some freighters cannot be operated profitably and we will see more stabilization as a result of further consolidation," he said.

Even with fuel hedging in place, the Lufthansa Group saw its fuel costs rise from Euro1.35 billion in 2003 to Euro3.35 in 2006 and forecasts for 2008 hitting Euro4.8 billion.