Lufthansa Cargo returns to sparkling results

The German cargo carrier is back on track, visibly demonstrated by the operating profit of €310 million the carrier posted in fiscal 2010, which compares dramatically with the a year earlier when Lufthansa's air freight arm lost €171 million. Heiner Siegmund reports.

The most recent result however, could have been even better if it were not overshadowed by environmental and human interventions. These included the ash clouds of the Icelandic volcano in April 2010 and the following days-long closure of most European airports, the strike by Lufthansa’s cockpit crews that forced the carrier to cancel many departures and the extremely harsh weather conditions in northern and central Europe during December 2010 which disrupted air traffic for weeks. Despite these negative circumstances and the loss of an MD-11F in July 2010 due to a crash in Riyadh, “we are proud having achieved a record result,” enthused Lufthansa Cargo’s new CEO Karl Ulrich Garnadt when presenting the figures at his airline’s annual press conference in late March in Frankfurt. This positive result was obtained by the carrier’s early cost management decisions as soon as the global crisis broke out including short work for most of the administrative staff and the months-long grounding of up to four MD-11 freighters to take dispensable capacity out of the market, major network alignments, and thanks to the general global recovery of the economy. Consequently revenues rose to €2.8 billion, up €844 million year-on-year. The load factor reached a record height averaging almost 71 per cent (+7.3 per cent) with tonnage increasing 18.2 percentage points totaling 1.8 million tonnes. Garnadt pointed out that highyield products contributed notably to the financial upswing of LH Cargo, like express shipments that went up remarkable 118 per cent, or temperature critical goods such as shipments for the pharmaceutical and bio-technological industry which leaped 71 per cent. Boosted by consolidation His carrier’s home base Frankfurt is another major asset triggering high cargo volumes since FRA is by far the biggest consolidation hub in Europe. There, 862,000 tonnes had been bundled last year, compared to a total of 489,000 tonnes in London Heathrow, 369,000 tonnes in Paris CDG, 360,000 tonnes in Amsterdam Schiphol and 301,000 tonnes in Milan Malpensa. Garnadt confirmed the desire of his enterprise to invest millions for rebuilding the ageing warehouse facilities at the northern part of Frankfurt airport, utilised by his airline for decades. If realised the new LH Cargo Center will set green standards by becoming an “eco hub”, he assured. He added that this expenditure, however, depends on an upcoming decision of Germany’s Federal Administrative Court whether night flights will be further allowed at Rhein-Main or completely banned at Europe’s biggest cargo airport. The final sentence in this highly complicated and controversial matter is expected in the first half of 2012 and as a result, months after the fourth runway’s opening in October this year. Since traffic will not be affected by any court decision until then LH Cargo plans conducting an average of seventeen night movements at FRA for the upcoming winter schedule 2011/12. Fleet renewal Regarding the future fleet Garnadt made very clear that placing an order of five Boeing B777-200 freighters is not a preliminary decision for a total roll-over of the freighter fleet for substituting the MD-11Fs with additional B777 freighters. “The B777F is currently best in class and will ensure us further growth, no more and no less,” he said. Delivery of the five aircraft will take place between 2013 and 2015. The B777Fs will then complement the eighteen MD-11Fs currently making up the maindeck fleet. An as yet unanswered question noted Garnadt, is whether the Boeing freighters will be integrated in Lufthansa Cargo’s own fleet or will fly under a different brand such as the DHLLufthansa Cargo joint venture carrier, AeroLogic. “This is ultimately a cost issue that we will thoroughly look into prior to taking any decision,” said the CEO. Regarding the future fleet, he said a principal step will only be taken at the end of this decade. “I thoroughly hope that by that time Airbus can offer a competitive product to the B777F.” Approached by Payload Asia, Lufthansa’s SVP Corporate Fleet, Nico Buchholz said that this would be the A350-900F, “which should be capable of transporting roughly 100 tonnes over long distances at reduced fuel burn”. Cash for Jade Meanwhile, Garnadt was set to head to Shenzhen, China to pave the way for a US$50 million capital increase of Jade Cargo. Fifty per cent of this amount will be contributed by Jade’s majority owner Shenzhen Airlines (51 per cent), which is now part of Beijing-based Air China, while $12.5 million will be paid by each Lufthansa Cargo (holding a 25 per cent stake) and German investor Deutsche Investitionsund Entwicklungsgesellschaft (DEG) possessing 24 per cent. “Jade was in the black last year but for further stabilising the carrier this capital injection is necessary,” Garnadt told Payload Asia. It took Lufthansa Cargo almost three years to convince Shenzhen Airlines to take this step in order to mutually secure the joint venture’s future. Garnadt also revealed preliminary plans for setting up possible cargo alliances with United Airlines and Air Canada on routes across the North Atlantic. In that case, “costs could be cut and existing assets utilised more efficiently.” The project is, however, depending on two conditions: The willingness of all parties involved and antitrust immunity being granted by the national authorities.