Wow, not another alliance?

The fact that Star Alliance members are once again talking about ramping up cooperation on the cargo front was almost enough to elicit exclamations of 'wow' from journalists gathered at a Lufthansa Cargo group briefing in Munich, but the Frankfurt-based carrier was quick to point out it was not another 'new' cargo alliance in the making. Donald Urquhart reports.

The timing could not have been more ironic, after all, only a few hours earlier the SkyTeam Cargo Alliance had just inducted its most recent member – Aeroflot Russian Airlines Cargo – and pronounced the cargo alliance not simply alive and well, but the key strategy for helping its members to flourish in an increasingly unpredictable and tough environment. The SkyTeam cargo alliance is the only full-fledged alliance in the air cargo market that remains standing after the Star Alliance’s WOW Cargo Alliance fizzled out in an inglorious collapse a few years ago. Speaking to the media, Lufthansa Cargo’s new chairman and CEO, Karl Ulrich Garnadt, said: “We are currently in initial stages and are looking into the various models of cooperation. There are various models of cooperation in the cargo area and in the passenger area. We are currently in the process of doing business plans for various models of cooperation and then we will decide which way we want to go,” adding that it’s too early to say which direction. Lufthansa Cargo’s director of communications, Nils Haupt was quick to highlight that “this is not an announcement of a new alliance, but we are working closely with Star Alliance partners on the passenger side and it is something we currently think we could use on the cargo side as well. It is not another new alliance,” he said. Following the German cargo carrier’s superb turnaround from a €171 million loss in fiscal 2009 to a 2010 profit of €310 million, Garnadt noted the first quarter of 2011 was the best quarter financially in the history of the cargo division and “that’s great to see and gives us confidence that we are, more or less on the right track.” He also said that feedback from customers indicated Lufthansa Cargo is charging rates “on the high side, but Lufthansa Cargo is delivering quality on the even higher end and that’s important to us.” He added that this was also confirmed by feedback from customers. Garnadt said the cargo carrier will continue to invest in quality and with the increasingly unpredictable environment will follow the motto, ‘expect the best and plan for the worst’. The carrier recently announced an order for five B777 Freighters – to be delivered through 2013-2015 – which was driven in a large part by the aircraft’s efficiency. The group’s fleet of 18 MD11s will begin to be phased out towards the end of this decade, he said. Garnadt compared the B777F purchase to time when the carrier was considering purchasing B747-200Fs , but instead opted for the more expensive MD11s which burned 25 per cent less fuel. Now with the B777F, the fuel burn will reduce another 20 per cent over the MD11. “This gives an idea how much progress we’ve made in the industry thanks to new engines, new technology, etc. in reducing environmental impact. We believe that people who invest in environmental technologies will be rewarded by customers and that economy and ecology do go together.” A wet lease tender to cover capacity requirements until the first B777F is delivered in 2013 is currently underway, with the carrier looking at B747s, B777s and MD11s. On Lufthansa Cargo’s operations in China, which includes its joint venture airline, Jade Cargo, Garnadt highlighted two key issues. Firstly, that growth rates are now returning to ‘normal’ levels from the double-digit growth of the last several years, although substantial air cargo capacity remains in that market and secondly, Chinese government focus on stimulating domestic demand has changed the nature of that cargo market. Giving his take on the China market, new Jade CEO Frank Naeve said: “I don’t think there is a general structural weakness in the Chinese market, it remains one of the powerhouse markets, but I think because of the maturing process of the Chinese market we will see normal seasonality and cycles, much more than in the past where there were only boom cycles. “I think what we are seeing is much more normal and that’s part of the maturing process in such a market. But it is generally positive that the imbalances are evening out and expectations are that the big demand out of China will pick up sometime this year. At what level still remains to be seen, but in general the fundamentals of the market are still good – it’s a more normal and mature market we’re seeing now,” Naeve said. On the issue of night flights at Frankfurt Airport – which have been reduced from 50-60 movements a night during the ‘core night’ period between 11pm and 5am, to just 17 flights, Garnadt said Lufthansa Cargo, by virtue of being the ‘home-based’ carrier at the airport gets certain “preferences” which means it will get the 10-11 slots it requires for its operations. The remainder he said, will be available for other airlines to apply for, adding that the ‘preferences’ it enjoys do not extend to its substantial number of alliance partners that also call at Frankfurt.