Lufthansa Cargo’s business barometer points to an overcast start to the year, but with skies becoming clearer in the second half to produce what it forecasts will be overall growth of 3 percent for 2012.
The gloomy start, according to Lufthansa Cargo officials, will require the carrier to cut back capacity by up to 25 percent, perhaps even 30 percent, which could equate to four of its 18 MD-11 freighters. There will be no desert outing for these grounded planes. Instead, the aircraft are likely to undergo maintenance checks.
Andreas Otto, head of sales at the airline, is seemingly anxious not to augur any kind of market hysteria with the capacity outage. “It would be completely wrong to talk about a real dip in the market,” he said. “Although it will be a challenging time ahead, we are convinced it will nevertheless be a good year with strong growth of tonnage.”
What Lufthansa Cargo appears keen to demonstrate is its ability to be far more proactive in adapting to market conditions, rather than with the previous major economic downturn of 2009, when carriers were left playing catch-up.
“We have learned to be faster and more flexible in our capacity and network management,” he said. “Today, we are able to implement new routes in a very short period of time, and by the same token, we can reduce capacity quickly if required.”
The carrier’s capacity-management skills also extend to Aerologic, its joint-venture operation with DHL Express, which provides LH Cargo with access to a hefty chunk of weekend capacity in the form of eight B777Fs.
The climb-out of the early market slip, Otto said, will be driven by the Asian markets and perhaps, more surprisingly, Europe. “Despite the bad news in the papers over the future of the euro, the European market has been performing quite well for us in recent times. Interestingly, Italy has proven to be one of our better European markets,” he said. “Any long euro crisis, though, could have a serious damaging effect on the air cargo business.”
In December, he projected that the
airline will deliver a satisfactory result
for 2011, which already showed earnings
of $220 million for the first three
quarters, despite having to absorb an
estimated $20-million loss. The hit
was due to a combination of eurozone
uncertainties, the tsunami in Japan
and the slowing of China’s economy.
“Although the Asian — and, especially,
the Chinese — markets have
been weaker than expected, we have
been able to achieve good load factors,”
Otto said. “That put us in line
for 2011 to be one of our best years.”
Lufthansa Cargo is still coming to
terms with the potentially more damaging
impact of the surprise imposition
of a total night-flight ban at its
Frankfurt home base. The court ruling
certainly put to the test the carrier’s
claim to being faster and more
flexible in its capacity and networkmanagement
abilities. Lufthansa
Cargo was forced to scurry around
implementing a daytime schedule out
of Frankfurt, canceling some flights
and moving others to nearby and unrestricted
Cologne. A German high
court is due to review the ban, but
not before March. If the ban remains,
analysts say it could cost Lufthansa
up to $50 million a year.
The court’s decision has clearly
raised the ire of Lufthansa Cargo
Chairman Karl Ulrich Garnadt. “The
night-flight ban has forced us to lay on
a timetable, which in part is economically
and ecologically absurd,” he said.
“We are now operating with unnecessary
take-offs and landings, which
will lead to more noise, higher fuel
consumption and more costs, running
into the millions.”
Lufthansa Cargo appears to be
treading a delicate line over the issue,
caught between playing hardball upfront
and softball in the background.
On the one hand, airline officials have
dramatically announced they are putting
their $1.34 billion in proposed
investment plans at Frankfurt on
hold until the issue is resolved. This
includes proposals for a major new
logistics center at the airport. “We are
due to break ground on this project
in 2013,” Otto said. “But now we are
forced to delay until we have some
resolution of the night-ban issue.”
Just a few weeks after the new
night – f l ight ban was imposed
at Frankfurt , Lufthansa Cargo
went ahead with the opening a
4,500-square-meter perishables facility
at the airport. Perishables account
for 48,000 tonnes of traffic each year
for the carrier, and this number is
expected to climb to 140,000 tonnes
within the next decade.
Otto reasserts the Lufthansa Cargo
position that there is no real alternative
to Frankfurt. “A total ban on night
flights would not lead to a move of our
freighter operations, but it would lead
to a significantly weaker development
of our company, calling us to question
the size of any future investments,”
he said. “We still believe the court will
acknowledge the importance of night
flights for our industry and will allow
a limited number of movements per
night at Frankfurt.”
