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Capacity, future plans are up in the air at Lufthansa Cargo

By Hpanchal on January 29, 2012

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

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