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New metal to give Lufthansa tricky dilemma

By Hpanchal on December 5, 2012

Projected weak growth for airfreight could put pressure on Lufthansa Cargo (LC) as its first B777 freighters are delivered next year.

The carrier is heading toward a third year in the black–unlike several major competitors–thanks mainly to its prompt decisions to cut capacity ahead of the rest in early 2011. “For us the bottom line is more important than capacity,” Andreas Otto, executive board member product and sales at LC (pictured), told a media briefing in Frankfurt.

But with two MD-11 already “more or less grounded” and two 777s joining the fleet in 2013, Otto accepted that Lufthansa was looking for the industry to recover more quickly than analysts are currently forecasting.

In a gloomy assessment released in November, Seabury predicted further slowdowns for the U.S., Japanese and German airfreight next year. The Eurozone would continue flat while only China among major global markets would bounce back, with 2.8 percent growth expected.

Lufthansa is more optimistic, and thinks it can grow by 2.5 to 3 percent next year. Otto said he was looking forward to the arrival of the 777s as the freighter was “the best in the world”. The two idle MD-11s would be restored to scheduled service “as soon as the market begins to come back,” but if it failed to do so, what he described as “weaker” aircraft, including an MD-11 converted from passenger configuration, would be grounded . “We would prefer to use our higher capacity, but we need stable markets to deploy it all,” he added.

LC achieved an operating profit of €66 million in the first three quarters of 2012. It will end the year some way below its performance in 2010 and 2011, but Otto said the company was nonetheless in better shape than rivals such as Air France-KLM Cargo, Cargolux and Singapore Airlines Cargo.

Expressing particular sympathy for SIA, he said: “Asia is the most promising region, but you need freighters. They ordered them based on fantastic success stories, but one of the best-managed airlines in the world is in serious trouble for the second year in a row.”

Pointing to the rapid growth of Middle Eastern and Chinese carriers over the last five years–together with smaller players such as Volga-Dnepr and Turkish Airlines–Otto said European operators were fighting politicians as well as the market.

For many customers, there was “no alternative” to LC’s main Frankfurt hub because of its connectivity, but the night flight ban there was hitting the bottom line by as much as €40 million per year. “In an increasingly difficult environment it’s not helping us at all. I’m surprised our government is not looking after us,” he said.

However, in a show of faith at a time when other carriers were cutting back, Otto said Lufthansa shareholders had committed €1 billion to the implementation of e-cargo and to further development of Frankfurt. Pharmaceutical growth was close to 13 percent following the opening of a new temperature-controlled facility at the airport, and Otto pledged that the company would keep investing.

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