Lufthansa Cargo planning for the future
Lufthansa Cargo has ordered five B777 freighters in what the carrier’s chairman and CEO, Karl Ulrich Garnadt , described as the biggest investment in its history. It's among the myriad projects, including expanding its Frankfurt cargo center and upgrading its IT infrastructure, that the company is planning.
The aircraft will be delivered between 2013 and 2015 and were the only practical choice on the market in the absence of an A350 freighter, Garnadt said.
AeroLogic, Lufthansa’s cargo joint venture with DHL, operates an all-B777 fleet. Garnadt said the new aircraft would be able to fly non-stop to Hong Kong and South America. They offered the best fuel efficiency in their class and were quiet in operation, which he hoped would play into the crucial upcoming night flying decision at Lufthansa’s Frankfurt hub.
The new freighters would meet immediate growth requirements, but the carrier also needed replacement capacity because it was scheduled to start retiring its current MD-11s from 2018, Garnadt said.
Frankfurt Airport, which Garnadt said was “by far the best airfreight hub in Europe," is operating close to its limit, but will open its fourth runway later this year, significantly increasing slot availability.
Lufthansa is preparing to modernize and expand its Frankfurt cargo center, which dates back to the 1970s, but the scale of this investment will depend on the regional government’s night flying decision, which Garnadt said was not now expected until the first half of 2012.
Lufthansa Cargo is scheduling just 10 to 12 night movements at the airport during the 2011-12 winter season, but would operate up to 40 percent of flights at night in a less restrictive environment. Garnadt pledged to continue pressing the economic case, emphasizing that while some work could switch to daytime once the new runway was open, the logistics cycle required significant in-night activity.
Alongside the fleet and cargo center investments, Garnadt said the company would plow tens of millions of euros into overhauling its IT infrastructure over the next five years, increasing automation and streamining the interface with forwarders. One aim was to become fully e-freight compatible, though he acknowledged this would be tougher than the industry’s conversion to electronic passenger documents and could only be achieved if all parties were involved. Customs authorities had to be convinced, not just carriers and forwarders.
On security, Garnadt said the lack of mutually recognized standards between Europe and the US was “unacceptable”. A coordinated approach to supply chain security was vital, including profiling as well as screening, but progress was too slow. The U.S. was expecting additional screening at Frankfurt for transhipment cargo from third countries, but Lufthansa believed the process must be completed at the point of first receipt “whether in Lagos or Dubai” and that document checks should be sufficient further along the supply chain.
Garnadt was speaking after Lufthansa Cargo reported record profits for 2010, only a year after its worst-ever results. Revenues increased 43 percent, returning close to pre-crisis levels at €2.8 billion ($3.96 billion), and operating profit was €310 million euros ($438 million). The carrier achieved a 19.9 percent increase in revenue freight tonne-kilometers and increased cargo load factor by 7.3 points to 70.9 percent.
The strength of the recovery in the world economy had made for a “sensational market environment” in 2010 despite external factors such as the ban on flights for several days after the volcanic eruption in Iceland, Garnadt said.
He claimed the results were “outstanding” compared with Lufthansa’s major competition, and he claimed the group had strongly improved its market position. But the industry was seeing unprecedented volatility and he warned: “We may have to adjust to this in future.”
Germany was affected by the downturn more severely than its neighbors because of its strong export base, but had benefited more from the pickup in the world economy, Garnadt said. Lufthansa’s premium products such as its td.Flash express product had performed stronger than standard airfreight.
A repeat of the record results was unlikely in 2011 as the global upswing slowed. But the rates picture was still positive because of a shortage of freighter capacity, with dormant fuel-guzzling airplanes unlikely to return to the market.