f things go right for Lufthansa in the coming weeks and months, the German carrier could morph into a pan-European outfit and the world's largest airline.

As the crisis shakes the airline industry and opens the door to a spate of takeovers and mergers, top brass of Lufthansa are busy jetting between European capitals in a bold effort to snap up as many ailing carriers as they can.

Lufthansa recently acquired a 45% stake in Brussels Airlines with a view to taking full control of the Belgian carrier in three years.

Now management is negotiating with Scandinavian Airline System (SAS) about bringing the northern carrier into the Lufthansa fold; it is talking with the Italian government and trade unions about taking over struggling Alitalia; and it is in the running for a 43% stake in Austrian Airlines. Down the road, Lufthansa reportedly is interested in taking a stake in UK-based BMI.

The potential behemoth resulting from these ploys (not including the BMI scenario) would have some 1,100 aircraft and annual revenues in the neighborhood of $58 billion, based on 2007 results. Rival Air France-KLM, which fields a combined fleet of 606 aircraft, reported revenues of $34 billion last year.

This new Lufthansa group would also have the flexibility to slot cargo over a number of European gateways and sell a global network from these markets. On the other hand, integrating these operations and avoiding turf battles within a unified structure would be a formidable task.

If Lufthansa's proceedings with Swiss, in which it is the largest stakeholder, are anything to go by, the German carrier may avoid an all-out integration and keep the carriers in the group at arm's length. Swiss has retained its own brand, a separate management team and a good deal of autonomy. Besides allaying political fears in Europe of flag carriers disappearing in the belly of a German juggernaut, this would keep conflict in the group to a minimum.

Nils Haupt, head of corporate communications of Lufthansa Cargo, has few comments on the matter at this point. For one thing, the negotiations with other carriers are carried out in a small circle of executives, and cargo usually is not involved in these, he remarked.

He added that the cargo division has not taken a closer look at the possible synergies with Brussels Airlines on the freight side, let alone those with potential future group members. Probably the cooperation in cargo would be along the lines of the cargo partnership with Swiss, Haupt reckoned. In terms of network, he sees some interesting opportunities in the Belgian carrier's African routes.

Industry observers have reservations about the potential of the African routes. Austrian and Alitalia would open more attractive doors for Lufthansa Cargo, one observer remarked privately. However, he wondered how far the German carrier could take advantage of these opportunities, pointing to a brief spell a few years ago, when US Airways had handed over its European cargo sales to Lufthansa Cargo but switched to a general sales agent due to disappointing results.

"I guess Lufthansa Cargo sees itself in front. We have seen that with Cargo Counts and with US Air, and if you look at Jade, you'll find that they are welcome to sell cargo in Asia, but when it comes to lift out of Europe, Lufthansa wants to be in control," the ACW source commented.

Without a doubt, Lufthansa Cargo has its hands full with its joint venture airlines, including AeroLogic, the joint undertaking with DHL that is due to take off next spring. Carsten Spohr, chief executive of Lufthansa Cargo, has described these ventures as a strategy of "zero risk growth", as Lufthansa Cargo itself has no plans to boost its freighter fleet in the foreseeable future. However, Jade has been problematic for some time. First a pilot shortage kept some of its freighters on the ground, then deteriorating market conditions caused management to postpone the launch of planned transpacific service and lease one B747-400ERF for a year to Jett8 on an ACMI basis. In August unconfirmed reports surfaced about an argument between Lufthansa Cargo and its venture partners about who should shoulder the burden of injecting more funds into Jade, which was short of cash. By some estimates, Lufthansa has spent in excess of $100 million on the Shenzhen-based cargo outfit so far.

Back on Lufthansa's home turf, the establishment of AeroLogic appears to be moving according to plan. In preparation for the planned launch next spring, Lufthansa is moving into the World Cargo Center at Leipzig-Halle Airport, a new cargo complex that opened last year.

Predictably, the airport has seen a meteoric rise in throughput in the wake of DHL's transfer of its European hub from Brussels to Leipzig as well as the shift of some Lufthansa freighter operations. Germany's other major gateways are not showing comparable growth figures, but they have also seen cargo rise, despite concerns over eroding air cargo fortunes.

Frankfurt Airport's monthly airfreight throughput dropped by 5.4% to 170,396 tonnes in September 2008. From January to September, cargo traffic rose by 1.2% to 1,555,397 metric tons. Due to the elimination of the airport's overnight domestic mail hub, airmail volume fell by 3.2% to 65,885 metric tons.

Munich, which has seen more international flights courtesy of Lufthansa as well as carriers like Emirates and Cathay Pacific, clocked up a 5.1% rise in tonnage in the January-August period.

Lufthansa Cargo moved 1.8 million tonnes of cargo last year, up 2.8% from its 2006 tally. The carrier had an operating profit of 135.6 million euros ($183.3 million), up 66.3% from the previous year.

Lufthansa's voice has been conspicuously absent from the chorus of carriers lamenting weakening business as a result of high fuel and modal shift from air to other modes of transportation. "We have not really seen a clear trend of shippers shifting cargo to other modes. I think what could go to ocean has already done so in the past few years," commented Haupt.

"The figures don't support claims that the German airfreight market is shrinking," said Dirk Steiger, principal and managing director of aviainform, a Frankfurt-based air cargo research and consulting firm. He added, however, that the credit crunch is likely to have an impact on the market in the remaining months of this year as well as in 2009.

Until the summer, Lufthansa Cargo management was still seeing growth, but the latest results suggest that the market turbulence is finally catching up with the German carrier. In September its cargo load factors dropped 5.4% to 61.2%. With business confidence in Germany falling as the financial crisis unfolds, the outlook for the coming year is not showing any signs of better fortunes ahead for Lufthansa Cargo.

In this climate, initiatives that can boost productivity and eliminate costs are high on the agenda. At the end of September the German carrier officially embarked on an e-freight initiative with a shipment from Frankfurt to Seoul. Management plans to extend the program to other German cities as well as a number of Asian destinations, such as Singapore and Hong Kong.

"This is a chance to reduce complexity, time and money. For us this has a similar meaning as Cargo 2000," commented Haupt.

Earlier this year Lufthansa Cargo opened its new Animal Lounge at its Frankfurt hub, a facility for live animal shipments that replaces two separate buildings that had been run by separate operators. Currently under construction is a new building with 20,000 sq ft of warehouse space, which is intended to cater to mid-sized forwarders who find the notion of having their own on-airport warehouse exorbitantly costly.

A significantly bigger project - the overhaul of the airline's cargo base at Frankfurt - on the other hand, is still in limbo, owing to uncertainty over the future scope for night flights.

The political tug of war over expansion plans for Frankfurt airport led to a compromise in which night flights were sacrificed by the airport authority. It subsequently proffered an olive branch, allowing 17 flights between 11 pm and 5 am. Lufthansa and some other operators find this insufficient and have challenged the plan in court. Until a final ruling is issued on the matter Lufthansa Cargo will not make any investment in its future infrastructure at its main hub, Haupt confirmed.

Over the past years the airline has developed Munich as a second international gateway for the German market. Juergen Siebenrock, head of German sales, stressed that Munich - and Leipzig, for that matter - is not an alternative to Frankfurt. "We view the three as a system and market them together," he said. Unlike Frankfurt and Leipzig, though, the Bavarian capital is not going to see freighter flights in the foreseeable future.

Cathay Pacific thought it had spotted an opportunity there and launched twice-weekly freighter flights between Munich and Hong Kong last year, but that was scaled back to one weekly rotation earlier this year. Emirates slots a weekly A310 freighter through Munich, but only for inbound traffic. The freighter loads up in Zurich for its return to the Middle East.

For its part, Lufthansa Cargo has lately moved to boost main deck capacity on the North Atlantic sector. Following the launch of twice-weekly MD-11F flights from Frankfurt to Toronto, returning to Germany via Atlanta in September, the airline announced more transatlantic capacity for the start of the winter schedule towards the end of October. It is adding one MD-11F flight a week each to Chicago and New York. Elsewhere Lufthansa Cargo is stepping up all-cargo operations to Seoul, Hong Kong and Bombay.

In the present market conditions loading freighters may be more lucrative for the German carrier than marketing their capacity, though. Following the establishment of joint venture handling companies in Shanghai and Shenzhen, Lufthansa Cargo formed another such venture with local partners in Tianjin. Their cargo terminal at the designated gateway for air cargo to and from northern China opened this past June and currently processes about 2,000 metric tons a month. Buoyed by allegedly strong interest from airlines serving Tianjin, management is looking to expand the scope of its operation there.

Haupt did not release any details on the financial performance of these handling ventures but claimed they have been successful. Which is more than can be said at the moment of Jade or of Cargo Counts, the subsidiary that was set up in 2003 to market the cargo capacity of other carriers. After five years, management decided to dissolve the company at the end of this year and place its business with Lufthansa Cargo. Rivals who worry about a pan-European megacarrier under the Lufthansa banner may take heart from the fact that its endeavors to manage the capacity of other carriers have not been an unqualified success.