Kicking off on a positive note, Lufthansa Cargo board member, product and sales director, Andreas Otto noted that the, at times, extreme volatility of the air freight market had become more stable in recent years, although at a relatively low yieldlevel.
Air freight rates between Germany and Hong Kong were, in November, at only EURO0.30 per kilogram and EURO0.80 per kilogram on the Germany-Japan trade, for instance. But Otto was optimistic that high single digit yield growth could be achieved on key trade lanes.
Continuing high fuel prices would help to continue stabilising the market he said, as it would help push out fuel inefficient freighters, as well as some carriers who could no longer continue to operate in the high cost environment.
While professional fuel hedging was "crucial" for airline profitability he also highlighted that continuing to operate old aircraft such as the B747-200 or similar, would be "ruinous".
"Trends suggest there will be continuing pressure on yields, but with high fuel prices, some freighters cannot be operated profitably and we will see more stabilization as a result of further consolidation," he said.
Even with fuel hedging in place, the Lufthansa Group saw its fuel costs rise from Euro1.35 billion in 2003 to Euro3.35 in 2006 and forecasts for 2008 hitting Euro4.8 billion.
Looking ahead he pointed to a "very strong" global air freight growth rate of 5.4 per cent per annum over the fi ve years to come, exceeding the growth in global gross domestic product (GDP). Th is amounts to nearly 28 million tonnes of cargo by 2012 nearly 40 per cent higher than the end of last year.
But again this positive note was tempered by the acknowledgement that capacity will grow at an even greater rate ¨C expected to come in at slightly over 6 per cent.
Th is will result in an over-capacity of at least 50 freighters into and out of Europe. Over-capacity has also been the subject of much discussion with regards to the China market. Th is will become more critical as the recent rapid growth of Chinese air cargo traffic slackens.
Imbalances are also growing on the China-Europe trade with an almost equally balanced trade in 2000 growing to a forecasted annual imbalance in 2007 of 850,000 tonnes on the China to Europe leg with only 550,000 tonnes on the reverse. "And this is going to be even bigger in the future," he warned.
Otto projected growth in China over the 2007-2012 period to average 7.7 per cent a year, down from double-digit growth in recent years.
"China is still growing but it seems the peak may have been reached. In recent years the annual growth rate has been at least 10 per cent, but we expect a growth of below 10 per cent for the fi ve years to come."
"For Lufthansa as a group, our expansion in China is now somewhat stagnating as the export boom slumps." But Otto high-lighted that its fleet of MD11s enables the cargo division to react quickly.
"We have increased frequencies into Chicago and Atlanta and have decided to start a new hub in Mexico," he said explaining that "load factors into Asia are rather poor so we have to shift some capacity."
But while the China import/ export market is slowing, the intra-China market is growing substantially. And overall for Asia, Lufthansa is forecasting a seven per cent growth over the fi ve year period.
India on the other hand will see a growth rate of 6.4 per cent a year for the next five years. But when asked whether Lufthansa was considering further investment into that market, perhaps in a similar concept as its current tie-up with Jade Cargo, Otto was more circumspect.
"India is not as easy as China, but it has a strong potential and a strong demand for freighters. It is on our agenda, but has infrastructure limitations,” he noted. With a number of new domestic entrants into the air cargo market, Lufthansa will take "a careful look into this market."
"We still believe in the future of India, but maybe not something like Jade, but utilising passenger belly hold capacity instead."
Looking at other markets, the US growth rate for the period is estimated at nearly two points higher than Germany, for a growth of 4.9 per cent with a coinciding capacity growth of only 3 per cent.
On the competition, Otto noted that Lufthansa was outperforming much of the industry, including Air France KLM Cargo, BA World Cargo, Singapore Airlines Cargo and Cathay Pacific.
Otto was however critical of the ordering binge by Middle Eastern airlines, in particular Emirates which has the biggest order book in history but no population to justify it. He also said that competing with Emirates was under "uneven conditions," but added that they are serious about cargo and offering a quality service. "They don’t give away cargo space," he added.
Another source of perennial concern for air cargo carriers is competition from ocean freight, particularly as the trend of some air freight being drained off to the shipping world, becomes more apparent. But Otto downplayed the suggestions saying: "I personally must say I am not sure yet. We rather believe that on a worldwide basis, air freight will not be threatened by sea freight," he said.
He noted there could be some exceptions, such as Dubai in which a large sea and air hub are virtually co-located. "But for Lufthansa Cargo we are not based in Dubai and so we have not been threatened by sea freight this year."