Pointing out that it was second in the IATA cargo airline rankings in 2007 – or third, if the combined operations of Air France and KLM are counted as one – Dr Andreas Otto, executive board member product and sales for Lufthansa Cargo nevertheless confidently predicts that it will regainthe number one spot by 2010.
He points out that the Asian carriers such as Korean Air, Singapore Airlines and Cathay Pacific that have been rivalling Lufthansa for the top slot in recent years have been reducing their freight fleets and not taking up their planned conversion slots. By contrast, LufthansaCargo is going ahead with its Aerologic joint venture with DHL, and seems to beon the verge of effectively absorbing JadeCargo International (see story below).
And then there are the various second rank European carriers that the Lufthansa Group is set on acquiring – bmi of the UK, SN Brussels Airlines of Belgium, Austrian Air, maybe even Alitalia. All of these could be integrated into the Lufthansa Cargo operation. The carrier even has a new slogan to reflect this – Networking the World.
Reality bites
Such brash confidence may seem a little strange at a time when, as Otto admits, “we don’t know what is going to happen next” with the global economy. At the cargo trends press conference Lufthansa Cargo holds each year in Frankfurt, he does a straw poll of the attending journalists. “Who thinks that share prices will rise in the next twelve months? Who thinks that their incomes will rise in the next year?” No one.
More scientifically, he produces a clutch of independent surveys showing the global economy nosediving. Major western stockmarkets down 40-50 per cent on a year ago. An index published by the Munich-based IFO Institute of Economic Research which shows consumer confidence already down to the worst levels achieved after 9/11 or the 1997-8 Asian crisis.
He outlines three scenarios for the global economy produced by consultants Roland Berger. Even the middle one shows a 1-2 year recession and a 5-10 per cent fall in global GDP. The worst case – “depression” – shows a 30 per cent decline in GDP, and all regions and industries severely affected. “We don’t believe that is going to happen, but the fact that some research institutes think it’s a scenario worth discussing its significant,” he says.
Even more worrying ought to be figures from CASS compiled by consultants aviainform about the third quarter performance of air freight in Europe compared to the same quarter in 2007. Key markets like the UK and Benelux countries are down around four per cent, France is down five per cent. But Germany is down a massive 12 per cent. “In all my years in air cargo, I have never seen a drop like this,” Otto admits.
A silver lining?
There is some good news, however. GDP predictions from the Economic Research Bureau show falls of 1 to 1.5 per cent in GDP in key European economies and Japan for 2009, but growth of 7.6 per cent in China, 6 per cent in India, and 5.7 per cent in the rest of Asia. Lufthansa clearly is banking on Asia continuing toprovide some growth opportunities.
There is also the transatlantic market – an advantage that European carriers have and Asian ones do not, as Otto points out. “The transatlantic this year has been great,” he says. “Our cargo out of the US is still performing against budget.” South America too has been a strong market – though he concedes there is a questionmark over how long this can continue.
What gives Lufthansa real confi dence, however, is the quality of its services and its approach to business. Otto boasts that the carrier is consistently in the top three Cargo 2000 scores worldwide, and that Lufthansa Cargo has developed a sophisticated revenue management system that can tell it exactly how much it needs to charge for each piece of cargo to keep its services profitable.
“Even from Europe to Asia, where rates are low, we know exactly what rate we need to charge,” he says. “A lot of airlines don’t know if a particular shipment is profi table or not. We can see this because some carriers have increased capacity by 10 to 20 per cent in recent years and lost their underpants.”
Quality also means such initiatives as e-freight, which Lufthansa continues to champion, and new projects to test a light weight container, a tracking device linked to GPS and a large pallet scanner. “It is very important for us to live up to our role as an industry leader, so we will be continuing with these projects in the next year,” Otto says.
Capacity re-adjusted
Another positive indicator is that capacity does seem to have adjusted to the new economic realities. This is largely accidental – it was the high fuel prices earlier this year that caused many carriers to retire their classic B747 freighters, and forced several airlines into bankruptcy.
But Otto now takes heart from the fact that the new capacity that will be delivered to the market in the coming year or two – including Aerologic’s 777Fs – will not be causing overcapacity. Indeed, he demonstrates that in the past year, new freighter capacity has been balanced out by retirement of older freighters. In all 47 B747-200Fs, seven B747-100Fs and eight DC-10Fs went to the desert, while 62 new freighters were delivered. Otto predicts that this year will in fact be a peak in capacity, which will not be passed again for another five years.
He dismisses other supposed threats to air cargo, such as the shift to sea freight or the freight trains being operated by Schenker across Russia bringing cargo from China to Europe for customers such as Fujitsu. “Most customers whobook our aircraft have a very urgent need for cargo,” he says. “These trains take 17days, against 3-4 days for air cargo, andthey still have issues of security and thedifferent rail systems the train has to passover. We have not yet been approachedby a single customer saying they arethinking of switching to this.”
Lufthansa is not immune from global trends, of course. Otto says the peak season from Asia to Europe was disappointing – 2-3 per cent down in volume, though 10-15 per cent lower in yields. But while Association of European Airline (AEA) figures show Lufthansa cargo traffic down 4.8 per cent in September, AEA carriers as a whole saw a fall of 7.2 per cent. Otto reckons that it can stay ahead of the game.
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Lufthansa in talks to take over Jade’s China sales
Lufthansa Cargo is in advanced talks with Shenzhen Airlines to take over the sales of Jade Cargo International out of China, the German carrier has confirmed. The deal – which was being discussed at board level in Shenzhen in late November – would effectively give Lufthansa full commercial control of the joint venture cargo airline, integrating it into its own freighter network.
Lufthansa has been managing Jade’s sales out of Europe since the start of the summer season, amid growing signs that Shenzhen Airlines is losing interest in the venture. Earlier this year one of Jade’s six B747-400ERFs was wetleased to Singapore cargo airline Jett8 and there were rumours that Jade was looking for other such deals.
But Dr Andreas Otto, Lufthansa Cargo board member for product and sales, insisted in Frankfurt in mid November that the German carrier saw a strong future for Jade.
Pointing to widespread predictions that China’s GDP would continue to grow 5-6 per cent in 2008 despite the global economic crisis, hesaid: “We still see growth in air cargo out of China, and it is still highyielding cargo.”
He insisted that since Lufthansa had taken over Jade’s sales out of Europe, it had increased load factors and seen “very good results”, saying these would contribute to better financial performance for Jade this year.
“There are still commercial issues to solve, but the operational problems they had earlier in the year due to a shortage of pilots have now been solved, and this week they have achieved utilisation of 15 hours a day for the first time, which is a good record for any airline,” Otto said. “If Jade will be a huge commercial success in the next 12-14 months, I can’t say, but at Lufthansa we do believe in agood future for it.” – Peter Conway
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