Lufthansa Cargo CEO Discusses Air Freight Industry
Lufthansa Cargo which asserted its position as the biggest cargo carrier on the North Atlantic route, has also been looking at other regions, particularly Asia which is the fastest growing market for cargo traffic. While the air cargo carrier’s total tonnage in 2014 declined slightly to a total of 1.67 million tons of freight and mail from 1.71 million tons in 2013, its operating result jumped to 100 million euro in 2014 up from 79 million euro in 2013.
Peter Gerber, Lufthansa Cargo’s chairman and CEO since May 1, 2014, discussed in a recent interview with Manik Mehta at the air cargo carrier’s headquarters in Frankfurt, Germany, an entire range of issues affecting the cargo logistics industry, including markets, strategy, general outlook, acquisition of new planes, competition, joint venture cooperation, the new freight center at Frankfurt, and Lufthansa Cargo 2020 program. Gerber presented the company’s annual report for 2014 at an international media conference in Frankfurt.
Manik Mehta: How was the year 2014 for your air cargo business? According to Lufthansa Cargo’s earlier forecast, the company was going to assert its biggest market share in the USA. Has this forecast proved to be correct?
Peter Gerber: The year 2014 had its challenges but Lufthansa Cargo achieved an operating profit of 100 million euro last year, a significant increase over the previous year’s 79 million euro. The result, if I may say so, stood out from the competition and was achieved in a challenging market environment.
Although global demand for air freight increased slightly in 2014, traffic at Lufthansa Cargo had initially declined and did not fully meet expectations starting at the beginning of the year. However, we witnessed a surge in shipments around Christmas resulting in an overall improved business for the entire year.
In regard to the North American market, we have emerged as the largest cargo carrier in that region. One way to win and retain customers is to offer them specialized services. We have customized our products especially for the North American market. The (North American) market is still strong … although there has been a lot of talk about a downturn in the sales of oil pipes and equipment for the oil and gas industry, we have not, yet, seen this downturn. Indeed, traffic has remained stable on North Atlantic routes where we are the largest cargo carrier. America accounted for some 44 percent of its traffic, compared with 44 percent also with the Asia/Pacific region.
The major trade lanes with significant growth rates, especially export to Asia Pacific will be the European Union-Asia Pacific and the European Union-North America. Growth is expected to be strongest on the Asia-Pacific routes which will need more freight capacity. However, North America freighter capacity demand will be stagnant at a high level.
Given that some airlines have already started to downsize their freight business or are giving it away to third parties, how do you see the future of the air cargo business?
Looking at the future, I do believe that air freight is, and will continue to be, a growth market. I am confident that air freight will always be the only viable transport option for certain goods. Air- and sea-freight businesses are very different from each other. For some goods, air freight is the only sensible means of transport. There is demand for high-value, time-sensitive products. Big brand names such as Zara, Pfizer, Bosch, Roche, etc., for example, also use air transportation for their high-value products.
Major exporting regions like Germany are an excellent long-term basis for the air freight sector.
Why Germany? And why Frankfurt?
Germany’s economy is heavily dependent on exports. And air freight plays an important role in Germany’s overseas export, accounting for some 30 percent of total value with just 2 percent of total tonnage. It is, as I said earlier, the only sensible means for transportation of certain products. Frankfurt is the epicenter of Europe’s industrial sector. Geographically, it’s much better positioned than London or Paris. Frankfurt is the main European hub for our customers, the major international freight forwarders. They have their main consolidation centers here. It’s an ideal location for us to continue investing. Lufthansa Cargo wants to act on the opportunities provided by its location and expand on its market position in Europe.
You have been adding the latest B777F aircraft to your fleet. You are creating additional capacity with the new aircraft?
Lufthansa Cargo has a fleet of 21 aircraft. We have 16 MD11F and five B777F freighter aircraft. The fifth fuel-efficient B777F aircraft joined our fleet in early spring 2015. The triple seven is rated the best aircraft in its class, with low fuel consumption, outstanding range and superb reliability. Our fleet is being constantly modernized so that we can offer quality service to our customers. Some old planes will be retired at some point in the future.
You formed a joint venture with Japan’s All-Nippon Airways last year. How is it coming along?
Lufthansa Cargo and ANA have been jointly offering since 2014 cargo flights from Japan to Europe. Flights in the opposite direction (Europe to Japan) should start in summer this year. Both the partners can market capacities of the partner to each other’s customers. The joint venture is a big plus for our customers.
However, you are also forming alliances with other air cargo carriers. Besides ANA, you are planning to form partnership with another airline by end 2015. What other carriers are you holding talks with?
Yes, we are negotiating with other carriers … We have had talks with other airlines but I will not be able to disclose names at this point.
Could you give me an update on your new freight center LCCneo at Frankfurt? What’s happening on that front?
We are keen to expeditiously push the new cargo center project. However, because of the overall situation in the group and the pilot strike [editor’s note: pilots of the parent Lufthansa concern were on a strike when this interview took place in Frankfurt], getting approval from the supervisory board of the company is not going to be simple. Nevertheless, I am hopeful about construction work starting end 2015.
The LCCneo freight center will be a major step towards modernization. [editor’s note: the existing facility is some 30 years old. According to the carrier’s estimate, the costs for the new freight center will be around 700 million Euro.]
Tell us about your Lufthansa Cargo 2020 program which is supposed to be your response to the future strategic challenges.
Yes, the Lufthansa Cargo 2020 program is our response to the strategic challenges of the future. We have identified nine ambitious projects to make ourselves fit and competitive in the future. We are currently implementing a modern IT system for freight handling. The roll out is scheduled for completion by this fall. The eCargo project involving the digitalization of all the company’s main processes, is also picking up pace. With this, we can further improve our quality and speed. Then there is the new construction of the air-freight terminal at Frankfurt. An “Air-Cargo Community Frankfurt” was established with other partners at Frankfurt airport to promote industry wide issues and enhance Frankfurt’s attractiveness as an air-freight hub. We have also resorted to other measures like deploying modern 777F freighters, cooperation with other airlines, etc.
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