Lufthansa Cargo Slips

Lufthansa Cargo Slips

Copyright 2004, Traffic World, Inc.

After slipping traffic and a nearly $82 million decline in pretax profit, Lufthansa Cargo plans to reduce the size of its fleet. The world''s largest international air cargo carrier blamed a "weak economy and massive currency effects" for its terrible 2003 financial performance.

The airline''s 2003 earnings before income tax totaled $19.4 million in 2003. That compares with $101 million in pre-tax earnings in 2002.

The German airline plans to sell all of its eight 747-200 freighters this year and next year. Three will be leased back to Lufthansa Cargo and the airline will add five MD-11 freighters to compensate for some of the capacity loss of the bigger 747-200s.

"The fleet rollover will equip Lufthansa Cargo with a uniform fleet of single-type aircraft, offering a high degree of flexibility in an increasingly volatile market," Lufthansa Cargo Chairman Jean-Peter Jansen said. "Expenditure on the renewal program clearly signals our company''s commitment to innovation and employment."

"Our business was gravely impacted by a weak economy and massive currency effects," Jansen said. He blamed a combination of factors including the war in Iraq and fears about more terrorism attacks plus the SARS outbreak in Asia and the general economic slump that persisted in Europe. The rising value of the euro also lowered yearly returns.

Lufthansa also faced greater competition, including on its home turf in Germany. The airline also blamed its performance on excess capacity across the worldwide air freight market.

In response to growing domestic competition, Lufthansa changed some of its rates effective April 1. The company reduced its ancillary fees, resulting in significant cuts in rates for exports from Germany.

Lufthansa has also tried to respond to market conditions by adjusting its capacity.

Despite the bad news in 2003, traffic appears to be on the upswing in 2004 at Lufthansa and its competitors.

Lufthansa says its February traffic grew 12.9 percent over last year following a 4.6 percent gain in January. British Airways World Cargo had a 24.4 percent surge in cargo traffic in February and rival KLM Royal Dutch Airlines reported an 11 percent jump in cargo traffic over the same month in 2003. February.

Overall, the Association of European Airlines reports freight business for the continent''s carriers grew 12.9 percent in February and was up 8.1 percent in the first two months of 2004.

Lufthansa Cargo has spent much of the last two years adjusting its capacity to meet shifting and slipping demand.

Cargo volume during 2003 decreased 2.7 percent from 2002 and capacity edged up only 0.6 percent.

Part of that capacity strategy has been spreading risk around through a closer relationship with express operator DHL.

The operators are collaborating on five international routes as they seek to align operations outside of Europe. Two new flights will serve Asia and are operated by dedicated Lufthansa MD-11 freighters. The new flights will fly from Cologne to Bahrain to Singapore to Delhi and back to Cologne and from East Midlands to Cologne to Hong Kong to Sharjah to Cologne to Bergamo and back to East Midlands. The flights both link DHL''s Asian hubs in Hong Kong and Singapore with its European hubs in East Midlands and Cologne.

Separately, Lufthansa launched five-times-weekly MD-11 freighter service between Brussels and New York.

Lufthansa also has been working to strengthen its relationship with forwarders, particularly with the eight global companies in its "business partner" program.

"Forwarders are the backbone of our business," Jansen said. "Close and trustful cooperation between them and cargo carriers is the only way for both logistics services providers to stay successful in the future."

Lufthansa has been trying to raise its yield and its standing with specialized, value-added products, such as time-definite delivery and through industry-specific services. In 2003, the airline earned some 36 percent of its revenue from sales of such services.

Electronic bookings also skyrocketed during the year, rising to 25 percent of the airline''s freight bookings. The carrier is an investor in the Global Freight Exchange booking portal.