Mideast Rivals

Excess Baggage at Lufthansa

airlines Montage Dpa, SUPANZ,GEORG, AP Photo, Kamran Jebreili, Imago
Lufthansa Cargo is finding itself pushed into a corner by Middle East carriers.
  • Why it matters

    Why it matters

    The Gulf and Turkish carriers – most of which are state-backed – have already eaten into the European air passenger market, and are now threatening lucrative cargo revenues.

  • Facts

    Facts

    • Lufthansa Cargo made solid profits in 2014 and the first quarter of 2015.
    • More than 50 percent of all freight is transported on pallets in passenger airplanes.
    • Gulf and Turkish carriers have an 800-strong passenger fleet and 60 purpose-built freight aircraft.
  • Audio

    Audio

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Of all of Lufthansa’s top managers, Peter Gerber is currently flying the highest. Just a year into his job as managing director of Lufthansa Cargo, he has recently announced increased profits for 2014 and for the first quarter of 2015.

Yet this should not disguise the fact that the 51-year-old has the trickiest job among Lufthansa’s leadership. Despite current successes, the German-based airline is fighting for its future in the freight and logistics business.

“Competition is greater, profits are smaller and growth prospects are worse than in the passenger sector,” said René Steinhaus, an industry expert at A.T. Kearney consultants in Düsseldorf.

The stiffest competition comes from “GoBo” – an abbreviation for the Gulf and Bosphorus airlines such as Emirates, Etihad, Qatar Airways and Turkish Airlines. As with passenger traffic, where they are increasingly eating into the European market, GoBo carriers are piling on pressure in cargo transport.

With nearly 60 purpose-built freight jets, GoBo airlines will soon have more cargo planes than all European airlines combined. Their 800 passenger jets – an extra 500 have been ordered – offer even more space to carry goods pallets.

Middle-East airlines can offer cargo capacity at a cheaper price than Lufthansa and other airlines, thanks to lower costs.

Most important, they can offer cargo capacity at a cheaper price than Lufthansa and other airlines, thanks to lower costs.

And because airports in the Gulf are open around the clock, they can be used to deliver urgent goods from Europe to Asia almost as fast as Lufthansa. Airlines such as Emirates can make stopovers in the Gulf at any time, while Lufthansa freight planes are grounded by night-flight bans.

“It used to be said that ‘the night belongs to freight’ at airports. Now it’s: ‘The night falls on freight,’ ” said one Lufthansa official.

Most European airlines with a freight sideline have capitulated to competitors from the Middle East and sold their cargo planes. Now they only use passenger flights to transport goods.

Lufthansa, on the other hand, enjoys a good reputation, especially in transporting fragile goods, which don’t tolerate shock or temperature fluctuations. But the airline is also considering whether to do away with some of it freight planes.

Moving cargo in the belly of passenger planes is cheaper than in cargo jets, but that wouldn’t help in all cases – including transport of dangerous goods that are prohibited on passenger airplanes, said Mr. Gerber. Such items include chemicals or lithium batteries, which could self-ignite, for example.

 

luftcargo_PR
Lufthansa Cargo only has a handful of purpose-built freighter aircraft. Source: Lufthansa

 

But as a premium provider, Lufthansa still collects higher prices than the competition – for now.

“We are in a fierce competition and have to negotiate,” said Mr. Gerber.

The joint venture with Japan’s All Nippon Airways on Europe-Asia routes should speed deliveries. But countermeasures designed to bring faster deliveries and lower costs have their snags: The group only processed 750 shipments in the first six months of collaboration.

Lufthansa Cargo still has to wait two years for the opening of a new freight center at Frankfurt airport. Construction was supposed to start this year, but now the struggling passenger division needs money for new jets.

Delays like that probably annoy Mr. Gerber, whose only chance to rise on the airline group’s board is success on the freight side. After all, three of his four predecessors did the same.

 

This article originally appeared in the weekly business magazine WirtschaftsWoche. To contact the authors: jacqueline.goebel@wiwo.de

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