Peter Gerber has survived his first major test. When the Lufthansa Cargo pilots went on strike last week, not one of the airline’s 21 scheduled flights was cancelled. The new head of the airfreight division can now turn his attention once again to a major restructuring program expected to lead to massive changes between now and 2020.
The flight path is already clear. The carrier will have to either modernize radically or gradually disappear from the cargo market – as happened recently to competitors British Airways and Air France. The industry is fraught with challenges, including weak demand for air cargo worldwide and growing competition from Persian Gulf airlines, which use the cargo holds of their passenger aircraft on intercontinental routes. In the first nine months of 2014, Lufthansa Cargo lost 3.2 percent of its freight volume, suffering significant losses especially in Europe and on routes to Africa.
“We are investing more than €2 billion ($2.53 billion) overall to secure future growth,” said Mr. Gerber in his first interview since he was appointed head of Lufthansa Cargo in May, after serving as chief of personnel with the passenger division.
There are three core elements to his Lufthansa Cargo 2020 strategy.
With a 16-percent market share, Lufthansa is currently the market leader in the transatlantic air cargo business.
Mr. Gerber sees his first task in the area he calls “hardware.” Four new Boeing 777 aircraft are already in service, with a fifth to follow shortly, and the carrier has options on five additional aircraft. The new aircraft will gradually replace its fleet of 15 ageing MD 11s. Secondly, the airline’s outdated IT system will also be upgraded.
But the most visible project will be the new LCC neo cargo center, with construction at Frankfurt Airport slated to begin next year and scheduled for completion by 2020. In some cases, containers of fruit from exotic countries are still being unloaded onto pallets by hand, which will change when a new automated system is introduced.
Mr. Gerber also aims to intensify Lufthansa’s business with its core customers, which includes the machine-building, pharmaceutical, chemicals and electronics industries in Germany. “All I can say is that we still have plenty of potential here,” the 50-year-old executive said.
To edge out the competition, Lufthansa Cargo plans to expand its cooperation with other major airlines in the future. “Japan, where we are launching a cooperative venture with ANA, isn’t our only target,” said Mr. Gerber, suggesting that another partner could be added by next year.
Mr. Gerber’s plans are based on the assumption that the economy will continue to run smoothly – and the air cargo business along with it. Economists like Hans-Werner Sinn, head of Munich’s Ifo Institute for Economic Research, are already mentioning the possibility of an economic downturn, and in their autumn assessment, other top economists have also just forecast a more subdued outlook for Germany’s export-led economy.
Air cargo, an early indicator for cyclical fluctuations, could be the first sector to feel the pinch. In addition, major customers like Frank Appel, the chief executive of Deutsche Post, anticipate slowing growth in air cargo.
By his own account, Mr. Gerber has seen no evidence of any such decline. “Business is picking up, which is what we expect at this time of the year,” he notes. The fourth quarter, with the Christmas business, is traditionally the most important for air cargo. “But our North American business is also doing well at the moment,” he adds.
With a 16-percent market share, Lufthansa is currently the market leader in the transatlantic air cargo business, partly because the Gulf carriers offer service to only a few destinations on these routes. Lufthansa, on the other hand, serves almost all destinations, thanks to joint ventures with Air Canada and the U.S. carrier United Airlines.
Mr. Gerber’s only concern at the moment is a ban on night flights at Lufthansa’s home hub Frankfurt, where takeoffs and landings are prohibited between 11 p.m. and 5 a.m. This cuts into Lufthansa Cargo’s bottom line to the tune of €40 million a year, according to Mr. Gerber.
Shifting cargo flights to other centres, such as Leipzig and Cologne, isn’t an option because Frankfurt is the only airport where the airline has the capacity to move freight between passenger and cargo aircraft. He’s open to the current discussion of implementing automated noise reductions, whereby a computerized control system would impose one-hour noise breaks for individual neighboring communities.
But, he warns: “It has to be clear that the introduction of these so-called noise breaks cannot result in further restrictions on flight operations.”
Christian Schnell is a companies and markets reporter based in Handelsblatt’s Frankfurt bureau. To contact the author: email@example.com