Lufthansa manages a weak market

Although Lufthansa Cargo is upbeat about last year’s performance, its management appears to be above all relieved that it managed its assets effectively in a weak market, rather than any significant increase in profits.

Objectively, the cargo volume performance was weak, with Lufthansa Cargo carrying 1.7m tonnes over the past 12 months. In the words of CEO Karl Ulrich Garnadt, “Tonnage almost equalled the previous year’s level,” although Lufthansa’s annual figures report that in 2012 the airline carried 1.9m tonnes, itself a fall of 7% on 2011.

What appears to underpin Mr Garnadt’s optimism is that he has been able to fill his planes, effectively achieving a load factor of 69.9% up from 66.9% in 2012.This is certainly higher than the industry average which is in the low 40s percentage-wise.

It might be suggested that Lufthansa’s cost base has also fallen due to lower fuel costs and more efficient aircraft. What also appears to be the case is that Lufthansa’s cargo fleet is shrinking disproportionately as its passenger fleet related belly freight continues to expand.

Indeed, compared to AirFrance KLM, Lufthansa has ridden the poor market conditions well. Last week AirFrance KLM announced that it was to continue to shrink its freighter fleet with the retirement of two B747Fs, whose costs had become unsustainable. Despite such continuing cuts, AirFrance KLM’s Cargo business remained loss making in the third quarter, with a load factor of 61.8%.

Lufthansa will release its financial numbers in March but press reports quote Lufthansa spokesmen as suggesting a “high double digit million euros'” of profit for the year. Overall it appears that Lufthansa Cargo has remained profitable through the effectiveness of its operational management. However the strategic issues around both the continuing low growth in the airfreight sector and the threat from Gulf based carriers remain significant barriers to Lufthansa Cargo in exploiting the weakness of others.