Lufthansa Cargo delivers profit growth in 2014

It is a tribute to the strength of Lufthansa Cargo’s management that it can prosper despite all the threats facing the company.

The most immediate issue is the apparent endless dispute with its pilots. Last weekend saw another strike over ‘pay and conditions’ bringing much, but not all of the airline to a halt. Competition is also tough in the airline business generally, with Lufthansa once again complaining about the strength of the Gulf airlines.

Yet, over 2014, it increased operational profits 26.6% to €100m with margins hardening from 3.2% to 4.1%. The sharp rise in profits was achieved in spite the company’s falling market share. Although the market generally increased in low single digit percentages over 2014 Lufthansa Cargo actually saw a fall of 2.9% in tonnage carried. The load factor did edge-up slightly but the available freight capacity shrank marginally as well. Consequently revenue went nowhere, with 2014 seeing sales of €2,435m, a 0.3% rise year-on-year.

Reading between the lines it appears that the improved demand picture seen around Christmas 2014 underpinned what was otherwise a poor year. It enabled Lufthansa Cargo to focus on improving margins by selecting the most profitable business without too much of a loss of revenue. Other factors that may have contributed to Lufthansa’s success were the phasing in of a fuel efficient Boeing 777 fleet and its investment in IT such as the ‘eCargo project’.

The overall strategy of Lufthansa Cargo appears to be based on the export activity of Germany. The company’s CEO, Peter Gerber, summarises this by stating that, “Frankfurt is the epicentre of Europe’s industrial sector. Geographically, it’s much better positioned than London or Paris. The metropolis is the main European hub for our customers, the major international freight forwarders. They have their main consolidation centres here. It’s an ideal location for us to continue investing”. All of this may be true, however the world’s economy is far more complex than just exports moving in one direction and these trade flows hold great potential for further growth.