Lufthansa has had a near-death experience over the past couple of years. Yet now its CEO has declared “an unprecedented financial turnaround” as revenue has doubled and the Group has made an operational profit. However, the implications of this turnaround for the Lufthansa Cargo subsidiary are mixed.
On the one hand, Lufthansa Cargo’s own results released on Friday (3/3) were quite respectable. The past financial year has seen revenue increase by 22% and Earnings Before Interest and Tax (EBIT) edge-up by €100m to €1.6bn. This was despite flat volumes at 7.2bn freight-tonnes-per kilometre.
A hint of the state of the market is given by the fact that utilisation fell heavily, by 9.9% to 61.1% yet the supply of cargo space increased by 17% to 11.8bn freight tonne kilometres. This, of course, must be belly-freight. Dorothea von Boxberg, CEO of Lufthansa Cargo, commented that customers contined “to serve their global supply chains” and they did so with the belly freight that had returned to the market through 2022; “With more freighters and more bellies, we will continue to be a strong and reliable partner for our customers”. Lufthansa said that half of its freight capacity was in the form of belly freight.
However, Lufthansa Cargo continues to invest in freighters. In addition to its existing 16 Boeing 777F and two Airbus A321F the company has ordered a further three B777Fs and seven B777-8Fs. One of these has already been delivered and is now deployed on Lufthansa’s new “freighter station” in Hanoi in Vietnam. The Airbus 321Fs are increasing being deployed on e-commerce driven routes within Europe.
Yet despite all of this optimism, the wider Lufthansa Group said that it expected “a significant decline in revenue due to the further normalization of the airfreight market” over the forthcoming year. However, apparently the expectation is that air freight rates will “remain substantially above the pre-crisis level in 2019” and this will mean that profits at Lufthansa Cargo will not be hit too hard.
Lufthansa Group, led by its passenger business, are seeing a return to normality. The implications of this for the freight market are clear. The supply of freight capacity is strong and will continue to be strong in the near future. The existing cargo space is not being used that intensively and freighters are still being ordered in considerable numbers. It might be assumed that the increase in demand will have to be considerable to fill this, otherwise there might be a return to poor profits in the cargo business.
Author: Thomas Cullen
Source: Ti Insights
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