Kevin O'Toole/LONDON
LUFTHANSA CARGO IS clamping down on costs and capacity, as the world's largest international freight carrier steels itself for another couple of tough years in the heavily oversubscribed international freight market.
The operation ended its first year of independence in 1995, showing a DM20 million ($16 million) profit but, with the market declining, the carrier admits that it will struggle to stay in the black this year.
After this year's first quarter the unit was showing a hefty loss and Lufthansa Cargo concedes it is almost certain to post a sizeable deficit in the first half when figures are released.
The immediate response has been to launch a fresh programme of cuts designed to add around DM100 million to the bottom line. Staffing levels are to be trimmed back by 200 from around 4,800, and capacity is to fall.
Five McDonnell Douglas DC-8 freighters are being phased out by the end of the year. Two of the DC-8s used on the growing Sharjah-India routes of the Lufthansa Cargo India service have already been replaced by Boeing 727s.
Some of that capacity will be made up as Lufthansa takes back a Boeing 747, which is now on lease with Atlas Air, at the turn of the year. Overall, the carrier estimates that its capacity will be down by around 10% in 1997.
Blame for the downturn stems back to the beginning of 1995 when, encouraged by soaring double-digit growth figures, airlines expanded their freight operations. By mid-year the growth had begun to dry up and the market has since been beset by overcapacity and falling yields.
The German carrier's yields were down by close to 5% in 1995, with similar falls notched up across the industry by major carriers such as KLM and Singapore Airlines. Load factors have also continued to fall into the first quarter. Lufthansa warns that it could be another few years before overcapacity feeds through the system.
Despite making a rocky start to its new independence, Lufthansa Cargo believes that it will re-emerge with a solid advantage over other cargo operations which have yet to make the break from their passenger services.
"We're now in a position to see what our costs and profits really are, and we are confident we can get them right," says the German airline, adding that a sweeping long-term review of the whole operation is still under way.
In the long term, the cargo operation also stands to benefit from Lufthansa's alliance with United Airlines, Thai Airways and Scandinavian Airlines System.
The promise is for a series of global cargo alliances following in the wake of passenger agreements. British Airways promises a cargo tie-up with American Airlines, while KLM's long-standing plans to work with Northwest Airlines are being revitalised as relations thaw between the two managements. A rough calculation shows that such alliances would place these groupings in the top three in the world ranking of international cargo traffic.
A final strand of Lufthansa's strategy has been to get a foothold in the lucrative express-parcel market. That is due to take another step forward as the carrier increases its ties with DHL, in which it holds a 25% stake. No firm plans have been announced, but some form of merger is rumoured to be on the cards. "The time has come to intensify the relationship," says Lufthansa.
A recent article on the Indian private airline sector wrongly implied Lufthansa's involvement with Sahara Airlines (Flight International 26 June-2 July p13). In fact the reference was to Lufthansa Cargo India's "Sharjah-India" services, which are in no way connected with privately owned Sahara Airlines.
Source: Flight International
