Lufthansa Cargo: Finding the right balance

Strikes are never easy to navigate. So, for Peter Gerber, Lufthansa Cargo’s new chief executive officer, having to deal with nine in 2014 should have been quite the challenge. Fortunately, he says, while the strikes disrupted passenger flights, freighters saw only minor changes to their scheduling. Nonetheless, there is still doubt over whether the pilots’ union will call for more strikes.
“It is difficult to see what will happen,” Gerber says. “The experts will start to talk again soon and hopefully things will improve. We have some basic strategic issues to resolve and hopefully we will manage them smoothly so we do not harm our customers.”
It is not only internal strife causing headaches for Lufthansa’s senior executives. The carrier has also had problems externally, with Frankfurt residents lobbying and protesting about night flights.
“It’s always difficult,” says Gerber, “but from my talks with the local community there is a growing awareness – from the public and politicians – both of us and of how we contribute to the economy, not only Frankfurt’s but also Germany’s. After all, Frankfurt is the largest consolidation centre in Europe. Going forward, I want to foster relations with the Frankfurt community so that we can work better together.”
Gerber joined the airline all the way back in 1992 and then completed the typical migration from department to department – legal, finance, IT and even human resources – that those destined for the top often take for a comprehensive understanding of an airline. He became chief executive officer of Lufthansa Cargo in May of this year, a succession he described as being very “smooth”.
I asked him how his management style would differ from his predecessor’s, Karl Ulrich Garnadt, who has now moved up to become head of Lufthansa as a whole. “Well, we have worked together in different positions within Lufthansa over the years and on the Lufthansa Cargo board, so I already know his style quite well. The thing is, at the airline, we have a culture of open dialogue, so management style is not as significant as at other companies.”
When pressed for details, Gerber laughed and said that he may be “more emotional” than Garnadt.
However he behaves, he has taken the reins at an interesting time in the industry, when expanding belly capacity is slashing rates and the modal shift to ocean continues. In particular, many are predicting the widespread abandonment of freighters, which is awkward when Lufthansa Cargo currently operates 19 of them.
“We remain committed to freighters,” Gerber says. “Even so, it is never easy to utilise them efficiently because it is difficult to balance their routes. There are enough routes and networks for freighters to operate profitably though. We just have to work on finding them. That is why we’ll continue to invest in freighters.”
The carrier now has 15 MD-11Fs and four B777Fs, with options on five more B777Fs. Those options were due to be made in the first half of this year, but Garnadt renegotiated that to next year. Gerber would not confirm the carrier’s current decision, but said they were still assessing future needs.
That could go either way as Lufthansa Cargo managed a cargo load factor of just over 69 per cent for the first nine months of 2014, but freight and mail throughput showed a year-on-year decline of 3.2 per cent.
In the meantime, it is experimenting with the frequencies to several destinations, such as with the ANA joint venture, but also to Africa. From mid-September, it has been flying an MD-11F to Lagos (Nigeria) twice a week to take advantage of the country’s thriving economy.
“Lagos is Africa’s ‘Big Apple’. The standard of living is increasing, and with it, the need for consumer goods. Traditionally speaking, another important customer of freight airlines is the oil and gas industry in Nigeria, with the industry dependent upon fast airfreight connections.”
At the end of October, the Tunisian capital, Tunis, was also incorporated into the route network, served every Tuesday, with an MD-11F. “Tunisia has become one of the most competitive countries in Africa. Strong imports of consumer goods, as well as growing demand for exports to the automotive and textile industries, above all, are continuing to increase the need for air cargo.”
However, the shipment imbalance between Africa and Europe remains a problem.
Further north, and far colder, the most recent addition to its freighter network was the Norwegian city of Stavanger. As of November 8, one of the cargo airline’s B777Fs will link Houston (US) with Stavanger every Saturday, providing a direct freighter service between two of the global oil and gas industry’s largest centres.
Another way that many airlines are working on mitigating these difficult times is to focus on premium segments, such as perishables and pharmaceuticals. “The cool chain has obviously always been an important focus for us, but now the perishables segment is growing faster than any other. That is why we’re currently investing in more Opticoolers.”
Beyond the fleet and premium segments, Gerber says his main strategy will be to continue implementing Lufthansa Cargo’s 2020 plan, which includes fleet, network and infrastructure. “I will be doing this for two reasons,” he says. “First, I know it’s the right strategy for the company. Second, I wrote it! Well, I was co-author anyway.
“Yes, we had to lower our forecast in May/June, but nothing fundamental has changed, so we will go ahead with the plan,” he adds. “Some parts have already been realised, for example, we have the four B777s already flying; the Dusseldorf station is now sorted; we have the new cargo centre opening next year; and we have a new joint venture with Japan’s ANA starting in December.”
Developing the business to this extent is essential, he says, thanks to growing competition from the swaggering Middle Eastern carriers, which are making inroads into Europe (see Etihad’s recent investment into Aer Lingus, Air Berlin, Air Serbia, Darwin Airline – now Etihad Regional – and most recently Alitalia).
“We have to be better than the Middle Eastern carriers,” Gerber says. “We have to offer better quality and better solutions, but we can only do that if we all operate on a level playing field and there is fair competition. That’s not me speaking for the benefit of Lufthansa. It’s vital to the benefit of the customers, which then benefits us all.
“What we have to do, and do every day, is to secure quality and then to continue to drive it further. That is why Cargo 2000 is the first of our key performance indicators and why in May we reached an all-time high with its targets.
“We also have innovated by creating value-added services, such as with eFreight. That has taken some time. If it was only us saving costs we couldn’t persuade customers. We have to convince them how much they can save and gain from it, such as allowing them to know where their cargo is at all times and so being able to improve their networks.
“The first step is the e-AWB. We are working closely with customers to implement the processes needed for it. Our penetration is now 12.6 per cent and our target by the end of the year is 22 per cent, which we are on track to achieve.”