What Lufthansa does next

18 / 12 / 2012

  • Lufthansa's chairman and chief executive Karl Ulrich Garnadt

    Lufthansa's chairman and chief executive Karl Ulrich Garnadt

IT IS over a year since a regional German court imposed a surprise total ban on night flights between 11pm and 5am, a decision confirmed by a federal court in April. It was a ban that Lufthansa Cargo had previously said would cause untold damage to both its cargo business and the wider German economy. The carrier even threatened to withhold further investment from its Frankfurt cargo hub as a result.

In September, the carrier gave a new cargo centre plan at Frankfurt the go-ahead, announcing that it would tear down its existing cargo terminal and build a new state-of-the-art one on the same site. Work on the facility is due to start in 2014 and it is due to open in 2018.

So was this investment decision a climb-down by Lufthansa Cargo? Not quite, according to Karl Ulrich Garnadt, its chairman and chief executive. He says that whereas the facility was originally planned to have an annual capacity of two million tonnes, it will now be just 1.6m. That is actually not that much more than the current facility’s throughput of 1.5m. He says this 20 per cent reduction in capacity is directly due to the night flight ban, which “has reduced our ability to grow at Frankfurt”.

Despite this, industry watchers will be a little surprised to hear Garnadt say that Frankfurt will remain, by far, the most important hub for Lufthansa Cargo, because “it is the only place where we can combine long-haul belly freight and our freight network, and it is also a consolidation hub for forwarders to distribute cargo all over Europe”.

So, in essence, given the airport’s importance, Lufthansa Cargo was left with no choice but to renew its cargo facility. If it wanted to continue to deliver a quality service at the airport, it had to go ahead with its renewal plan.

Much as it might have liked to move all its freighter operations to another airport, with 24-hour operations, such as Cologne, that was also not a realistic option. Garnadt is very clear that freighters can only work in conjunction with a long-haul passenger hub.

But he does indicate that two other airports might benefit from the night flight decision at Frank-furt and, as it happens, one is an airport at which Garnadt has been intimately involved. Prior to taking the helm at Lufthansa Cargo at the start of 2001, he spent 11 years on the passenger side of the airline, and one of his roles here was to develop and build up Munich as a long-haul passenger hub.

Garnadt says that the Bavarian airport may now benefit from Fran-kfurt’s restrictions. “It will certainly plan a bigger role by 2018, as will Vienna: in both we will grow our business more than we would have done if the night flight ban had not been put in place.”

In Munich (though not in Vienna), he even sees the possibility of frei-ghters,  not for a few years yet. “It depends on what kind of development there is there – how fast forwarders set up consolidation centres and how much we can develop belly capacity.” He is also aware of the danger of spoiling the Munich market with too much capacity.

“It is a good market for us at present, with high load factors, so we do not want to put that at risk.”

The new Frank-furt cargo facility is part of a whole new Lufthansa Cargo 2020 strategy which, Garnadt reckons, is “probably the biggest investment in cargo by any combination carrier”.

The strategy shows that the Lufthansa Group continues to regard cargo as one of its key businesses, he says. The plan includes buying five new B777 freighters, the first two of which are to be delivered in the fourth quarter of 2013; constructing the new cargo centre; and a complete IT system renewal.

The concept for the cargo centre inc-ludes much more automation, smart-gates for screening and checking cargo, and parking for freighters right out-side, an option which Lufthansa Cargo does not have in its current set-up.

“We aim to improve productivity 35 per cent and to considerably reduce transit times, giving us a greater number of same-day connections,” says Garnadt. “We want the new terminal to be less of a storage facility and more of a transit centre.”

Getting to this ‘Eldorado’ is going to involve some tricky planning, however, as part of the existing cargo centre will have to be demolished while cargo is still being handled in the rest. 

“This parallel construction and operation will be quite a challenge,” Garnadt concedes. “But we are working on the concept for this and are confident we will be able to use space more efficiently in the current facility while the work is going on. If necessary, we can temporarily shift some capacity to Munich.”

While the building work is going on, Lufthansa Cargo will also be coping with another major challenge – one that Oliver Evans, head of cargo for Lufthansa subsidiary Swiss Air, described as “like having open heart surgery”.

That challenge is the complete renewal of Lufth-ansa Cargo’s IT system, from an old Unisys mainframe to the next-generation system of Indian software company IBS.

This US$100m investment is not just a significant one for Lufthansa Cargo but also for the whole air cargo industry as, up ‘till now, the major carriers have resisted switching from legacy to next-gen-eration.

The fact that the German carrier is taking this plunge will surely embolden others to make the move.

Garnadt says the new system should be in place by 2014 and, once it is, Lufthansa Cargo’s aim is for its processes to be totally paperless.

Garnadt recalls that when he returned to cargo after 11 years on the passenger side of the business, he found “some people still there from the old days, and a couple of areas where processes and systems had not changed much either.”

But now, he says, “a time is ahead of us when we have the opportunity to alter the way we do business.”

E-freight is a key part of that, and one key driver for investing in the new sys-tem is to make e-freight implementation that much easier.

But Garnadt insists that Lufthansa Cargo will not be waiting for that to happen, but is already aiming to ensure its Frankfurt and Munich hubs are 100 per cent e-freight enabled by the end of 2013.

He thinks it is time that the air cargo business made e-freight a real priority though he also says that it is a long distance run, not a sprint.

Asked if the passenger business did not, in fact, drive e-ticketing through with much greater purpose, Garnadt says that it actua-lly took them 10 years to fully roll it out, or 15 years from the time automated check-in booths were first implemented.

“We can’t wait 15 years for it to happen in cargo: we must put it on high priority. But we also have to  be patient. It will require a lot of energy over a long period of time,” he says.

But the Lufthansa Cargo chief executive also says an effort by the whole industry is essential, and he calls on all parties to make investments in new IT systems in order to facilitate the improvement programme.

“We realise some companies have barriers due to their current IT systems, and we are not perfect in that respect either, which is why we are upgrading our IT.

“But we can’t do it alone: we need a big alignment of the whole industry, a worldwide effort by all parties, whether forwarders, Customs or other stakeholders.”

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