Lufthansa Cargo not expecting overcapacity on Asia-Europe

Lufthansa Cargo is not expecting cargo capacity to flood the Asia-Europe trade over the coming year due to the extra distance airlines will need to travel to avoid Russian airspace and as older tonnage leaves the market.

Speaking on the day the cargo business announced record operating profits for the third year in a row, Lufthansa Cargo chief executive Dorothea von Boxberg outlined her expectations for the year ahead.

Boxberg said the demand outlook was cloudy but added that she was not expecting the Asia-Europe trade to be affected by overcapacity.

“I don’t see a huge amount of extra capacity coming in, from Europe at least, because the additional aircraft will mostly fly more to Asia where they will have the detours and that means there will not be as much belly capacity available,” said Boxberg.

She gave the example of Lufthansa flights to South Korea which have had to limit the belly capacity to around two tonnes because the extra fuel that needs to be carried results in stricter weight limits for cargo.

Asked to quantify how much capacity the extra distance was taking out of the market, Boxberg said that for freighters the detours were accounting for about 10-12% of Lufthana’s capacity.

She added that if rates do decline, older freighters will be priced out of the market.

“On the freighter side there is not a huge amount of new freighters coming into the market,” said Boxberg.

“The A350 freighter isn’t starting until 2027, so in terms of new freighters it is only B777s that are coming into the market and at the same time there are still lots of old long-haul freighters.

“Of about 600 long-haul freighters, 200 are B777s and the other 400 are all more costly and significantly older models that have higher direct operating costs.

“So if yields decline, those aircraft will also go out of the market and that should have a stabilising effect.”

On the demand outlook, Boxberg said there was not a particularly clear picture.

She said that while there are reports that factories in China are ramping up production following the lifting of Covid restrictions, it remained to be seen whether that is to cater for internal demand rather than exports.

Meanwhile, the purchasing managers’ index (PMI) had recently reached a ten-year high and ASEAN countries were expecting to see trade grow as companies look to China+1 supply chains, where they spread their risk by having production sites in two countries.

Boxberg pointed to Seabury’s prediction of a 0.6% decline in demand for the full year.

Lufthansa Cargo reports third year of record operating profits