Lufthansa Cargo held an annual rite of spring in Frankfurt this week as hosts of a big press gathering to reveal numbers, talk about the year gone by, and venture a look ahead at 2014.
      Lufthansa Cargo also said goodbye to Karl Ulrich Garnadt, who moves to the top position at Lufthansa Passenger next to CEO Carsten Spohr on May 1st.
     The elevation of two ex-cargo executives to leadership positions at the fabled carrier may be a first, but it is not without precedent.
     For example, KLM has moved cargo people to the top including Pieter Bouw and Leo Van Wijk.
Karl Ulrich Garnadt’s fourth and final annual press conference as Lufthansa Cargo CEO and Chairman of the Executive Board opened with the announcement of a razor-thin operating profit of €77 million euros in the last financial year, €28 million euros less than in the previous year.
     Looking ahead, Herr Garnadt outlined some future programs meant to revitalize the bottom line and pursue new markets via its “Lufthansa Cargo 2020” program.
     “We have set ourselves ambitious targets.
     “Our goal is to grow our tonnage by around five percent and plan to significantly increase the operating profit.”
     “Lufthansa Cargo will continue its strict cost management in the current financial year,” Mr. Garnadt added.
     In a new initiative, Lufthansa Cargo employees were invited to attend the press conference, and the first 20 to win a ticket draw lottery were present.
     Herr Garnadt framed his remarks, focusing on how Lufthansa Cargo customers view its services, with the acknowledgment that customer feedback is critically important to deliver quality.
     Quality was recognized, he pointed out, as Lufthansa Cargo earned the Expeditors 2013 Award of Excellence, the Airforwarders Association's Best International Freight Airline 2013, and best European air freight carrier.
     Admittedly, in 2013 the carrier's business didn't grow as fast as Herr Garnadt had hoped or projected, and as such the financial results have been disappointing, although still in the black delivering a positive number.
     The operating result, as mentioned, was 77 million Euro on revenues of €2.44 billion Euro. However to put it into perspective, the rest of the air cargo industry fared much worse by comparison in another difficult year that saw stagnation in the global air freight markets for many carriers.
     The departing CEO listed the fierce, competitive landscape and the “state-owned carriers” versus publicly-owned airlines as skewing the market, which is no longer a level playing field, noting as was pointed out that Middle Eastern and Gulf carriers were achieving double digit growth, Asian airlines, as well as European airlines (except state-owned Cargolux [in 2013]) were in the red, South American airlines were flat and in the U.S., Delta Air Lines was in red (for cargo) with AA showing plus 2 percent—all based on IATA FTK statistics.
     A staggering total of 56 freighters were taken out of the market by 9 airlines and parked in the desert during 2013, including some that had ceased operations.
     That remarkable number as a sign of the decline in the global air cargo landscape made the profit Lufthansa Cargo managed even more remarkable. To stay strong in a weak market “and look with cautious optimism at 2014 based on projected global demand and a growth of plus 5 percent” delivered a message of rebound as performance and projections ahead emerged in Frankfurt.
     As in previous years, Mr. Garnadt referenced the Lufthansa Cargo 2020 framework as a means of evaluating its components and the fact that, in his view, the airline “stayed the course.” The story of 2013 was working on improving short-, medium-, and long-term productivity by growing and securing its market position and building a stable future.
     The Lufthansa fleet now consists of two B777F with the third about to be delivered this week and a fourth due in June 2014.
     In the meantime, two MD11Fs were sold and another two parked with the possibility of being returned to operations, subject to demand.
     In response to a question from the floor, Herr Garnadt revealed that the decision for an option on another five B777F has been deferred and will need to be reviewed in 2015 based on market conditions.
     As Dr. Martin Schmitt, Executive Board Member Finance, noted in his remarks, the B777F made the highest positive earnings contribution because of its combination of greater range, higher capacity, and lower fuel burn.
     The nascent Lufthansa Cargo Center will be “the world's most modern air cargo logistics center” built on an existing site; this will require administrative offices be relocated for the duration.
     In parallel, the FRA hub marketing initiative has been ongoing in collaboration with local partners and optimizing processes, traffic flows, and pushing digitization.
     In another milestone for Lufthansa Cargo, we learned the IBS-supplied IT system is set for implementation by year-end, replacing Mosaik.
     Other topics included some metrics showing quality measurements underscoring a customer satisfaction index of 80, consisting of factors such as service recovery and on-time services in cargo (better than pax).
     In the "less paper" category (it used to be called paperless), the goal was to reach 200,000 eAWBs by the end of 2014.
     FlyingTypers asked Herr Garnadt why this number was so stubbornly low—less than 10 percent of the carrier's total annual shipment volume—after years in the making.
     In his reply, Garnadt referenced the various regulatory agencies' approvals, trade lane certification, and overall complexity, but essentially evolving at IATA/FIATA's pace.
     He cited Customs authorities and other government bodies making progress, especially in China, together with overall heightened industry awareness. His analogy was a snowball that keeps growing until it becomes an avalanche; except he will no longer be there to see it happen.
     Dr. Schmitt expanded on the financials, particularly the higher investments in the fleet, a revised method of amortization (5 percent over 12 years), and increased funding for its pension plans, as well as closing down Lufthansa Charter.
     Operating expenses during 2013 were 6.6 percent lower than in 2012 without sacrificing or reducing planned investments.
     Under the Lufthansa Group implemented SCORE project, Lufthansa Cargo delivered an earnings contribution of 73 million Euro.
     It is instructive that 35 million Euro of that amount was achieved through income boosting measures rather than cost cutting.
     In response to a question regarding the FRA curfew, Herr Garnadt sated that “the damage has been done” and that Germany and EU businesses suffer because of government actions that do not take into account unintended consequences, leaving the carrier to undertake its own efforts to compensate.
     Without going into specifics regarding previously announced intended cooperation with airline partners, Herr Garnadt said that a deal will be inked by mid-year aiming to grow the network, greater flexibility, more frequencies, enhanced infrastructure and handling, and adopting best practices to benefit both partners. Matthias Eberle, head of Communications commented that this action would take the form of a bilateral arrangement.
     Another question about Asian markets prompted Herr Garnadt to address the conditions in India, which is a “difficult market” for Lufthansa Cargo given the encroachment by Gulf carriers, however the recently added passenger flights to KUL and JKT offer new access to Indonesia where he expects positive business activity.
     Next year's press conference will have Peter Gerber in the driver’s seat; stay tuned.
Ted Braun/Geoffrey Arend

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