Otto Presses Brief Encounter

     In his traditional “Meet the Press” get together that has become a fourth estate tradition here in Germany every late November, Dr. Andreas Otto, Lufthansa Board Member hosted the press Monday November 26 while discussing global trends in the international airfreight industry, touching on fleets & capacities, fuel-prices, logistics providers and of course competition.
     The room full of reporters in a trendy Frankfurt watering hole asked questions and got answers.
     While Lufthansa Cargo remained in the focus, the cool thing here is a dynamic allowing for some benchmarking and even an occasional revelation.
     Dr. Otto opened the presentation quite optimistically stating that growth rates predicted have calmed from a former wild volatility to certain continuity.
     Now in clearer focus are the next five years until 2012.
     A 5.4% growth rate is in view, a solid contribution, albeit less than the 6% that was expected for the past ten years.
     Mainland China as the fastest growing market will not produce the often-estimated 10% but most probably 7.7%. We are told Asia as a total should grow by 7%, Hong Kong by 6.0% and India by 6.4%.
     The key U.S.-market is predicted to continue growing at 4.9% through 2012.
     We also learned that trade lane imbalances are growing – especially in the movements between Europe and Asia as well as Transpac.
     Load factor on all Lufthansa freighter aircraft from Europe to Asia is around only half of that in the opposite direction.
     With 110 new wide-bodied freighter aircraft entering the market during the next couple of years and about 50 B747 conversions plus numerous others, Dr. Otto foresees a more or less 50% overcapacity in the Asia market segment.
     But it all seems to be “What-Me Worry? That knowing all this, Lufthansa Cargo and DHL are optimistic, even bordering on euphoric about their joint “NewCo” all-cargo venture that will feature a healthy addition to the over capacity fleet with ten ultra modern Triple Seven all cargo aircraft coming from 2009 forward.
     The all-cargo 50/50 ownership carrier to be based in Leipzig/Saxonia/Germany will be operating 61% of its capacity for DHL during the week and 39% for Lufthansa Cargo over the weekends.
     Dr. Otto reveals yet another wrinkle in the never ending saga of “how do we deal with forwarders,” saying LCAG has sliced its product lines to four – i.e. valuables, mail, animals and fast general cargo.
     The gradual shift from the traditional partnership is being monitored carefully by the German carrier as the share of hard freight is considered at around only eight percent presently.
     Still the question remains – how to treat and handle integrators?
     Ocean- and land competition was widely discussed.
     The tremendous growth of world tonnage keeps all modes busy. Despite the positive indications in all modes of the shipping business, the industry is suffering from high security and bunker surcharges – just to mention a few.
     Dr. Otto does not consider surface as a real threat for the time being.
     The fact remains however that air cargo yields are under continuous pressure with astronomical increases in direct operating cost.
     We learn that Lufthansa Group is budgeting EUR 4.80 billion in fuel expenditures for 2008 while in 2003 this amount was EUR 1.35 billion.
     Security of course was again a major topic of conversation and concern. Attention was focused on the nightmare caused by the strict demands placed by the planned U.S.-rules. Dr. Otto declared:
     “While we might have been reacting to security matters in prior years we have now taken leadership with our security hubs worldwide.
     “Shippers, forwarders, integrators who specially care know meanwhile that it is Lufthansa Cargo that one has to talk to first when it comes to security.”
     The feeling here is that Lufthansa Cargo is clearly positioned as a leading all-cargo airline based in Europe, serving important markets with freighters – and the entire world with the belly space of the parent company.
     While most markets are in clear focus, India however is still under consideration; “too many entrepreneurs in this exploding market would like to be in the cargo business,” we are told.
     Wait and see is the present position – similar to the next steps to be taken in the integration of Swiss on the cargo side.
     Dr. Andreas Otto’s closing statement was that Lufthansa is outperforming the industry – i.e. AF/KL, BA, SIA and Cathay for example regarding targets set by the respective carriers for this year’s performance.
     Everybody could raise a glass to that as Christmastide approached a frigid Frankfurt evening on the doorstep of December.
Guenter Mosler