Lufthansa to expand JV, cut costs and staff

After a tougher-than-expected third quarter, Lufthansa Cargo has sent out mixed signals about its plans for 2016, announcing an expansion of its joint venture with All Nippon Airways (ANA) Cargo, but also launching a cost-cutting program that will likely reduce maindeck capacity and eliminate some jobs.

Starting this month, Lufthansa Cargo and ANA expanded their Europe-to-Japan joint venture by adding Fukuoka Airport, in southern Japan, as a destination. ANA flights between Tokyo Haneda and Fukuoka can now be booked on airfreight systems operated by either Lufthansa or ANA. Later, the two carriers will add Sapporo, on Japan’s northern island of Hokkaido, to the JV network, which began in a year ago this month. In August this year, the JV had expanded its routes from Germany, France, Great Britain and Austria to Japan.

According to Yukata Terao, project manager, operations, at ANA Cargo, the region around Fukuoka has thriving steel and automotive factories, as well as businesses in the semiconductor, environmental and biotechnology fields. “These are sectors which substantially profit from airfreight,” he said.

At the same time, Lufthansa has begun what it calls its “C-40” cost-reduction program, with the aim to “reduce spending on personnel and services by €40 million per year.” In an interview with the German-language publication Handelsblatt, Lufthansa Cargo head Peter Gerber said the belt-tightening will begin in May 2016, when some administrative staff may be reduced and various processes will be reviewed to enhance their cost-effectiveness. Part of this C-40 strategy will also include the retirement of two MD-11Fs from its portfolio, bringing its total freighter fleet to just five 777Fs and twelve MD-11Fs.

Still, Gerber did say in the Handelsblatt article that the carrier had no intention of abandoning maindeck cargo aircraft altogether. “British Airways is already out of the pure cargo business. Air France-KLM is in the process of leaving it,” he said. “We’re the last ones remaining in Europe. And we fully intend to stay.”

In the first nine months of this fiscal year, a period that was punctuated with several disruptive pilot and cabin-crew strikes, Lufthansa Cargo reported an operating loss of €38 million, compared to an operating profit of €69 million for the same period in 2014. Lufthansa’s third-quarter cargo traffic was down 4.5 percent, year-over-year, to 2.08 billion revenue tonne kilometers (RTKs). This poor third-quarter performance brought the carrier’s traffic growth for the first nine months into negative territory, down 1.8 percent to 6.23 billion RTKs.