Lufthansa Cargo set to tackle the coronavirus crisis -【AGV, Logistic, Air Cargo, Supply Chain, Warehouse, ERP system, Logistic Management, Chinese Market】

By Damian Brett  | Air Cargo News

Peter Gerber

Lufthansa Cargo will continue to roll out the use of passenger aircraft to carry freight over the coming weeks as it looks to meet customer demand.

Speaking exclusively to Air Cargo News, Lufthansa Cargo chief executive Peter Gerber said that the current capacity crunch being felt by the air cargo industry was largely down the amount of bellyhold capacity that had been withdrawn from the market, rather than a surge in demand.

He said that, essentially, 50% of cargo capacity was removed from the market when passenger airlines decided to cut operations in response to the coronavirus outbreak.

Lufthansa, like many others, has been utilising its passenger fleet to carry cargo and Gerber said it will continue to do so.

“We started with one or two A330s from Frankfurt, but in the meantime this has increased to 10 A330s from Frankfurt,” he said.

“We will increase our network by flying 14 A350s from Munich and also increase our network from Frankfurt further on.

“Additionally [sister airline] Austrian Airlines is flying passenger B777s as freighters. This all means we will have a step increase in capacity.”

However, he pointed out that flying passenger aircraft as freighters is “an extremely costly operation”.

“It is only 25% of the capacity of a normal maindeck freighters but we have the full operating cost.

“It is a special operation for special times and of course we try to get the costs as low as possible but all in all it is a costly operation.”

Despite these costs, the company does manage to make a margin on the flights.

“But we won’t get rich doing this,” he added. “You can’t get rich with a passenger plane flying 25 tonnes of cargo — that sounds a little bit too easy.”

Gerber added that the backbone of the cargo operation was the freighter fleet, which is made up of seven 100 tonne capacity B777Fs and six 90 tonne capacity MD-11Fs.

In addition to its own fleet, Lufthansa Cargo can also utilise the cargo capacity of four Boeing 777Fs operated by AeroLogic, a joint venture between the German carrier and DHL.

Two more B777Fs are due to be delivered this year.

At the start of the year the company had been considering speeding up the retirement of its MD-11F fleet as 2020 looked set to be a quiet 12 months.

Gerber said: “At the beginning of the coronavirus, we abolished all those other plans so for the moment. The plan that is in force is that we want to retire them by the end of the year.

“That is the plan at the moment, but in this crisis situation it is very difficult to foresee even the next day.

“So this is our plan for the moment, but ask me [what it will be] three months from now — I don’t know.”

Gerber said current demand is being driven by the transport of face masks, other personal protective equipment and medical devices from China, following the resumption of production.

He said: “Normally we would ship this by ocean but for the moment we don’t have time because they need all those masks and other things urgently and this means that for the moment there is a real peak in demand and that means it is very difficult to get this
done even with all the passenger planes you could have.”

He added: “I expect it to be over at some point in time but for the moment there is really a peak demand for that.”

Looking further ahead, Gerber said that it could be the case that there are peaks in demand throughout the year as production comes back online in other areas of the world.

“No one knows really what will happen, but this is a possibility.

“What we have to show is the utmost flexibility for our customers in order to be able to fulfil that demand if it is there.

“That is our key task for the moment and therefore we try to remain as flexible as possible.”

The cargo industry has faced some challenges when trying to meet demand, with restrictions on travel and aviation not initially including an exemption for cargo.

However, Gerber said that governments and regulators responded quickly when this was the case, realising the importance of air cargo to maintain supply lines.

There have also been some challenges on the personnel front, with cargo handlers struggling to reach facilities because of movement restrictions.

Gerber said this was initially an issue in China and then other parts of the world. At the moment, it is facing problems in New York.

“For the moment it works but we are facing serious issues in New York where there are problems in the warehouse with our handling. We really have to look how to ensure a stable operation,” he said.

In terms of changes to the business, Gerber said that Lufthansa Cargo has put some staff on short-time working.

“[Short-time working] is something we have done across the whole Lufthansa Group, also with cargo, but not that much because we have a full business here in Frankfurt and with the flying and the sales force.

“But in other parts, like handling in Munich, there is not so much work because there are not so many bellies flying. In some parts of the company we declared short-time working and in other parts we work fully.”

Gerber said that despite the situation, Lufthansa Cargo is still committed to its strategic cost-saving plan, ProFlex.

The programme aims to develop and implement measures to reduce costs sustainably (operating and staff costs across the company) by €50m per year.

“It will maybe take a little bit more time because people are still busy and there are lot of operational pressures and operational problems, which have to be resolved, but on the other hand our strategic cost-cutting programme remains in place and of course we will implement it over the next year.”

On financials, Gerber said he expected volumes to be down given the loss of capacity, but the rate increases reported over recent weeks could help on the revenue front.

Overall, Gerber is confident the company can meet the challenges in the months ahead.

“We know what a crisis is,” said Gerber. “We have experienced all these crises; from September 11 to the Lehman crises and then last year.

“We overcame all of these and we gained a lot of experience with that. We know how to cut costs, we know how to manage the crisis, we know what is needed operationally and we have a very professional and experienced team, so I am sure we will manage the
situation again.

“It is a fantastic team that we have here at Lufthansa Cargo and I am very proud to lead this team.”