Latest results outline struggling air freight market

Lufthansa’s decision to suspend its dividend payment late last month was an indication of the stress that the major airlines are under. Much of this is generated by the level of competition on the passenger side, but the state of the cargo business does not help.

Lufthansa has not yet broken-out its detailed financial figures for 2012, however it said that its total Group revenues increased 4.9% to €30.1bn over the year, but operating profit fell by 36% to €524m. Even these numbers benefitted by the sale and transfer of a number of peripheral businesses. The cargo business saw an 8.5% decline in freight tonnage in 2012, yet Lufthansa managed to reduce capacity enough to push-up load factors marginally. Lufthansa Cargo’s CEO, Karl Ulrich Garnadt, described the market as “extremely difficult”.

However, compared to other airlines, it is understandable why the CEO of Lufthansa called the company’s performance “good”. Air France-KLM also saw revenues rise, in its case by 4.6% to €6.30bn, yet the company suffered an operational loss of €300m; although this was still an improvement on last years €350m loss. The cargo business saw a 1.4% fall in revenues at €791m and a loss of €25m. Aggressive cut-backs in capacity failed to put the company in the black as volumes fell 5.9% despite a modest rise in revenue per tonne-kilometre.

Similarly, IAG (the product of the merger of British Airways and Iberia) announced a loss of €997m in 2012. However, its cargo business increased its revenue by 2.3% over the full year, despite a fall of 1.2% in its volumes measured in terms of tonne-kilometres. Ominously, cargo capacity increased 3.5% over the year despite a 1.2% decline in traffic, but IAG did not provide a profit figure for the cargo business.

Both Lufthansa and Air France KLM continue to focus intensely on cost-control through capacity reduction, although IAG appears to be pushing against this trend. That two of the largest cargo carriers continue to shrink their fleets, yet still struggle to break-even illustrates the weakness of the market. Should growth return however, the return to profitability might be precipitous.