Controversial LH Cargo letter
 

According to the main headline story on Air Cargo News website, Lufthansa Cargo executive Board member, Dr Otto, has sent out a letter to customers.
In this letter he not only says they are implementing an immediate 25 per cent rate rise globally, but also says: “If current market trends continue, we expect that, in the medium term, the majority of the world’s freighter fleet will have to be permanently grounded because there will simply be no economic justification for keeping these aircraft in service.”
The letter is worth a read.

Air Cargo News :: The World's Best Read Air Cargo Newspaper

Politics, smoke & mirrors...
 

One word: Aerologic!

By pricing themselves out of the market, LH management will have a stronger case to pressure pilots to take pay cuts, whilst at the same time pushing customers towards their own 50% subsidiary called Aerologic which has a lower cost structure.

It's all part of the big scheme to outsource the cargo business to Aerologic.

seems current world economy is not the best if you're entangled yourself in THREE CARGO airlines at one time. of course this is not a management F-up but the fault of .... someone else! so lets all throw in that extra 25c :ugh:

Dear Tank2Engine

I don´t see the logic behind your statement: the cost of pricing yourself out of the business can never ever be recovered by lower wages paid to a handfull of pilots and the risk of losing valuable customers to the competition instead of guiding them towards Aerologic is way beyond "acceptable"

Never mind the fact that it will take years to build up Aerologic to the size required to replace LH-Cargo.

As a longtime Managment pilot with University degrees in Airline Managment and Business Administration I can assure you that the LH-board would never approve such a strategy.

righ at the moment
 

this is a very brave move from LCAG and I am sure it will be seconded by the other cargo carriers in the market. with current market rates, even if the aircraft are full, you still lose money and it cannot be explained by economic crisis. 'the pricing war' among carriers has gone too far so that now even the big guys are feeling the hit. many cargo carriers are already out of the market just because of this reason. Remember Cargo B, they were saying that they had the cargo but simply the rates were not high enough to cover the costs.

If it continues like this, as Dr Otto says in his letter, having freighter aircraft will not make sense anymore.

Sitting Bull, have a look here and more specifically here. Also check out MD11F's comments. They might give you a better clue to what's going on inside the LH Group and the role of Aerologic, instead of relying on a leaked (?) management memo.

It's all about moving business from LH Cargo to Aerologic, and what better wat to do that then by pricing LH Cargo out of the market and thus driving the customers into the hands of Aerologic? Or do you think LH will also increase the rates of Aerologic by 25%? I think not! ;)

I'm surprised that you "as a longtime Managment pilot with University degrees in Airline Managment and Business Administration" can not see this... It's all about the long term strategy, divide & conquer and using this recession as a scapegoat, not of making a quick buck now.

According to Airwise, LH Cargo might drop cargo fleet for night restrictions at FRA:

Lufthansa May Drop Cargo Fleet If Night Flight Ban

come on guys
 

Tank2Engine, apparently it seems you have no idea about cargo business. Do you have any idea about the size of Lufthansa Cargo? they have (had) 19 MD-11's and some leased 747's as well. at the moment Aerologic only has 2 a/c and it will have 9 by 2012 (??). Considering that Aerologic will carry DHL express cargo as well, there is no way/possibility that Aerologic can handle/replace LCAG business. LCAG alone is one of the world's biggest cargo carriers and considering the whole group (LCAG + Aerologic + Jade), the group is the world's biggest. I think the vision of LCAG management is quite clear.

As for the cost, who says that Aerologic has lower costs than LCAG? I assume you only see fuel burn as the cost but let me say that the cost of MD-11's are far below than 777F's considering the capital cost of 777F.

reading your sentences, are you a lufthansa pilot???

-10c/kg + 25% = -12.5c/kg ?
 

I know for fact that LH is selling airfreight capacity out of Italy for minus 10c/kg plus the fuel surcharge of currently 70c/kg. Was it not for the fuel surcharge, they would be paying their forwarders to fly their freight.

Maybe somebody with an MBA in airline management can tell me what the new rate will be -12.5c/kg or -7.5c/kg?

Icle test, so the price was 0.7EUR per kg, regardless of surcharges... I think the letter has been sent out to end this madness. And it is not on Lufthansa, the whole market is mad at the moment. price wars gone too far and I think Lufthansa's move will move others to increase the rates.

icle_test
I know for fact that LH is selling airfreight capacity out of Italy for minus 10c/kg plus the fuel surcharge of currently 70c/kg. Was it not for the fuel surcharge, they would be paying their forwarders to fly their freight.

Maybe somebody with an MBA in airline management can tell me what the new rate will be -12.5c/kg or -7.5c/kg?

Don't get me wrong, I'm not against higher yields, and I realize that this bleeding of cash can't continue forever, but you also have to see the big picture of what's going inside Lufthansa. Outsourcing is and has been a big issue between LH pilots and management, not only with cargo but also with LH Cityline and airlines like Cirrus and Augsburg Airways. If you keep these things in mind, you will be able to see this "controversial letter" in a different light and is suddenly not that "controversial" anymore. Did you get around to reading that thread that I linked in my second post?

Well, first of all, whether it's cargo or pax, in the end it's all about the same things: yields (either charged per kilo, or per SLF) unions, costs etc. The fundamental laws of economics are no different for boxes than for passengers. If you think yields are low only for cargo airlines then I suggest that you take a look in the business and first class of any random airline. How come we don't hear any CEO (Mayrhuber for example! ;)) talk about raising rates for passengers? Second, yes, I know how big LCAG is, but then again I never implied that that changes happen overnight. Rome was not build in one day, and neither will the outsourcing of LC to AL happen overnight. Nevertheless, if you take a closer look at the issues at stake in Lufthansa, a trend is clearly visible and this economic crisis is just a very nice disguise.

T2E: So according to your logic LH raises the rates on their 12+ remaining MD11F and all the bellies now to move the cargo to the 2 777F of Aerologic, whose capacity LH sells at the weekend? What happens with all the remaining customers? Would they pay the rates with which "LH prices itself out of the market" or would they rather go to the competition, who don't move their prices? Yes of course, they will for sure come back to Aerologic when it is in full swing in 2012 and LH's cunning plan to kill their own cargo subsidiary has come into frution...

Realistically speaking, the net yields (excluding fuel surcharges) have suffered tremendously industry-wide during the past months. Now that the market shows first signs of a bottom, it is time that the airlines take measures to improve their revenues again, otherwise the operation of freighters will not be viable anymore on many routes. From what I hear from forwarders, several airlines around the globe are currently cutting incentives, reducing frequencies and increasing rates. Lufthansa is and will not be the only one.

It is not always an attack on pilots and their company-wide work agreements... (and no, I don't work for either LH or Aerologic).

Tank2Engine -agreed. The DHL uber hub in Leipzig is only just warming up, with Aerologic coming on line, and DHL Air EMA operating three new B767s in the next few weeks to cover the USA routes. Add three more next year. Lufthansa's cost base was always far too high and the yanks never did like LH flying the MD11's under a DHLAir East Midlands route licence. So the world changes. Watch out for a new ....British Airways rebooted with fresh contracts this winter. They just have to extricate themselves out from the final salary pension scheme mess they allowed to build-currently 12.5 Billn £.
The sins of the fathers shall be visited on the children- might be appropriate.
Cheers Koi Carpus

LH Letter
 

I think the gentleman from LH summed up perfectly the state of play of the air cargo industry today

How much more money do cargo depts of various airlines have to lose before we put a stop to this madness of zero airfreight rates and the like

As someone said it is "sexy and macho" to have your own freighters but if you have to stand on your own two feet as a cargo unit its a different story

I m worried however that if we all put up our freight rates who is going to come after us first for collusion the US DOT or the EU or are they going to come after us at the same time this time

Here's hoping freighters will still be operating in 10 or 20 years time

LH Cargo
 

Perhaps someone can confirm this, but I remember reading an article in the cargo press a year or two ago in which it was said that only 25% of LH freight is actually flown using their dedicated freighter fleet (MD-11F and occasionally wet leased 747F's). The other 75% is flown as belly freight on the LH PAX fleet and other star alliance aircraft?

Assuming the above is accurate, then even if LH does dispose of its dedicated freighter fleet in the near future, their network will not be greatly affected (i.e. the network could be adjusted accordingly before a fleet disposal).

I am sure that the LH cargo pilots could be switched to the PAX fleet, as I understand there is still a shortage of pilots?

My own opinion is that even after we exit the current worldwide recession/depression, there will be a "new normal" in global cargo markets, which will result in considerably lower volumes on most routes, when compared to the "go-go" years from 2003-2007.

Perhaps LH cargo management are just pre-empting this scenario?

LH25%
 

and now I hear (rumour) that AF/KL have done the same
25% increase in freight rates

Can anybody confirm this?

Any details?

Here's a link for you.
Interesting to see how LCAG will react if the rest of the industry will follow suit.

The problem for carriers on the cargo side is the difficulty 'signalling' to each other, in (near) real time.

If I understood my passage colleagues correctly, the fact that scheds, fares etc show in various retail outlets means that competitors can monitor each other quite closely.

If carrier 'A' sets out a fares package for a specific city-pair then competitor 'B' can react to this if so desired; e.g. 'B' might reduce its own fares package to compete, or, if really annoyed massively discount below the levels of 'A', and if really, really annoyed massively discount all city-pairs for which 'A' is a competitor.

'A' then knows that toes have been tread upon

On the cargo side pricing is quite sticky, with contracts at levels that cannt be changed except at xx days notice ((only when change is upward of course)) and there is no real signalling mechanism

Hence the very public statements by the big carriers - only by announcing it to the market in a highly visible way can 'A' signal 'B' and keep it all above board & legal

Of course I've been out of it for 8 years & I expect this is all total rubbish, so I'll go back to
zzzzzzzzzzzzz

It’s all very well sending out these letters/statements but bring them into effect is going to be a different story.

Do you think the Global Freight Forwarder are going to approached their customers with a 20-30% rate increase on airfreight? Cause they are sure not going to absorb it!

Simple fact is the Airlines need the Forwarder not the other way round. If you as a carrier want the business this is what you’ll charge us (the forwarder) to get it.

The large Forwarders will apply a little pressure in the right way to ensure is 20-30% doesn’t happen to them.

ScootCargoOps, right you are but this time the moevement is seconded by others as well. AF-KLM just announced increase in the rates and some others already followed Lufthansa, but in a more silent way than AF-KLM.

Forwarders need the airlines as well and they have to make sure they do not kill airlines while trying to squeeze them.