Fierce competition from Gulf carriers reduces the pie size for Lufthansa-cargo, others

The main grouse of European and American cargo airlines against the Gulf carriers is that the latter derive an unfair advantage through the huge subsidies they allegedly receive from their respective governments.

"They (Gulf carriers) enjoy an unfair advantage over others who have to compete, with no financial subsidy, in a market characterised by price cutting. Subsidies give the Gulf carriers a clear advantage over others," Peter Gerber, the CEO of Lufthansa-Cargo, said in an interview with Bernama on the sidelines of the cargo carrier's annual conference in Frankfurt.

Gerber is not the only one to call for a level-playing field in which all the players could compete according to the principle of supply-and-demand in a market economy.

Executives of other carriers, including United Airlines, Delta and others, have also voiced similar sentiments about the Gulf carriers which command the biggest share of the cargo market among themselves. With subsidies, the Gulf carriers were able to offer their products and services at prices that were below the actual costs.

But Gulf carriers reject such allegations, dismissing them as "frivolous" and "unsubstantiated".

Indeed, Akbar Al-Bakr, chief executive of Qatar Airways, told Bernama in Doha a year ago that his carrier had received only a one-time equity funding in the beginning and this was by no means a continuing process.

Gerber said that the Gulf carriers could clear the matter by providing transparency about their costs and earnings; he also dropped hints that this matter and also traffic rights for Gulf carriers could be taken up with the European Commission in Brussels, looking at the entire situation from the perspective of the World Trade Organisation's international standards.

Ironically, Lufthansa has "come closer" to Abu Dhabi based Etihad airline with which it entered into a non-equity partnership in February, initially concentrating on in-flight catering and maintenance and repairs of the craft.

Gerber would not explicitly rule out a possible cooperation with Etihad in cargo traffic.

Taking stock of Lufthansa-Cargo's performance in 2016, Gerber confirmed that it had sustained a loss of 50 million Euro which means the carrier had, for the first time, suffered losses for two consecutive years in both 2015 and 2016.

Gerber said he was "not surprised" by the 2016 result. "The loss peaked in March (2016) which nobody had expected. We had by then already put our cost-cutting programme in place. The fourth quarter was, however, quite good," he said, adding that "the money saved is for the future".

"Besides cutting costs and sharpening the competitive edge, we have a second part of our strategy: we are looking at new products. We are concentrating on new products, and also intensifying our efforts to get new customers. Developing the e-Commerce is also on the card," Gerber said.

The German cargo carrier's chief executive spoke of investing in acquiring additional freighters of the B777 type - either newly manufactured aircraft from Boeing or used ones or even have them on lease basis.

The bulk of Lufthansa-Cargo's freighter fleet comprises of 12 MD-11 freighters, with two additional aircraft parked and waiting to be sold; a third one is expected to join the two.

The MD-11 freighter has a capacity of 90 tonne each whereas the B-777F has a capacity of 105 tonnes. LHC presently operates five 777Fs. Future acquisition of freighters will be decided upon after a careful comparison and the projected future demand, according to Gerber.

Gerber also revealed that LHC's joint venture with the Tokyo-based All-Nippon Airways (ANA) was "up and running". "Our partnership with ANA is progressing well," Gerber maintained.

Meanwhile, LHC has a joint venture with Hong Kong based Cathay Pacific for a one-way traffic from Hong Kong to Europe; however, Gerber added that "we are working closely to serve the other direction (Frankfurt to Hong Kong) as well".

When pressed to comment when the proposed joint venture with United Airlines would be finalised, the phlegmatic chief executive merely said "very soon".

While emphasising that digitalisation would be key to becoming an efficient carrier, it was crucial to developing close working ties with customers. "We will see a lot of digitalization in cargo processing and quality improvement," Gerber said.

The ambitious Lufthansa Cargo Centre (LCC), once touted as the carrier's "jewel", seems to be caught in the carrier's cost-cutting efforts.

"It has been suspended because of financial reasons. The reality is that growth has not been as strong as when we started with the LCC. We thought then we would need greater capacity. A final decision will be taken by the end of this year," Gerber said.

Though he declined to give details of the carrier's profitable routes, Gerber was bullish about Asia, emphasising that China and other Asian countries are equally strong and promising markets.

North America, by comparison was not doing well because the air-cargo market had contracted. "North America will be an interesting market but it is also becoming a challenging market," Gerber said.

North America also happens to be the turf where the Gulf carriers are expanding their network.