Lufthansa Leading in Freight Race

Air freight is big business at Lufthansa. In fact it accounted for 26% of the carrier’s total revenue generation during last year and is expected to reach 33% by the mid-nineties and around 40% by the turn of the century. The greatest market is naturally enough the North Atlantic airbridge, though Asia and the Pacific Rim countries are also rapidly becoming the glamour market.

So strong is the regional Far East market that it saw a growth during 1986 of 42% over the previous year. Air cargo from Europe rose by a startling 52% for LH on the Tokyo route, 77% to Seoul, 76% to Hong Kong, 49% to Bangkok, 35% to Beijing, 45% to Singapore and KL and a healthy 24% to Australia. In all Lufthansa operates 16 weekly 7 4 7 freighter flights to the region in concert with Cathay Pacific, JAL, Korean Air Lines and our own Qantas. The arrangement with Qantas has been in place now for several years and sees an LH 747F providing a once weekly service via Melbourne, from Singapore and onto Hong Kong. To back this up Lufthansa operates three regular flights each week to Sydney and Melbourne, two of which use a 747 Combi. Freight is the big earner on the Frankfurt/ Australia run as more than 90% of Australian originating passenger traffic is on a discount fare of some type.

International air cargo is growing in leaps and bounds as shippers realise that the ultimate cost of shipping a product also includes amortising the finished cost of that particular product. In other words air cargo allows,both the manufacturer and buyer to vastly reduce their in-house stock inventories of high priced goods while greatly reducing the transit time from factory (or paddock!) to end user.

A classic example of this economic law in action is the Cadillac Allante airbridge that commenced operation in late 1986. I don’t need to tell you that a Cadillac Allante two seat high performance sports car is an expensive piece of machinery – it is. And consequently, it would have cost all parties involved, including ultimately the customer, a lot of extra lira if the innovative Allante airbridge had not been devised.

Essentially, the specialist body firm of Pininfarina at Turin, Italy produces the bodies and ancillaries of this striking sportster which is a joint manufacturing/marketing effort between the well known Italian firm and General Motors Cadillac division in Detroit. Once fully assembled, the car bodies are then shipped by air from Turin direct to Detroit where Cadillac install the US-built engines and running gear. The idea forutilising aircraft for transport rather than conventional shipping was born out of the fact that both Turin and Detroit are inland cities and thus the cars would have needed to be transhipped several times if travelling by conventional surface means. This in itself would mean that a typical transit time from one factory to another could be as long as five weeks. In that time the fiscal investment in each load of cars (at a rate of nearly 700 per month) is quite staggering. They still have to be financed and insured while the potential for en route damage is also 01uch greater than the non-stop flight that now sees three 747Fs departing Turin each week with 56 cars aboard. Lufthansa shares this five year contract with Alitalia with the German airline providing two of the three weekly freighter connections. On the return Detroit/Turin flight the 747s are loaded with an assortment of spares and components destined for other GM products throughout Europe.

The entire Allante operation though was conceived as a result of air freights special and unique advantages over conventional surface transportation. Another massive growth area is that of Sea/Air cargo. This has of course been around for many years though only in the past two to three years has it become a major force capable of influencing the future trends in air cargo.

Major Sea/Air ports are Singapore, Hong Kong, Vancouver, LA and Dubai. The system is simplicity itself. Taking Dubai as an example, where LH is literally being saved on a declining Gulf States passenger market: high value, time sensitive goods are shipped by regular liner services into Dubai in the United Arab Emirates. They are then repackaged for air cargo shipment from Dubai to Europe and North America. This reduces the transit time by up to two thirds and reduces inventory and stock holding costs for the end purchaser. Additionally, some very time sensitive products, such as garments made in the East, will reach their US markets in time via this method and at a reasonable cost. In fact, some 80% of all exported textile goods from Sri Lanka travel to North America via the Dubai Sea/Air service.

Lufthansa is presently promoting the Dubai Sea/Air link with great vigour as well as its LA facility where European manufactured goods are airlifted to the US West Coast for transhipment by liner to Asia and vice versa.

To support the rapid growth in air cargo, which was 17% last year for LH against an IATA average of a still healthy 7%, the carrier will have to acquire at least another 24 747 Freighters to service the anticipated market by the year 2000. Lufthansa already operates 4 747Fs with another on order for late ’88 delivery in addition to 14 747 Combis and two 737 Convertibles which are used for intra-European operations. Presently around 44% of all cargo uplift is via the four dedicated Freighters with most of the remainder being uplifted by the Combis.

To augment the standard LH freight system the carrier launched a specialist offshoot in 1977 named German Cargo Services. Originally flying a small fleet of converted ex-Lufthansa Boeing 707s (virtual sisterships to Transcorp’s 707 freighter) this now booming specialist carrier operates 5 DC-8 Series Seventy freighters in an operation that is expected to uplift around 38,000 tonnes of cargo this year alone. The benefit of having a subsidiary such as German Cargo Services is that it can specialise in one-off and specialist air freight requirements that would not be viable for the main LH air freight operation which to all intents and purposes operates as a scheduled international carrier. With a 1987 anticipated uplift of over 800,000 tonnes of cargo expected it is not surprising to learn that Lufthansa also has the world’s largest and most advanced air cargo centre at its massive Frankfurt jet base. This incredible $150m facility has to be seen to be believed though some measure of its size can be gained by the fact that it can currently handle over 1700 tonnes of freight a day comprising more than 6000 different shipments. So intense has been the growth in LH air cargo in recent years that the entire facility has seen an increase of more than 60% in throughput since its completion in 1982. To cope with demand Lufthansa is investing an additional $90m to provide a 50% boost in capability by 1989.

Air cargo has certainly come of age during the eighties. As costs have come down and more efficient air freight operations, both in the air and on the ground, have been devised, its attractiveness has spread to a far wider diversity of products than was originally thought possible. Ironically, one advancement that has served to streamline the actual business of international air cargo – the computer – is also notably one of its major drivers. Without the boom in personal and small mainframes of recent years, much of the groundwork for the established air cargo network would not have been able to grow as rapidly as it has. Virtually all computer and associated high value electronic hardware is transported by air to reduce holding and inventory costs. When you consider the number of such items in everyday use then it is not difficult to appreciate their overall effect on the international air freight business.

There was a time when air freight used to be a poor cousin to the scheduled passenger services of an airline. For Lufthansa, and indeed for most long-haul specialists, those days are well and truly gone as air freight begins to rapidly become a major profit generator for the modern air transport operator.