Tough Q1 for Lufthansa Cargo

First-quarter performance at Lufthansa’s logistics division, which includes its cargo operations, lagged behind other segments, incurring a US$22 million loss during the first three months of 2016 as EBIT dropped by $82 million, compared with Q1 2015 data. 

Revenues contracted by a whopping 21.8 percent, which Lufthansa blamed on overcapacity and weak demand, two factors that only added downward pricing pressure on already lower volumes. On a positive note, lower fuel costs and exchange-rate arbitrage led to a 13.5 percent drop in operating expenses for the group.

Still, despite lower operating costs, traffic and load factors both experienced contractions. Traffic fell by 4.8 percent, to 1.918 billion revenue tonne kilometers. Freight capacity was also removed, but the reduction was not on-par with traffic declines, which fell by only 1.6 percent to 2.838 billion available tonne kilometers. Load factors, meanwhile, dropped 2.3 points to 67.4 percent.

Looking ahead, Lufthansa CFO Simone Menne noted a quick market rebound was unlikely, saying, “the trends we have seen in the last few months are likely to continue throughout the present quarter.”

Menne also implied that a cost-savings program implemented by the cargo division earlier this year could be further compounded.  “We have four MD-11Fs that are nearly fully depreciated. We will look at our cargo strategy during the year, including our fleet,” said Menne during an earnings call with analysts.

The weakness of Lufthansa’s logistics division during Q1 2016 led to a loss of $9 million for the quarter, compared to a tidy profit of $490 million last year.