Scale matters: If you are going to operate freighters, you can’t be timid

Lufthansa Cargo is due to receive its third 777F in March, with a fourth following in August, and the fifth next year. That will complete its existing 777F order with Boeing, but the carrier has options for five more, and is working toward a decision about exercising those options. On that subject, Lufthansa Cargo Board Member Andreas Otto said: “No European operator can fly anything except the 777 profitably with [oil] prices higher than US$80-90 per barrel. The 777 is the best cargo aircraft in the industry but also the most expensive, so it’s a question of how many our shareholders will let us have.”

Dr. Otto may have forgotten that the 747-8F is more expensive than the 777F, but his point – that in an era of high fuel prices, airlines have to be very careful about buying new production freighters – is nonetheless relevant. However, he followed this up with something very interesting, something which runs counter to the current view that downsizing freighter fleets as fast as possible and moving cargo to the bellies of passenger aircraft is the way forward. He framed it as a dig against a competitor, calling Air France-KLM “a big disaster,” and adding that AF-KLM’s decision to reduce its freighter fleet to ten aircraft meant it “won’t have the critical mass to perform in future.”

His point was that freighter operation requires a certain scale in order to be practical/profitable. Lufthansa Cargo has operated eighteen MD-11Fs for some time, and is not planning to retire them except as they can be replaced by the new 777Fs. (And while it is often overlooked, we point out that Lufthansa has added considerable main-deck capacity through its AeroLogic joint venture in the last few years.)

Is he right? Looking at some of the other combination carriers that are significant players in the air freight arena provides some evidence that he is.

• Cathay, for example, is in the process of retiring quite a few 747-400 freighters, but has more than replaced their capacity with the addition of thirteen 747-8Fs (and recently ordered a fourteenth).

• Likewise, Korean Air is in the process of adding 747-8Fs and 777Fs, and while it has retired five 747-400BCFs it has clearly stated that it intends to maintain its freighter fleet at twenty-six total units.

• China Airlines has maintained its operating fleet at 18 units (all 747-400Fs) since 2012. It put three freighters in storage in that year, but two of those were units that had been on lease to another carrier, and had not been part of Air China’s operations for years.

In fact, of the carriers with large freighter fleets, Air France-KLM is the only one that is downsizing in any significant way. Turning to the combination carriers finding success with medium-size freighter fleets, most are either maintaining a stable fleet size or actually upsizing, rather than downsizing.

• The big four carriers from the Middle East and Turkey are all adding main-deck capacity. They may not ever reach the point of operating twenty or more freighters, but at present they are growing their freighter fleets.

• China Southern is on its way from just two 747-400Fs to a 12-unit 777F fleet

• EVA Air will be retiring its MD-11 and 747-400 freighters, but replacing most of them with 777Fs

• Singapore Airlines Cargo has downsized slightly, but seems to be now holding at nine 747-400Fs

• Air China Cargo is in the process of retiring all of its existing fleet, but once the 777Fs and 757-200Fs it has on order are all delivered, it will actually have more freighters, if somewhat less capacity, than before.

We could go on, but even if there are a few exceptions, it does seem that Dr. Otto’s basic points are on-target:

• It may be difficult for combination carriers to operate freighters profitably in the current market, but it is not impossible, and…

• Scale matters.