Air Cargo Executive of the Year: Peter Gerber stays one move ahead

Sacrificing pawns

Not long after Gerber was named CEO of LH Cargo in May 2014, the idea of restructuring the cargo department soon became a priority. With rising competition – especially from the expanding Gulf carriers, which Gerber insists take illegal subsidies from their respective governments and therefore “do not compete on a level playing field” – and growing expenses, LH Cargo rolled out its austerity plan to remove redundancies in the department’s corporate organization chart and slash €40 million from the annual budget.

This “C40” plan, as it became known, began in 2015, just before LH Cargo’s troubles began. Under the plan, about 800 jobs were cut, removing an entire layer of management in the department in order to simplify processes, Gerber said. Over the course of the C40 program, which should wrap up by early 2018, about 35 percent of leadership positions were eliminated and nearly 21 percent of capital expenditures were cut after the implementation of 140 cost-cutting measures.

However, the LH staff realized after the program began that there were many more inefficiencies processes that could be cut or automated, so the final annual savings on the P&L statement added up to €80 million instead of €40 million, he said.

“Mainly it was the efficiency gains by adding new processes and, to a certain extent, brutal cost-cutting, mostly on the sales side,” Gerber said. “What we really did was we cut our overhead.”

The next step for Lufthansa Cargo will be to revamp its freighter fleet. Gerber announced in November that it would begin replacing its fleet of 12 stalwart MD-11Fs – including the one recently brought back into service to meet rising cargo demand – with a fleet of 777 freighters. At the moment, Gerber said he was unsure whether the 777Fs would be new or used. This “complete rollover” is expected to be completed by 2024 or 2025, he said.

Currently, the carrier flies five 777Fs for LH Cargo and two 777Fs it operates jointly with DHL Express under their Leipzig-based AeroLogic joint venture that began in 2009.

The shift to 777 aircraft will put Lufthansa in “a comfortable position,” Gerber explained. “We will do this rollover, but we still have the MD-11s, so it means we are even more flexible than we used to be because we could fly MD- 11s longer. But we could also take them out if the market is not as good, and bring it back as needed. We have maximum flexibility, and we will surely exploit it if it’s necessary.”