A letter to customers from Lufthansa Cargo Executive Board member Andreas Otto saying the carrier would impose a 20% rate increase at the start of the winter schedule has been recently quoted in the media. The focus of media attention so far has been on the likelihood of Lufthansa Cargo being able to impose such an increase unilaterally, with most observers agreeing that unless other carriers also raise rates, Lufthansa will simply lose business if it goes it alone.
While this speculation is probably accurate – there’s plenty of lift available, and not many forwarders will stay loyal in the face of a 20% rate hike from a single carrier – a careful reading of the letter indicates that the real issue is whether, or at least to what extent, Lufthansa will continue to operate freighters. The letter, as we have seen it quoted, states: “The constant downward trend of yields has led to prices being again, partially, significantly below cost of operation. Lufthansa Cargo is also under severe pressure to review the extent of the freighter fleet, because at the present yield levels there is again no economic justification for a freighter operation on many routes.” This leads to the conclusion that “a rate increase is essential and necessary in the short term.”
The people that run Lufthansa Cargo are not fools, and they know very well that if Lufthansa simply ups its freight rates 20%, customers will go elsewhere. Given the comment that “Lufthansa is also under severe pressure to review the extent of its freighter fleet,” we believe the point of the letter is to offer the forwarding community a choice.
- Accept the rate hike, and you’ll have the benefits of a big freighter fleet;
- Reject the rate hike, and we’ll have to cut our main-deck operation significantly.
Lufthansa Cargo currently operates eighteen MD-11Fs, and has five 777Fs on firm order with Boeing. CEO Karl Ulrich Garnadt recently said the carrier planned to retire the two oldest MD-11Fs when the first two 777Fs join the fleet later this year, but would retain the other sixteen even after the remaining 777Fs joined the fleet. Dr. Otto’s letter, however, makes one wonder just how firm the plan to retain the sixteen MD-11Fs really is.
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