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Lufthansa Cargo – trying to profit from the cost of quality

FRANKFURT: August 04, 2016. Lufthansa Cargo, the logistics arm of the Lufthansa Group, expects a loss on Adjusted EBIT for 2016 after a 19.5 percent drop in net traffic revenue to €939 million for the first six months (H1) and an Adjusted EBIT loss of €45 million.

The company cited continued overcapacity, particularly from "the Gulf and Bosporus region", as having a "highly adverse" impact on revenue as yields fell to levels last seen during the financial crisis in 2009.

During HI, European sales increased 3.6 per cent, yields fell 15.1 percent, and traffic revenue dropped 12.0 percent. In the Americas sales were down 7.2 percent, yields sank 17.2 percent and traffic revenue dropped by 23.1 per cent.

LH A320neoSales in Asia/Pacific - where Lufthansa Cargo now has a "close bilateral cooperation" with Cathay Pacific Cargo in addition to ANA - rose 1.8 percent but yields dropped 18.0 percent and traffic revenue fell 16.4 per cent.

Given the acknowledged overcapacity, the company saw sales in the MENA region fall 8.6 percent, yields drop 14.7 per cent, and traffic revenue a significant 22.4 percent during H1.

In response, Lufthansa Cargo said it would continue with an €80 million reduction in staff and supplier costs that will result in "leaner processes and a modern, flexible infrastructure"; new services including an air cargo product for individuals called 'my AirCargo'; more airline partnerships; and "drive forward digitalization along the entire logistics chain".

The company provisionally retired two MD-11F freighters at the end of 2015 and now operates five B777Fs and twelve MD-11s.

Lufthansa Group H1 Adjusted EBIT rose 13 percent to €529 million as revenue fell 2.1 percent to €15.04 billion. Net profit fell 55 percent to €529 million during the period, due mainly to a one-off benefit of €503 million in 2015 from the early realization of a Jet Blue convertible bond.

Chairman and CEO Carsten Spohr said that while the group achieved a "solid result" for the first six months of 2016, he warned of a difficult second half of the year: "The terrorist attacks in Europe and also the increasing political and economic uncertainties are having a tangible impact on passenger volumes. The forward bookings, in particular for our long-haul services to Europe have declined significantly. We expect the high pricing pressure to continue.

"In view of this, and as we recently announced, we expect to report an Adjusted EBIT for the full year which is below the previous year's. This is why we will push on our efficiency increases even more consistently," he declared.

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