March 25 (Bloomberg) -- Deutsche Lufthansa AG, Europe’s second-largest airline, plans to increase operating profit at its freight operations to a record next year as new planes come into service and competitors curtail cargo hauling.
Lufthansa Cargo stands by a pledge for operating profit at to top the previous record of 310 million euros ($428 million) generated in 2010, it said today. New Boeing Co. 777 freighters will reduce operating expenses, while yields, a pricing measure, are stabilizing, Karl Ulrich Garnadt, the unit’s chief executive officer, said in Frankfurt. Operating profit will have a “significant jump” this year after falling 27 percent to 77 million euros last year, he said.
A reduction in operating expenses by 6.6 percent last year wasn’t enough to counter a drop in revenue of 9.2 percent. Cutting costs and increasing revenue under a group-wide efficiency program contributed 73 million euros to profit last year, and will add 70 million euros this year.
Carriers including World Airways Inc., Air Cargo Germany GmbH and Frontier Airlines folded, filed for bankruptcy or ceased freight flights last year as stuttering economic growth led to overcapacity. The glut was heightened by additional belly space in wide-body passenger jets entering service with Gulf operators. The worldwide fleet of freighter planes declined by 3 percent to 4 percent last year, Garnadt said.
“We expect a market recovery, we see the results from our efforts on the cost and revenue side, and we see a selection process in the market with some competitors choosing to no longer compete,” the CEO said in an interview. “That gives us optimism for our financial targets.”
Lufthansa aims to boost volumes by as much as 5 percent this year, and will name a cooperation partner from the cargo industry by the middle of the year to share freight space, with another one to follow next year, Garnadt said.
“Competitive pressure is very high” for standard freight shipments, he said in the interview. “Market participants with a global network have a much better chance to compete successfully, and we seek to differentiate ourselves by the quality and depth of our offering.”
The cargo operations of Air France-KLM Group, which has said it will reduce its freighter fleet to 10 planes by 2015, had an operating loss of 202 million euros last year.
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