Lufthansa Adds Freighters in Flat Market to Face Gulf Threat

Deutsche Lufthansa AG, Europe’s second-biggest airline, will boost cargo capacity as much as 5 percent next year as it operates four new Boeing Co. 777F freighter planes while retiring only two older MD-11 models.

Lufthansa Cargo will add a second 777F next month after taking the first today, plus two in 2014, Karl Ulrich Garnadt, the unit’s chief executive officer, said in Frankfurt. The jets will debut on U.S. flights and serve Asia routes from next year.

Lufthansa is adding aircraft with the air-cargo sector still struggling to regain lost ground after the 2008 slump in a bet that new planes will keep it competitive as passenger-jet orders from Gulf rivals add huge volumes of belly capacity. Its cargo unit has five 777F’s due for delivery through 2015, with options for five more that can be converted from next September.

“It’s no surprise that global freight markets have developed weaker than anticipated this year,” Garnadt said at a press briefing on the new model at Lufthansa’s main hub, adding: “We will see a return to growth next year.”

Lufthansa is spending 2 billion euros ($2.7 billion) on the 777Fs, an expanded cargo terminal and a move to digital platforms by 2020. The new planes can carry 103 metric tons of freight, versus 90 tons on its Boeing MD-11s, of which there are 18 in the fleet before the two retirements due next year.

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“In a world where cargo markets have not grown for four years, this investment is a sign of trust in Lufthansa Cargo and its operations,” group CEO Christoph Franz told reporters.

While Mideast operators led by Dubai-based Emirates are adding belly space and freighters, the stuttering economy that led Air Cargo Germany GmbH to fold in March and prompted Denver-based Frontier Airlines to cease freight flights at the end of September should ease overcapacity, Lufthansa reckons.

“We’ve heard the Gulf carriers ordering hundreds of new planes, and we’re often asked how we plan to deal with this,” Garnadt said. “Yes, the cargo industry is under pressure. But the market is just beginning to separate winners from losers. We are among the few companies that will keep making profits.”

The executive added that new planes won’t guarantee success amid the heightened competition, and that Lufthansa’s cargo unit also needs innovation and improved service quality.

Lufthansa Cargo, which gets about half its business from freighters and the rest from passenger aircraft, said Oct. 31 it would offer 6 percent more cargo capacity this quarter, while raising carriage prices. The parent company said Oct. 22 that full-year operating profit would probably fall short of analyst estimates, blaming weaker cargo operations, together with restructuring costs and the strong euro.

Garnadt reiterated that the freight division is looking to partner with other airlines, and said the first such accord will be announced next year, without providing details.

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