Lufthansa Cargo confident about future after 58% earnings loss

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Lufthansa Cargo's operating profit fell 58% to €104 million in 2012, while it cut back capacity by around 8% as demand declined in all major markets. But the German freight operator expects a return to growth in the second half of the current year.

Sales at the Frankfurt-based carrier were down 8.7% to 2.69 billion ($3.47 billion), and the operating margin more than halved to 3.9% from 8.5% in 2011.

But given the "extremely difficult" market conditions in 2012, chief executive Karl Ulrich Garnadt still called the performance "very respectable" during the airline's 2012 financial results presentation in Frankfurt on 21 March.

Freight and mail volume dropped 8.5% to around 1.7 million tons, with the Asia Pacific region showing the largest declines at about 12%. Tonnage fell 10% in the Americas, while Europe recorded a slide of 5.7%.

Lufthansa Cargo cut overall capacity by 8.2%, with the largest reductions taking place in Asia Pacific and Europe at 13% and 14.5% respectively.

Total capacity stood at 12.5 million freight-ton-kilometres in 2012, after 13.6 million during the previous year.

Garnadt says that the company decided to cut capacity further than the drop in demand in order to maintain a high load factor, which remained virtually unchanged at 69.6%.

As a result of the capacity cuts, Lufthansa Cargo lost market share. But Garnadt says that achieving an operating profit was more important than buying market share at a loss.

Market demand is expected to increase slightly in the second half of 2013 and to gather further momentum next year.

Garnadt foresees the carrier's capacity to grow around 1%-2% later this year as traffic to China, India and North America is set to increase.

For the current year, Lufthansa Cargo targets an operating profit above the 2012 result.

The airline also revealed that it aims to increase its earnings by at least €70 million over the 2011 result until 2015 as part of the parent group's 'Score' efficiency programme.

Given the carrier's earnings of €249 million in 2011, this would mean a 2014 operating profit of at least €319 million, based not on one-off effects but sustained cost savings and revenue improvement initiatives.