Airfreight is one of the most important sources of income of many Airlines around the world.

Many have subsidiaries for their cargo operations which operate a fleet of aircraft for this sole purpose. Lufthansa Cargo AG (LH Cargo) is one of such carriers and a one hundred percent subsidiary of Deutsche Lufthansa AG. Lufthasa is not only Germanys national airline, and one of the biggest airlines in world, it is also Germanys largest air freight carrier. Lufthansa is known for its high quality service and safety and Lufthansa Cargo AG is no exception. This report will provide the reader with information ranging from Lufthansa Cargos Ags history to its economical and operational facts. The reader will get a good understanding of the company and its performance in the interesting Global market and the air freight industry. The sources used for this paper consist of peer-reviewed articles, corporate web sites and published annual reports. The information is up to date and was retrieved from trustworthy and industry recognized sources. It is very interesting to note that Lufthansa transported 258 metric tons of cargo in its founding year of 1926, which was long before Lufthansa Cargo AG was established in 1994. According to Lufthansa, they were the first company to use the Boeing 747 freighter version in April 1972. In 1977 German Cargo Services (GCS) were founded, and were to become the predecessor of LH Cargo AG, with its fleet of Boeing 707-330Cs and on demand charters of B737s, 747s and C130 Hercules (History, 11/9/2009). LH Cargos original and still active cargo center (LCC) opened its doors in 1982. Back then, it was the most advanced and biggest cargo transshipment center in the world. In 1990, Lufthansa decided to buy a five percent share of DHL Express Carrier, in order to expand their product range. This investment was Lufthansas (GCS) first expansion into other markets. In 1991 they began cooperating with the Deutsche Post to offer same day delivery services between German cities. In the same time frame they also

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acquired seven B747 and two B737 freighter planes. In 1992, a new Cargo terminal opened at Munichs Franz Joseph Strauss airport, increasing the companys total transshipment capacity to over 251,000 tons. On November 30th, 1994, Lufthansa Cargo AG became an autonomous company as the result of the growing importance of air cargo as an independent business (History, 11/9/2009). Today the company uses a fleet of nineteen modern and efficient MD11 aircraft that are equipped with state of the art glass cockpits and navigation equipment. The aircraft is a new version of the DC10 which proved to be a very successful design. Besides a new cockpit the MD11s improvements include winglets for better economy, an improved tail section and a stretched fuselage (Frawley, Gerard, 10 Nov 2009). The company reacts to changes in demand by either leasing more aircraft or by storing the ones not needed until the demand increases again. Besides its own fleet, the company uses the entire DLH fleet, and its belly carrying capacity, for their mission (Annual Report 2008, 9. Nov 2009). Lufthansa Cargo adopted its mission statement in 2002 to address the changing market environment in order to secure their market share as one of the top airfreight carriers in the world. A major part of this change addressed total quality management to provide customers with premium air cargo services. The second important improvement addressed airport to airport operations. According to Lufthansa, their key to success is a high quality product, strategic alliances, operational perfection, and flexibility (Lufthansa Cargo AG posts record profits, 11/10/2009). Currently the airline proves their strategies by holding a seven percent market share as of 2008 (Janes, 7/21/2008) In 2002, LH Cargo intensified its strategic alliance with DLH express from only European overnight express services to an additional five inter-continental routes. Both

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Companies recently started operations with their subsidiary Aero Logic GmbH employing a modern fleet of B777-200 LRF long-range freighters. The companys hub is Leipzig Halle in eastern Germany. In 2004 they further became co founders of Jade air Cargo International, which operates a modern B747-400 LRF fleet out of China (6). It is interesting to note that the industry calls this development the biggest alliance between an air freight carrier and a logistics and express service provider in the history of aviation (3). The Business Partnership Program was founded in 1997 and marks yet another mile stone in the history of LH Cargo AG. After the success of their first alliance with DHL in 1991, the company saw the possibilities in such alliances. One of the parts of this program are eleven so called Global Partners which act as global forwarders of LH Cargo AG shipments. The program further consists of a number of local Business Partners that have adapted their business processes to LH Cargo AGs operations. One of the main advantages of these partnerships is the increased efficiency and the improved service that is offered to the costumer. It is a value adding strategy in order to increase attractively to the costumer and increase competitiveness with other providers. According to Janes World Airlines (2008), LH Cargo AG created a new era of cooperation between airlines and freight forwarders. In 2000, the company formed its first alliances with other airfreight and cargo airlines when it founded WOW together with Singapore Cargo and SAS Cargo. Two years later, in 2002, JAL Cargo joined the program increasing the number of employees to over 7,700 people that constantly work together with their linked and standardized IT system to provide a better experience to the costumer. The alliance increased the members offered destinations to over 530 in 103 different countries. A dedicated fleet of 45 state of the art freighter aircraft and an

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additional 883 regular passenger aircraft with belly hold capabilities are used to meet the increasing demand. According to Janes World Airlines (2008), LH Cargo AG also cooperates with other airlines including Lan Cargo, Air China Cargo and Swiss World Cargo. Similar to its other alliances, the main is to make the company more expand into other markets in order to secure market share and to therefore increase the companies bottom line. In order to improve the overall costumer experience LH Cargo AG created a number of spin offs that are hundred percent subsidiaries. Some of these companies are the LH Cargo Charter, responsible for charter operations, time: matters, a quality express courier and Handling Counts GmbH that specialized on ground handling operations (Janes, 21July 2008;Annual Report 2008, 9. Nov 2009). LifeConEx is an example of a fifty percent joint venture between LH Cargo and DHL. The company specialized on transporting temperature sensitive goods. (Annual Report 2008, 9. Nov 2009) LH Cargo is constantly searching for new opportunities to enter into new opening and highly profitable markets. Asia is one of such markets and therefore very attractive for the company. The company invested into the Shanghai Pudong International Airport Cargo Terminal (PACTL) and currently owns 29% of it. The company also holds a 50% share of the International Cargo Center Shenzhen (ICCS) which is another example for LH Cargo AGs successful attempt to position itself in the booming Asian market (Annual Report 2008, 9. Nov 2009). Lufthansa Cargo operates Worldwide from its three major hubs, Frankfurt, Munich and Leipzig, Germany. Frankfurt is the most important hub for global operations, and LH Cargos major Cargo Center. The facility is called Cargo City Nord (north), recently Cargo City Sd

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(south), a new Cargo Center, opened its doors with its 20,000 m hall space. This addition to the Frankfurt location is supposed to ensure the status of Frankfurt being the most important cargo hub in Europe. Munich offers a high amount of bellyhold traffic and is considered very important with its over 90 continental and 20 intercontinental destinations. Leipzig is a very modern hub and is seen very important for long term planning and investments, Lufthansa declared further development of the location. (Annual Report, 9. Nov.2009) Additionally to the new Cargo Center, LH Cargo just opened an animal station In Frankfurt, they call it the Frankfurt Animal Lounge. The most advanced animal station worldwide set new standards in animal transportation and offers 3,750 m of floor space in a total area of 7,150 m and is used exclusively by LH Cargo. (Annual Report, 9. Nov.2009) As an answer to the IATA initiative Simplifying the Business, LH Cargo is the leader in efreight, a completely paperless computer based air freight operation. Long before this, LH Cargo launched td.Services, a time definite service that lets the client choose a time window that determines when the freight can be dropped of at LH Cargo and when it can be picked up at its destination.(Cooperate Profile, March 2009) Another very nice service offered is eBooking, it allows costumers to book electronically over LH Cargos web site. They also offer three additional ways of booking electronically, Global Fright Exchange (GF-X), electronic data interchange (EDI) and Cargo Portal Services (CPS) that allows shippers to book directly via their own handling software. (Cooperate Profile, March 2009) Like stated earlier, Lufthansas main market is Asia, followed by North America, Europe, Middle/South America and last but not least Africa/Middle East. The Graphs below show traffic volumes against traffic revenues taken from the Annual Report of 2008.

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Traffic Volumes

Freight tonnage in thousand tonnes

Series1, Series1, America, Europe, 634, 483, 29% 37%

Series1, Africa/Middle East, 114, 7% Series1, Middle/South America, 240, 8% Series1, Europe, 331, 12% Series1, Africa/Middle East, 230, 8%

Series1, Asia/Pacific, 465, 27%

Traffic Revenues 2008

In millions of Euros
Series1, North America, 686, 25%

Series1, Asia/Pacific, 1299, 47%

These two graphs clearly show how important the Asian market is and how much more revenue is recorded even though the tonnage is biggest in Europe. The reason for this is the higher revenue from transcontinental routes and the cargo hauled. The European market consists of a lot of air mail while the overseas market to Asia consists of high value shipments that are more profitable. (Annual Report, 9. Nov.2009) According to the Annual Report, the financial year was a success. Facing the enormous fuel price increases and economic crisis, LH Cargo could still hold its own very well. The operational

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profit was even increased to 164 mil Euros compared to 136 mil Euros of the previous year. (Annual Report, 9. Nov.2009) The following two graphs will show the operating expenditures against the sales revenues of 2008, they are important indicators for financial situation of LH Cargo.

Operating Expenditure
in mil Euros

amount

year

Sales Revenues
in mil Euros

amount

year

From These two graphs we can clearly conclude that Lufthansa has a positive result of 184,547 million Euros in 2008. In 2007, they had a gain of 156,357 million Euros, this proves the positive outcome of 2008.

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In order to understand the cost structure of Lufthansa Cargo, the pie chart provided below, shows the operational expenses of 2008. Operational Expenses

Sales, in mil Euros Depreciation, 123, 5% Sales, Personnel, 327, 15% Sales, Charter, 923, 41% Sales, Fuel, 573, 26% Sales, Fees, 291, 13%

Depreciation Personnel Fuel Fees Charter

We can clearly see the high amount of charter expenditures that are due to a big amount of Lufthansa passage airplanes being used for freight and mail transportation. (Annual Report, 9. Nov.2009) Fuel is the second biggest cost and constantly due to the high fuel prices. Labor accounts for 327 million Euros and is a high variable cost, nevertheless it should be mentioned that it decreased from 335million Euros in 2007 due to internal management decisions. Depreciation is the result of the aging fleet and showed a decrease compared to 2007. Last to mention are fees, they consist of landing and clearance fees and also decreased compared to the previous year. Overall the expenditures increased compared to 2007 mainly because of the increasing fuel cost. (Annual Report, 9. Nov.2009) Lufthansa Cargo AG employs around 4,655 people (December 2008), these people are the companies most important asset. The four highest positions in the company belong to the executive board and its members. Carsten Spohr, Chairman of the Executive Board, Dr. Roland Bush, Board Member Finance and Human Resources, Karl-Heinz Kpfle, Board Member Operations and Dr. Andreas Otto, Board Member Product Sales. At this point it is important to

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mention that the companies employees are members of the Ver.di Union and tariffs are therefore protected in terms of salary. (Annual Report, 9. Nov.2009) Major Challenges facing Lufthansa Cargo are the increasing fuel prices and an always increasing intra modal competition. Economic crisis like the current one are harming most businesses, Lufthansa Cargo nevertheless looks into the future very positively, mentioning the growing medium and long term demand of air fright. They expect the current year 2009 to present the greatest challenge for many years for the company and its employees. (Annual Report, 9. Nov.2009) III) Highlights of 2009 are the launch of AeroLogic GmbH and the inauguration o of Cargo City Sd. Lufthansa is looking into the future with great confidence and mentions to continue investing into its long term security planning. They further want to continue developing innovations with their dedicated employees, professional partners and strong costumers. (Annual Report, 9. Nov.2009) Conclusively it can be said, that Lufthansa Cargo AG is a very healthy company ,that will continue to operate with great success and probably keep its outstanding position in the global air fright world.

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Bibliography

1) History Lufthansa Cargo , n.d. Web. 9 Nov. 2009. <http://www.lufthansacargo.com/history/history.html>. 2) "Lufthansa Cargo AG posts record profits." Archive News Lufthansa Cargo, 2002. Web. 10 Nov. 2009.http://www.lufthansacargo.biz/content.jsp;jsessionid=6BA94442D18118EBEE3323 5C6BAEBDF3?path=0,1,19141,19155,61007,68742&bhcp=1>. 3) "Cooperate Profile." Lufthansa Cargo, Mar. 2009. Web. 9 Nov. 2009. <http://www.lufthansa-cargo.com/content.jsp?path=0,1,19142,91382,99001&bhcp=1>. 4) "Lufthansa Cargo AG." Janes World Airlines N.p., 21 July 2008. Web. 9 Nov. 2009 5) Annual Report 2008." . Lufthansa Cargo AG, n.d. Web. 10 Nov. 2009 6) Frawley, Gerard . "MD-11." Airliners.net Airliners.net, n.d. Web. 10 Nov. 2009. <http://www.airliners.net/aircraft-data/stats.main?id=112>.