Capacity inflation, market fragmentation, and price battles: Customers benefit while most airlines groan under unfavorable market conditions. Alliances were the answer on the passenger side years ago. But the air cargo business is different and benefits for customers are harder to realize. Lufthansa Cargo strikes out in new directions with the first close bilateral cooperation with ANA.

The air cargo market is highly fragmented: The top ten players share less than 25 per cent of the worldwide revenue ton kilometers (RTK). Each large belly of a new widebody passenger aircraft and each new freighter increase the capacity and puts pressure on rates. This is a growing challenge for air cargo carriers. Even worse from the customers’ perspective inefficient interlining, the lack of standardized processes, and a so far largely unmet need for digitization make it hard to realize benefits. The situation resembles the passenger business twenty years ago. In the 1990s, in reaction to the fragmentation characterizing the passenger airline market alliances began to emerge. Today we can observe a similar trend in the airfreight business. Carriers are beginning to cooperate in various ways: bilaterally or multilaterally, globally or with a regional focus, realizing cost synergies, and even sharing revenues provided that anti-trust immunity was granted.


ANA and Lufthansa Cargo: the world’s first cargo joint venture with deeply integrated processes

We as Lufthansa Cargo see cooperations as an integral part of our “Lufthansa Cargo 2020” strategy further promoting our position as industry leader. We believe bilateral cooperations are the most promising way to join forces. Together with ANA we launched the world’s first cargo joint venture with an unparalleled depth of process integration in December 2014. By combining our freighter and belly networks and the strengths of both our sales teams our customers can benefit from the power of “together”. Based on the concept of “metal neutrality” customers have access to the wide European and Japanese feeder networks of Lufthansa and ANA as well as the intercontinental flights of both partners connecting Europe and Japan. Through the enlarged joint network, an increased number of direct flights, and co-located handling facilities customers can save hours of valuable transportation time. In addition, aligned sales activities and harmonized products and processes ensure enhanced quality and flexibility.


Why we prefer the bilateral model to a “Cargo Star Alliance“?

The bilateral approach was a deliberate decision. Some may still remember: In March 2002, Lufthansa Cargo, SAS Cargo, and Singapore Airlines Cargo announced they were planning to offer a joint general cargo service through their “New Global Cargo” alliance. “WOW” was born: a “cargo copy” of the Star Alliance. However, WOW never flew very high. With critical hindsight we have to acknowledge that on the one hand we were too many players: Four former competitors pushing and pulling in too many different directions and bound by too many restrictions especially on the legal side. On the other hand there was too little joint commitment, alignment, and most important too little customer benefit. Despite more capacity in a bigger network as well as harmonized products the lack of IT alignment and process integration never allowed for adequate response times.


Flying Cargo is completely different than flying passengers

The first truth that must be recognized is that the cargo and passenger businesses are fundamentally different. Passengers “load” themselves; cargo requires sophisticated ground handling. Passengers are more or less homogenous in size and weight - cargo is not; passengers can be pampered with on-board services and frequent flyer programs; shipments do not benefit from on-board wifi and lounges. In consequence the benefits of a passenger alliance can hardly be transferred to the world of cargo.

Therefore, we have chosen the approach of a close bilateral integration with ANA.
Our customers appreciate the increased benefits:

“It is great […] for us to have just “one stop shopping” […] as it could simplify our business”;
“Through the joint venture we now have more opportunities to access capacities we need owing to significant capacity increase from JP to EU including direct point to point service”; or
“I am very much satisfied with the set-up of the joint ventures for the easiest access to various EU destinations”;

are just some of the feedbacks we have received from our Japanese customers. In the first months since the beginning of our cooperation we have already had several hundred cross-bookings on our mutual partner flights. It’s a challenge but we have made and mastered the first steps!


First positive results and a second partner

It is hard work to overcome legal, cultural, and process issues but with the right partner we are on a good way forward. Positive results are already beginning to materialize.

And watch this space: In December 2015, we were able to announce an additional planned cooperation with United Cargo. Together we will create a more efficient and comprehensive transatlantic network. The implementation is subject to finalization of the commercial agreement and compliance with all existing EU and US regulations and governmental approvals.

Bernhard Kindelbacher
Lufthansa Cargo