News From Air Cargo Industry
Cargolux's Risky Ride
Luxembourg's flag carrier is constantly losing money. Growth should help getting the airline financially back on track. A questionable strategy.
The current cargo markets are not really burgeoning. And it is doubtful if former annual growth rates in air freight of plus five percent will return soon. This might happen on intra Asian routes and in some areas of the Middle East, but the economic perspective for areas such as southern Europe looks rather somber, while the U.S. market doesn't seem to be on a sustainable upswing either.

Having touched these objective conditions, it is interesting to see which individual answers cargo carriers elaborate on to cope with the ongoing draught in air freight to prevent the worst.

One suitable candidate for taking a closer look is loss making Air Cargo Germany. In order to limit its deficit the carrier decided to freeze its fleet. Instead of adding two Boeing 747-400 freighters stemming from its Russian partner AirBridge Cargo, as originally intended and announced last summer, ACG decided to postpone or even bury this project as reaction to the sluggish market situation, high fuel prices and poor rates on most routes.

It’s much bigger competitor Lufthansa Cargo managed to stay in the black last year mainly by reacting extremely flexible to market circumstances. Newly served destinations like Chongqing in China’s hinterland were scrapped after only some months for not meeting the financial expectations. Concurrently, the carrier's freighter fleet made up of 18 MD11 freighters was downscaled by sidelining up to two aircraft to take overcapacity out off the market and prevent a loss-making operation. Thirdly a cost cutting program called ‘Score’ was introduced which is supposed to enable savings of up to 70 million euros until 2015.

Unlike the aforementioned contenders Cargolux prefers a completely different strategy for weathering the current economic storm and getting back into the black in due time. “Our priorities are growth and profitability,” outlines head of communications Martine Scheuren her carrier’s optimistic path for achieving a more promising future. According to this ‘big is beautiful’ approach no capacity reductions or partial trimming of the wide-span network are planned. On the contrary, additional routes have lately been introduced as flights to Dallas/Fort Worth and Port Harcourt in Nigeria demonstrate. “Our Board members and Luxembourg’s government back this strategy,” assures Martine. She further confirms the carrier’s optimistic capacity philosophy by operating simultaneously thirteen Boeing 747-8Fs, once the aircraft are fully delivered by the U.S. plane maker and at least three debt-free Boeing 747-400Fs. The temporary sidelining of freighters as reaction to weak markets does not seem to be an issue.  

Simultaneously to her proclaiming this game plan Cargolux announced a 100 million dollar cash injection in the form of a convertible bond issue. The funding comes from its shareholders Luxair and local banks BCEE and SNCI, with Luxair shouldering 65 percent – the largest portion. The Grand Duchy’s government, which bought back the 35 percent stake formerly held by Qatar Airways paying 117.5 million U.S. dollars, is not allowed to participate in the mandatorily convertible bond. A second tranche of additional liquidity is scheduled for next year.

Finally, no preferred bidder for taking over the 35 percent in stakes formerly held by Qatar Airways has been named. Originally, this selection process was supposed to be accomplished by the end of March. This could be an indication that airlines are not really queuing up for liaising with CV. So plan B might come to the table, indicates a person close to the case: the selling of the share package to a financial investor.
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