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Air CargoAmerican ShipperInternationalNewsTop Stories

Lufthansa Cargo sees 10% capacity cut due to Russia flight detours

Shipping rates increase as Ukraine crisis impacts aircraft utilization, fuel use

The cargo division of German flag carrier Lufthansa anticipates a 10% loss in shipping capacity between Asia and Europe for its own operations and for the industry overall because of sanctions that have closed off direct routes over Russia, CEO Dorothea von Boxberg said Friday.

Russia closed its airspace to European airlines after the European Union denied Russian aircraft access to its airspace and airports in response to last week’s invasion of Ukraine.

Lufthansa Cargo, which operates a fleet of 15 Boeing 777 freighters and manages cargo for Lufthansa’s (DXE: LHA) passenger business and subsidiary Austrian Airlines, is now flying an extra 1.5 to 2.5 hours on a southerly route to avoid Russia and Ukraine. The extra distance requires aircraft to carry more fuel, reducing the amount of cargo that can be carried within the maximum allowable takeoff weight.

The extra fuel required is displacing about 10% of the airline’s available freight capacity by tonnage.

“And we expect that overall in the market that capacity will be about 10% down. That is the sum of Russian carriers not flying at all on Asia-Europe lanes and European carriers having that restriction,” von Boxberg told reporters during a virtual briefing on the unit’s fourth-quarter and 2021 results. 

Asian carriers, she added, aren’t likely to shift aircraft from the trans-Pacific, which is the hottest airfreight market, to make up some of the difference. But there could be some diversion of aircraft from the trans-Atlantic to fill in the gap on the lucrative Asia-Europe trade lane.

Lufthansa’s cargo chief acknowledged that Middle Eastern carriers such as Emirates, Qatar Airways, Etihad and Turkish Airlines have an advantage because they don’t have to adjust their networks, designed to feed their transshipment hubs, and could gain market share. 

Lufthansa is the 15th-largest cargo carrier in the world as measured by cargo-ton-kilometers. Last year it handled 7.2 billion CTK with an average load factor of 71%.

According to Seabury Consulting, direct air cargo capacity between Europe and North East Asia fell 20% last weekend, the equivalent of about nine Boeing 747 freighters and is decreasing further as more carriers cancel flights.

The air cargo sector already was operating at a 10% capacity deficit because of passenger airline struggles recovering from COVID and intense shipping demand before the Ukraine crisis. Russian cargo carriers like Volga-Dnepr and sister company AirBridgeCargo can’t fly to Europe and the U.S. anymore, and Western companies will avoid them in other parts of the world to make sure they don’t run afoul of other sanctions on Russia and because electronic fund transfers will be nearly impossible.

“Airfreight is already a scarce resource and this is making it a little more scarce now,” said von Boxberg.

The extra travel time required to fly more circuitous routes won’t noticeably affect shippers in terms of delivery times considering that the process normally takes five to six days, the CEO added.

Lufthansa won’t apply a war surcharge to shipments, as some carriers reportedly are considering, but will pass on the higher costs incurred because there is a seller’s market and the fleet is less productive and consuming more fuel, von Boxberg said.

Lufthansa Cargo is offering free truck shuttle service with relief supplies for Ukraine and Ukrainian refugees in Europe, and its expedited logistics subsidiary, time:matters, is supporting the delivery of goods to the main government warehouse in Poland. 

Lufthansa Cargo on Thursday reported its best results ever, with revenue up 37.7% to 3.8 billion euros ($4.3 billion) and adjusted earnings before interest and taxes of $1.7 billion, an increase of 93.4%.

In related news, Latvian airline airBaltic announced that it will leave the Russian market until further notice and cancel all scheduled flights to and from Russian destinations. 

RELATED NEWS:

Russia sanctions cut both ways for air cargo

Biden bans Russian aircraft from US airspace

Ukraine crisis creates logistics headaches for air cargo, airlines

Sanctions squeeze Russian carrier Volga-Dnepr, air cargo capacity

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Eric Kulisch

Eric is the Supply Chain and Air Cargo Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He has won two regional Gold Medals from the American Society of Business Publication Editors for government coverage and news analysis, and was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. Eric is based in Portland, Oregon. He can be reached for comments and tips at ekulisch@freightwaves.com