European airlines have long grumbled about what they perceive as unfair competition from Middle Eastern carriers supported by their oil-rich governments — something the European Commission hopes to tackle in ongoing efforts to revise EU aviation competition rules known as Regulation 868.
It’s not just an issue for passenger airlines, as cargo carriers also feel they’ve been edged out by Middle Eastern competitors.
“This has cost a lot of jobs and money in Europe to the honest carriers. We are looking forward to fair regulation,” Peter Gerber, the CEO of Lufthansa Cargo, told POLITICO during a visit to Brussels this week to meet MEPs.
Gerber was bullish about the state of the air freight business as the global economy accelerates, and the e-commerce boom sends even more just-in-time cargo by air.
This transcript has been edited for length and clarity.
Lufthansa had a good year in terms of commercial aviation last year. How has the last year been in terms of cargo?
We had a good year. We came out of a serious slump at the end of 2015 and especially the first half of 2016. These have been terrible times with dropping prices, a lot of problems and restructuring efforts at all the major carriers. But this picked up again in the summer of 2016. We now see an increasing demand [for the] cargo business and the market is still strong.
What is the main reason for the growth?
One major reason is trade volumes, but when it comes to long-term and stable trends, we see emerging middle classes in the northeast of Asia and India, with a huge demand for goods. They are brought up with the internet and they know [how to] source a lot of things in Europe and in the U.S. They don’t want to wait six to eight weeks — which is the time if you take it by ocean freight — so the only real possibility to get goods within three to five days is air freight.
At the same time, the Chinese government is looking at railways to get more freight into Europe.
Yes, but the volumes of those railway possibilities are very small. At the moment, 98 percent of the volume of freight is done via ocean freight, and air freight is just 2 percent. But when it comes to value, 30 percent of valuable goods are transported via air freight. Rail is more a competition to ocean freight.
There are more issues threatening aviation such as capacity as big airports reach their limits. Will that be a challenge?
It will, it’s a challenge to the whole industry. We are on the eve of a capacity crunch. There are a lot of big airports that don’t have space any longer. One example is [Amsterdam] Schiphol, where there are no slots any more. We have problems in Paris, in Tokyo and Shanghai, and it’s not that easy in Chicago and Frankfurt. For the moment it’s still OK, but it can become a problem in the next two to three years. We can’t really look into alternatives such as smaller airports. Our business is about speed and quality, and by going into smaller airports we lose a lot of time and money.
The European Commission wants to protect commercial aviation from unfair competition by third countries. Does that have an impact on Lufthansa Cargo?
Yes, the same as on the passenger side, we face the same problems. It’s a question of unfair competition, there are subsidies and state support [in third countries]. We are looking for better regulation. There have been many cases over the past 10-15 years where EU legislation did not work. Of course the [Gulf states] overtook companies, controlled them and paid subsidies: but we couldn’t do anything about it.
This has cost a lot of jobs and money in Europe to the honest carriers. We are looking forward to fair regulation. We all want to compete worldwide, and we are able to do this, but regulation has to be fair. European institutions now understood the problem, and they are doing a good job. Our export industry lives on fair and free trade and we have to ensure that this lasts. It created a lot of jobs, a lot of perspectives for Europe.
But at the same time, has Lufthansa increased its cargo presence in third countries such as China?
Yes, we have in China. It’s difficult in the Middle East, because there is no business, but we are nearly the biggest carrier in China, and also in the U.S.
What impact with the boom in e-commerce had on air cargo?
It’s difficult to say, but I see the business accelerating. There will be another crisis or slump, but when looking at developments in Asia, I don’t see a point where it [cargo] does not work any longer. There is a huge demand, and it’s much bigger than the terms that we used to think in. So I don’t see limits.
Lufthansa is interested in buying a restructured version of the struggling Italian carrier Alitalia, what would that mean for your cargo presence in Italy?
The Italian market is one of the most interesting cargo markets in Europe. Lufthansa used to be big in Italy — we were the No. 1, but then Emirates and others came in. In the past year we were No. 1 again.
This article first appeared on POLITICO.EU on Jan. 25, 2018