Lufthansa Cargo predicts a year of volatility, growth and space constraints

Lufthansa Cargo is predicting that the air cargo market will grow in 2025 despite market volatility fuelled by geopolitical events while capacity is expected to come under pressure.

Speaking during a webinar, Heike Woerner, senior director business development, said the Frankfurt-hubbed airline is expecting cargo demand to increase by between 3-5% this year, fuelled by expectations of 3.3% economic growth and emerging markets improvements, such as Vietnam and India, where GDP is expected to increase by 4.3%.

Meanwhile, e-commerce demand growth will also continue to contribute to market improvements. Woerner pointed to figures showing that e-commerce volumes heading into Europe have been growing by around 12% per year.

Meanwhile, pharma volumes are expected to increase by 3.3% per year based on an aging population, and high-tech shipments, such as semi-conductor-related cargo, are expected to improve by more than 3%.

However, Woerner acknowledged that there were also challenges ahead. 

"We are currently experiencing a very volatile economic and political environment in the industry,” she said. "There are a lot of changes happening almost every day, but the air cargo industry has always been volatile.

"If you look at the last five years, we have witnessed skyrocketing demand during the coronavirus pandemic and shrinking levels post-pandemic, so there are a lot of changes anyway in our industry but these times are very dynamic.”

She pointed out that geopolitical events continued to create uncertainty in the market, while European carriers continued to face airspace restrictions over Russia, which increased costs and flight duration.

There are also economic uncertainties and rising protectionism with the US adding tariffs and countries adding counter measures in response, as well as regulatory challenges around e-commerce.

"This [e-commerce] is a continuous development but we also see there might be some regulatory changes coming up - the EU has a big customs reform coming in 2028 and obviously there is a limit on the capacity of what authorities can handle in terms of inflow of e-commerce trade," Woerner said.

She added that at present the EU processes around 10m parcels from China every day.

However, she also pointed out that these challenges created opportunities for airlines that can be flexible with their networks to capitalise on emerging opportunities.

"Even though we have these uncertainties right now, I think it is a good idea to observe that first, to keep calm - the air cargo industry is used to volatility and some opportunities may arise from that volatility if there is demand for a fast and reliable solution," Woerner said.

Woerner gave the example of manufacturers moving production to new locations in countries such as Vietnam - a trend that started with the first US-China trade war in 2018/2019 and has continued to accelerate.

The ability to launch customised solutions for fast-growing sectors would also benefit airlines, she said.

She pointed out that last year, lufthansa Cargo had launched operations from Ho Chi Minh City (SGN) in Vietnam to Los Angeles (LAX) in the US to capitalise on growth on that trade.

Looking at which trade lanes are expected to grow fastest this year, Woerner highlighted intra-Asia, Asia Pacific-Middle East, Asia Pacific-Europe, Middle East-Europe in both directions, and Africa-Europe.

Overall, there would be varying performance between markets, she said.

"In general, the global economy is still growing but we have different developments," she said. "For example, Germany and the European market have stagnating growth rates, while we see a lot of growth in Asia, for example Vietnam with 20% export growth in the last year, which is quite significant. So we see different dynamics in different markets."

In terms of yields, they were up 13% year on year in January fuelled by rising costs, inflation as well as strong demand and constrained capacity.

On the capacity front, Lufthansa Cargo is expecting ongoing constraints.

Woerner said that widebody freighter capacity is only expected to grow at around 2% per year running to 2030, while widebody belly capacity currently remains around 19% down on 2019 levels.

The freighter fleet was also continuing to age, with 30% of in-service freighters now more than 30 years old.

Meanwhile, production freighters face ongoing challenges, with limited production Boeing 777 freighters added last year due to supply chain issues, while the launch of the new Airbus A350 freighter and Boeing 777-8 freighter have both been pushed back.

To cope with the current market volatility, Woerner said that Lufthansa Cargo would continue to cater to traditional air cargo selling points of speed, reliability and high security standards but would also promote the rising air cargo requirements of a global reach and network flexibility.