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Cargolux charts route to profitable future

By control on February 8, 2013

Troubled freighter operator Cargolux has agreed a new five-year strategy–in effect a survival plan–but is bracing for a battle with its unions over labor costs and proposed changes to the company's collective work agreement. The union will respond formally in March to the labor element of the cost-cutting plan, but is known to be unhappy about the lack of consultation, and has said the collective agreement cannot simply be rewritten.

Cargolux cut $60 million of costs last year, but did not look at its labor costs. The new plan involves further cost reductions of $10 million this year, rising to $40 million in 2017.

Meanwhile, the airline will receive a $100 million capital injection this year, with a a further $175 million to come in 2014.

In an in-house interview issued by Cargolux, chairman Paul Helminger said, "We now have clarity about where we want to be five years from now and how we will get there.

"The airline will be able to draw on a considerable amount of fresh capital – $100 million being the initial tranche – which will allow Cargolux to be sufficiently funded to start implementing its strategy."

However, the carrier is planning no radical change of strategic direction. "I believe the Cargolux business model has proved its worth. We will maintain and optimize this model by further strengthening its three pillars–high load factors, good yields and high daily aircraft utilization–on which Cargolux has usually been able to achieve above-industry results," Helminger said.

"There has been talk about giving up our single-type fleet in favor of the B777F. Such a move would merely add to the cost of our operations. Our core fleet of new, more economical B747-8F will allow us to capture the full value of Cargolux’s strengths while keeping several debt-free B747-400Fs in the fleet will add flexibility to our capacity. Equally important though, we must focus on our cost reduction targets and achieve a maximum degree of flexibility if we are to meet our business plan objectives.

"According to the strategy and based on a moderately optimistic growth outlook for the air cargo market of about 4.5 percent, Cargolux is expected to show slightly higher than market growth and hopefully post a full-year profit in 2014."

However, hinting at possible labor disputes ahead, Helminger said, "I truly hope that this sign of trust will instill a common sense of purpose in the everyday effort of all Cargolux employees.

"They should understand that competitiveness and flexibility is the key to success in the future. If we want to become more competitive, we must reduce our cost by becoming more agile and more efficient, which is also a condition to maintaining unchanged the number of employees throughout the 2013 to 2017 period according to the strategy plan."

Referring to the 35 percent stake in Cargolux that the Luxembourg government took back from Qatar Airways, Heiminger said, "The Government had announced its intent to relinquish temporary custodianship after a period of six months. Several potentially interested parties have stepped forward. There is no favorite investor yet. What matters most is that we work in close cooperation with the government to evaluate the investor interest and maximize the added value they can bring to Cargolux and the Luxembourg logistics industry."

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