DHL Express plans to cancel its transatlantic cooperation agreement with Lufthansa Cargo and launchflights with its new B767 freighters instead, CEO John Mullen told CEP-Research in an in-depth
interview. The operator will also shortly announce whether Seoul or Shanghai will be its new NorthAsia hub, he said on the sidelines of yesterday’s Deutsche Post World Net annual pressconference.Under an agreement running until 2009, DHL Express has contracted capacity on Lufthansa Cargoflights from Europe to its US hub at Wilmington, Ohio. But it recently placed a EUR 680 millionorder for six, wide-body B767-300 extended range freighters, explaining that they were primarilyfor re-fleeting in the USA.
Following press conference comments about a possible end to the transatlantic cooperationwith Lufthansa Cargo, Mullen told CEP-Research: “We are unlikely to renew the agreement in itspresent form.” The current agreement was working well but was too inflexible since it committed DHLExpress to fixed capacity on a long-term basis and prevented it from reacting to changing marketconditions, he explained.
Instead, DHL would use the B767 freighters for transatlantic flights, although these might beleased back to Lufthansa Cargo to operate. “If we use our own aircraft, we can move them arounddepending on the market conditions,” Mullen commented. This would reduce DHL’s fixed financialrisk. DHL Express might also operate some direct flights to key US cities in order to offernext-day delivery from Europe to the USA rather than second-day delivery as at present, Mullennoted.
But DHL Express has no plans to change the separate agreement with Lufthansa Cargo for Europe– Asia flights using the latter’s MD-11 freighters, Mullen emphasised. Lufthansa Cargo wouldrelocate sufficient aircraft to the new DHL Europe hub at Leipzig for Asia flights once this wentinto operation, he said. DHL Express cooperates closely with US airline Polar Air Cargo andMalaysia’s Transmile for Asia and transpacific capacity.
On DHL Express’ new structure since last autumn, Mullen stressed the importance of having asingle management to run the worldwide network-based business, ensure central control and speed updecision-making. Previously there had been “no clear leadership”, he commented.
In 2006, DHL Express had EBIT of EUR 325 million on turnover up 2.2% to EUR 17,195 million(adjusted for the transfer of DHL Freight to Logistics). For 2007, DHL Express aims to increaseEBIT to more than EUR 500 million, excluding EUR 100 million of extraordinary costs for the Leipzighub. Mullen said he hoped for revenue growth “several times” the rate of 2006. “We want realorganic growth. We have not had real organic growth in express for several years,” he commented.
In Europe, its major market, DHL Express revenues stagnated at EUR 10,106 million last yearbut earnings improved to an undisclosed level due to higher profits outside Germany. “We havestopped the losses in market share,” Mullen said. Top performers were Benelux, Spain and Italy. TheUK made “reasonable” profits although not at the level they should be in view of the market’s size,but Mullen said he was optimistic for higher results there this year.
Germany had been transformed from an under-performer to a top performer with the transfer ofthe domestic parcels business from the express to the mail division as of January 2007, Mullensaid. “It’s a win-win. Parcels came from post and never really fitted into express. They have nowmoved back to mail, and I think they will benefit from that. What we are left with is a smallerbusiness with high returns that is growing well,” he commented.
The loss-making French express business, however, which had been hit by the poor integrationof five different companies, would remain in the red until 2008, Mullen said. “It’s a long, slowroad. We won’t make money there this year or next year.”
In the Americas, DHL Express revenues dropped by 1.9% to EUR 4,379 million last year. The USlosses “did not improve year-on-year” due to a poor first half-year but “we have stopped the fall”,Mullen said. DHL hiked US prices at the start of this year following the price increases of UPS andFedEx. The target is to reduce the US losses “quarter by quarter, half-year by half-year” until theplanned breakeven in 2009.
Asia, in contrast, is performing “exceptionally well”, Mullen said. “Asia will overtake inthe US in 2-3 years,” he predicted. Revenues rose 12.9% to EUR 2,443 million in 2006, with growthrates of over 17% in markets such as China and India. DHL Express would continue to expand itsdomestic services in China in the coming months with more investment. In India, which he describedas a “jewel”, DHL subsidiary Blue Dart would continue to operate under its own strong brand “forthe moment”.
Asked whether DHL Express had yet decided to locate its planned North Asia hub in Seoul orShanghai, Mullen said that there would be an announcement on this investment very soon.
