nterview - DHL Express to fly transatlantic, says CEO
Picture: DPWN/John Mullen DHL Express plans to cancel its transatlantic cooperation agreement with Lufthansa Cargo and launch flights 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 North Asia hub, he said on the sidelines of yesterday’s Deutsche Post World Net annual press conference.
Under an agreement running until 2009, DHL Express has contracted capacity on Lufthansa Cargo flights from Europe to its US hub at Wilmington, Ohio. But it recently placed a EUR 680 million order for six, wide-body B767-300 extended range freighters, explaining that they were primarily for re-fleeting in the USA.
Following press conference comments about a possible end to the transatlantic cooperation with Lufthansa Cargo, Mullen told CEP-Research: “We are unlikely to renew the agreement in its present form.” The current agreement was working well but was too inflexible since it committed DHL Express to fixed capacity on a long-term basis and prevented it from reacting to changing market conditions, he explained.
Instead, DHL would use the B767 freighters for transatlantic flights, although these might be leased back to Lufthansa Cargo to operate. “If we use our own aircraft, we can move them around depending on the market conditions,” Mullen commented. This would reduce DHL’s fixed financial risk. DHL Express might also operate some direct flights to key US cities in order to offer next-day delivery from Europe to the USA rather than second-day delivery as at present, Mullen noted.
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 would relocate sufficient aircraft to the new DHL Europe hub at Leipzig for Asia flights once this went into operation, he said. DHL Express cooperates closely with US airline Polar Air Cargo and Malaysia’s Transmile for Asia and transpacific capacity.
On DHL Express’ new structure since last autumn, Mullen stressed the importance of having a single management to run the worldwide network-based business, ensure central control and speed up decision-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 increase EBIT to more than EUR 500 million, excluding EUR 100 million of extraordinary costs for the Leipzig hub. Mullen said he hoped for revenue growth “several times” the rate of 2006. “We want real organic 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 year but earnings improved to an undisclosed level due to higher profits outside Germany. “We have stopped the losses in market share,” Mullen said. Top performers were Benelux, Spain and Italy. The UK 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 of the domestic parcels business from the express to the mail division as of January 2007, Mullen said. “It’s a win-win. Parcels came from post and never really fitted into express. They have now moved back to mail, and I think they will benefit from that. What we are left with is a smaller business with high returns that is growing well,” he commented.
The loss-making French express business, however, which had been hit by the poor integration of five different companies, would remain in the red until 2008, Mullen said. “It’s a long, slow road. 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 US losses “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 and FedEx. The target is to reduce the US losses “quarter by quarter, half-year by half-year” until the planned breakeven in 2009.
Asia, in contrast, is performing “exceptionally well”, Mullen said. “Asia will overtake in the US in 2-3 years,” he predicted. Revenues rose 12.9% to EUR 2,443 million in 2006, with growth rates of over 17% in markets such as China and India. DHL Express would continue to expand its domestic services in China in the coming months with more investment. In India, which he described as a “jewel”, DHL subsidiary Blue Dart would continue to operate under its own strong brand “for the moment”.
Asked whether DHL Express had yet decided to locate its planned North Asia hub in Seoul or Shanghai, Mullen said that there would be an announcement on this investment very soon.
Source: CEP-Research