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Moving the freight of the world

Atlas Air is facing several short-term challenges with overcapacity in the market and dwindling airline customers. But Bill Flynn, chief executive officer and Michael Steen, chief commercial officer, argue that diversification has given the company a resilient business model. Alexandra Lennane reports

With most industry eyes firmly on the struggling all-cargo airlines as air freight continues to flatline and yields remain low, one freighter operator has stayed out of the headlines. But market speculation is beginning to mount as to the resiliency of the business model of Atlas Air, the aircraft, crew, maintenance and insurance (ACMI) specialist and widebody freighter operator (see chart 1).


As US military business winds up faster than many in the market had expected, combined with overcapacity and limited demand for freighter aircraft, some observers have questioned the strength of Atlas Air’s business model, which offers fleet flexibility and asset-free books to airlines that would like to operate freighters – a group noticeably in decline.


This is supported by evidence of Atlas’ customer list, which now includes fewer airlines. The last ACMI contract with Emirates has ended, and Qantas Freight is also returning one of its three aircraft, leaving it with just two other airline customers: British Airways (under its joint venture with Global Supply Systems); and Etihad, which has just taken a Boeing 747-8F on a round-the-world service.


This has not gone unnoticed. In July, the financial publication Barrons downgraded Atlas from ‘outperform’ to ‘market perform’, noting: “We strongly believe there will always be a place for main deck capacity and that Atlas’ fleet remains best in class, but our more cautious view is driven by the fact that the largest global combination passenger/freight airlines are pushing for industry consolidation (through pricing), which will likely cut marginal players out of the market over the next three to four years. As a provider of outsourced capacity, Atlas is often targeting these marginal players (by providing a small number of dedicated freighters on long-term lease) and therefore may be the most at risk in a consolidating industry environment.


“We have trouble identifying a list of potential new, quality ACMI customers for Atlas now (non-US airlines with a global presence, without a dedicated freighter fleet, that want to grow cargo volumes), and we fear that list may only shrink as the cargo market consolidates.”


But chief executive officer Bill Flynn told Airline Cargo Management: “You’ll see new airline customers. We knew Emirates was going to stop ACMI, but it is still doing extensive charter work. Customers will change over time.”


Chief commercial officer Michael Steen added: “We have a relationship with our customers. We will focus on growth in airlines, integrators and maybe more freight forwarders.”


In fact, customer relationships appear to be one of the strengths Atlas is most proud of. In an investor and analyst day in April, Steen said: “Working with our customers in order to create new opportunities and value is something we think is very unique to Atlas. In order to do that, we have to have a fundamental understanding of what makes our customers successful, what kind of requirements they have from their customers, and how we can continue to drive success to our customers and, obviously, to us as a company.”


Flynn adds: “We work to try to put people together so that our customers are as profitable as they can be with our aircraft. We regularly work with customers to help enhance profitability.”


And Atlas, no doubt itself concerned that it has just three scheduled airlines on its books, is looking to other markets. Charter broker Chapman Freeborn has just taken on a Boeing 747-400F, while Panalpina, which may have regretted taking on two of Atlas’s 747-8Fs initially, according to one source, is beginning to turn an air freight profit again. Not only that, but Atlas’ key customer – and 49% partner in Polar Air – is DHL. Clearly, Atlas has learned not to rely on scheduled airlines alone. >>

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