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Cargo

Shift happens

With the business model of the all-cargo player in doubt as increasing belly capacity and challenging fuel prices circle like vultures, Alexandra Lennane talks to Cargolux, AirBridge Cargo and Polar Air Cargo to find out what the future holds
 

There’s no doubt in anyone’s mind. Freighters are an absolutely necessary part of the air cargo environment. When you ask forwarders, the response is the same: ‘We need them.’ Will forwarders pay more for them? ‘No.’

 

There has been much industry-wide hand-wringing recently regarding the state of the freighter. High fuel costs, no passenger revenues and less scaleability has seen all-cargo operators fight for their lives in a market with low volumes and even lower margins. The struggle to compete with the widebody bellies flying the globe from their desert hubs in the Middle East has filled much of the industry with fear and not a little loathing – and none more so than the beleaguered freighter operators.


The industry’s eyes have for some time been focused on Cargolux, once a much-admired carrier that seemed to prove the scheduled all-cargo model could work. Now caught firmly between its Qatar Airways shareholder and its previously steadfast Luxembourg base of unions and government, it is desperately trying to avoid falling into the ever-widening cracks between the three.


One experienced Middle East-based airline executive says: “Cargolux is a good example of how a pure cargo carrier can be successful. It’s a pity – and it looks as if it will surrender to the requirements of Qatar.”


Cargolux won’t be drawn on its immediate future, but it is candid about the problems it is experiencing. Richard Forson, interim president and CEO, brings it down to basics. The problem, he says, is “finding enough cargo to fill up the aircraft in both directions, and not enjoying the cost advantage of a passenger airline that can offer cheaper belly capacity”. At the moment, the immediate strategy is to build more stops into the rotations to “capture the market”.


Cargolux perhaps labours under more challenging restrictions than some others. Forson points to a lack of “appropriate traffic rights out of Asia, especially China”, and European regulatory hurdles.

 

“Air cargo has, to a large extent, become commoditised, and the level of differentiation between the major players is insignificant. Price is what it is all about and this is where European operators are at a significant disadvantage allied to airport and other regulatory restrictions that we operate under.”


Forson also makes the point that it is not just the bellies that are hurting the all-cargo sector. “The amount of belly capacity entering the market has had a significant impact on available capacity, as most, if not all, of the airlines that have grown their belly capacity also operate dedicated freighters. This gives them a tremendous amount of flexibility in terms of their freight operations. They can afford to curtail freighter operations when demand is low, but still maintain a cargo service through their passenger operations. When a dedicated freighter airline cancels a service, there is no alternative capacity except for a later flight, which may not always suit the schedule of the customer. This capacity has always been there but we have seen significant growth in the recent past and with the pressure on passenger revenues, many airlines are now also looking to optimise their cargo revenues from passenger aircraft.”

 

But does the investment from Qatar Airways help to put Cargolux in a similar position?

 

Qatar Airways’ investment looked at first as if it would support the Luxembourg carrier, but observers say that it has so far brought few – if any – benefits to Cargolux. Forson acknowledges: “We have a strategic partner in Qatar Airways who has a significant amount of belly capacity, which is growing on a monthly basis, and who also serves a significant number of destinations all over the world. The challenge is to realise the synergies between the two airlines.”


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