‘India's share of our cargo revenues may go up to 10% in 3-4 years'

The going was good for global cargo airlines in 2010 with robust demand and “manageable” fuel prices. But then the slide started. Demand began to get anaemic, as money markets tightened and global manufacturing hubs trimmed production. To make matters worse, fuel prices rocketed, prompting carriers to chop flights.

If anything, 2012 could turn out to be worse than 2011 for this sector. The first few months of the year did portend a continuation of the rough phase.

The cargo division of Hong Kong's flag carrier Cathay Pacific, too, had to weather this turbidity in the market. But unlike other carriers, it did not take off any destination from its flight plan, though it did clip frequencies. Taking each route as a “standalone business,” the carrier carefully re-jigged routes, deploying the right type of aircraft to gain mileage in terms of fuel efficiency and shifted focus to new regions.

At the core of its strategy was to lean heavier on Asian markets to dull the impact of de-growth in the US and Europe. In Asia, it loosened its dependence on China a trifle and, instead, tapped markets such as India and neighbouring countries.

Mr Nick Rhodes, Director (Cargo) of Cathay Pacific, the author of this strategy, says it has paid off.

He spoke to Business Line on global trends in the air cargo sector and the airline's plans. Excerpts:

How has the global air cargo market been?

Soft. When there are production cuts, you cannot expect demand. In this business, you cannot create demand through campaigns or advertisements, unlike other sectors. The only thing you can do is to trim your capacities. 2011 was a flat year and this year also we had a tough start —in the first three months there was a 6 per cent drop in demand. However we managed to do 1.2 million tonnes (mt) in 2011, as against 1.8 mt in 2010.

How did you counter this trend?

We follow manufacturing as its goes. We readjusted capacities by trimming capacity on some long-haul routes, while adding new routes in our regional network.

We added more focus on Asian markets to offset de-growth in US and European markets, which account for 10 per cent of our revenues. For example, we brought down our frequency on Hong Kong-North America route from 32 flights a week to 24 and HK-Europe route from 26 to 20.

How much surplus capacity did you have?

About 25 per cent. And our capacity cuts were also in this range. We maintained our average load factor at 65 per cent — ex Hong Kong it was 90 per cent and for loads coming back it was between 45-50 per cent. The most important thing is we did not close out any destination.

Why have you been shifting some focus from China to other Asian markets?

China still continues to be our major market, with a share of about 75 per cent of our (cargo) revenues. But, yes, we are looking at reducing our dependence on China and increasing our focus on other regional markets.

And India is high on our radar — we have five destinations in India which we plan to increase. We want to increase our frequency to thrice a week to Bangladesh and launch freighter services to Sri Lanka.

Other Asian markets such as Vietnam, Cambodia and Indonesia are also good for us. As I said, we follow manufacturing as it goes. If there is a shift from China, we will follow.

What are your plans for India?

India is an exciting market for us at this moment. We expect India's contribution to our global (cargo) revenues to increase from 3.5 per cent to 5 per cent this fiscal and 10 per cent in the next 3-4 years. We have five destinations in India, including Bangalore and Hyderabad which we added in the last two months. We are evaluating other ports, such as Ahmedabad and Kolkata. Cargo throughput from India is about 53,000 tonnes annually outbound and a similar tonnage inbound.

What is your India strategy? Who are your major competitors?

Strategy is simple — chase volumes around India, with focus on high yield cargoes such as IT products from Bangalore and pharma from Hyderabad. For us volume is important here — if you can assure high volumes, you can afford a lower yield. Most of the competition is from Korea and China, but these airlines are more Asia-focussed. They are not as India-focussed as we are. For instance, we fly from India to Europe with no stops and such service is vital for cargoes such as pharma products, which do not like to sit on (airport) ramps in the heat (for a connecting flight).

What are the challenges you face in India?

For one, some airports have weaker operational infrastructure. Airports like Chennai and Mumbai are congested. As far as rates are concerned, at some Indian airports the charges are very prohibitive — this is becoming an issue. High airport charges change your maths, prompting us to look at other ports. Airports should realise that cargo is an important part of their business. Changhi (Singapore) airport, for instance, recently brought down landing charges for freighters by 20 per cent.

What is your fleet management strategy?

We are replacing our eight Boeing 747 converted freighters (BCFs) with a fleet of new Boeing 777s to increase our fleet's fuel efficiency. We are also getting 10 new 747-8s, five of which have been delivered, while three will land this year and two next year. We may not get the 747-8s to India as yet, as they are too big, with a carrying capacity of 125-130 tonnes. The 777s are best suited for the India-Europe route, as these can carry about 95 tonnes.

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