It’s all about the customer 10 While cargo bosses at


If you run the cargo department of a major airline, at some point, you need to ask yourself: am I running an airfreight business, or am I flying planes? Chris Lewis talks to IAG Cargo chief, Steve Gunning.


some


of Europe’s other leading airlines glumly ponder their financial results and ask themselves how they can fill the expensive metal sitting on the tarmac outside, IAG Cargo chief executive officer Steve


Gunning much prefers to talk about freight services rather than freighters. The three leased 747s that


IAG was flying were costing far too much money, and anyway the fundamentals of the market have changed. “The market


News Roundup


Revenue down but trend is up IAG Cargo says its commercial revenue (flown revenue plus fuel surcharges) in 2014 fell 7.5% compared with 2013, to €992m. But on a like for like basis, adjusting the prior year’s figures to reflect its reduced freighter operations, commercial revenue increased 2.4% compared with last year. CEO Steve Gunning said the carrier had “delivered on our promise to lead the industry in sensible capacity management; replacing our freighters with capacity agreements on key trade lanes and launching EuroConnector, which benefits customers through time definite services and has increased narrow body usage across our European Network.”


IAG to ditch surcharges IAG Cargo is joining other carriers, including Emirates, Qatar Airways and SAS in rolling up fuel surcharges into an all-in rate, from the summer. It will apply to all markets except Hong Kong, South Korea and Japan, where local regulations on surcharges apply. It will also remove the exceptional handling charge, in the interests of simplicity. The freight industry – shippers and forwarders – have been pushing airlines to make such a move for some time, arguing that separate fuel surcharges make rates complex, difficult to compare and can leading to accounting difficulties.


Finnair joins IAG programme Finnair Cargo has joined IAG Cargo’s Partner Plus programme, which allows members to interline on each other’s aircraſt on a commercially booked basis. It gives customers better connections, confirmed bookings and a higher on-load priority. IAG Cargo CEO, Steve Gunning, commented: “Our Partner Plus programme is much more than a standard interline programme where capacity is usually only held for partners on a standby basis. Rather this is hugely cost effective means of growing our network reach through commercially active agreements where we aim to treat our partners’ cargo as we would a customers’.” Other carriers in the programme are Qatar Airways, Japan Airlines, the Avianca group and American Airlines.


Qatar takes stake in British Airways Qatar Airways has acquired a 9.99% stake in IAG, the airline group comprising British Airways, Iberia and Vueling. The Middle East carrier said it would consider increasing its stake, although non-EU shareholdings of European carriers are capped. Qatar, a fellow member of the oneworld alliance, said the acquisition would be “an excellent opportunity to further develop our Westwards strategy”. IAG for its part said that it welcomed Qatar Airways’ statement that it would look to strengthen existing commercial ties. Chief executive Willie Walsh added: “We will talk to them about what opportunities exist to work more closely together and further IAG’s ambitions as the leading global airline group”.


has excess capacity. The new passenger planes, with the exception of the Airbus 380, have much larger cargo holds, and the economics of freighter operation were falling away.” IAG took the brave decision


to get out of flying freighters in April 2014, while keeping around 400 tonnes of capacity a week between Hong Kong and London on the freighters of its partner, Qatar Airways via Doha – a much more cost- effective way of buying in what is actually a rather better service. Gunning continues: “The


new generation of


passenger aircraft is really calling into question the future of freighters. I think you will see a continued shrinking - provided, of course, that the lower fuel prices we’ve seen doesn’t tempt some operators to put capacity back again.” Culling the


to growing again, Gunning continues. Tellingly, load factors were up a healthy three percentage points. There are a lot more creative


ways of adding capacity where it is needed. An important strand of IAG Cargo’s strategy is the Partner Plus programme, which has just recruited Finnair, which Airways,


joins


have temperature sensors monitoring the cargo for the whole journey.” Having most likely


“grabbed some market share” from the competition, Gunning believes that there is scope for plenty more growth. Temperature controlled


Qatar Japan Airlines, the


Avianca group and American Airlines. Interline programmes between carriers are nothing new, of course, but what is different about Partner Plus is that “until now cargo has only been booked on a standby basis” and as a consequence was looked on as a slightly inferior, unreliable alternative to flying one’s own metal. Gunning is pleased with how


freighter fleet


might have been a tough decision to take, but in Gunning’s view it was the right one. “Maybe ten or 15 years ago, to be seen as a serious cargo player you had to have freighters, but that’s very old school now. Now it’s much more about your ground infrastructure, your distribution channels, network and product offering.” The air cargo industry is in a difficult position in that its capacity supply is largely determined by factors outside its control, chiefly the type of plane dictated by the passenger part of the business. And some of the bellyholds are now very big indeed – up to 40 tonnes for a 777 in some configuration, a medium-sized freighter in itself. “The freighter fleet was one


of the few ‘outlet valves’ for the air cargo industry,” Gunning declares. In other words, something had to give, and that something was one of the few aspects of its operation IAG had any direct control over. IAG Cargo’s traffic in 2014


took a one-off, direct hit, but now that is behind it and the business can


look forward


Partner Plus is developing, but wouldn’t rule out adding more airlines if the right ones came along. “It needs to be someone with product integrity and a good network fit. Finnair, for instance, has a great network into Asia while we have a great network into the North Atlantic.” Running a successful air


cargo business today is less about how much capacity you have but how you use that capacity to create maximum revenue. Pride of place in the IAG product portfolio is Constant Climate, headed by global head of pharmaceuticals and life sciences, Alan Dorling. “Our


volumes on Constant


Climate are up nearly 55% year on year,” says Gunning. “I think it’s because we went about it in a very professional way. The EU came out with Good Distribution Practice guidelines for the pharma industry a couple of years ago, and it has sorted the serious players out from the others and created a degree of consolidation in the industry.” IAG Cargo now has 100


stations GDP-certified worldwide. “Keeping goods at the correct temperature are more important even than getting them there quickly. We


airfreight used to be mainly fruit and veg and while this traffic is still important, IAG is pushing up the premium product proportion of its business. It reached 14% in 2014, and reached 16% in the fourth quarter of that year, with an ambitious 20% target by 2018. Express cargo was another


star performer, up a healthy 8.5%. IAG has looked long and


hard at its business for underexploited assets too, and has come up with


the


Euro Connector concept. Put simply, this aims to use the often underutilised bellyhold capacity on its 114-airport narrowbody network in Europe to offer an express intra- European service. Airfreight can still be faster than road – Euro Connector options are 24 and 48 hours and the network could be especially useful at joining up city pairs that are off the networks of the road operators. It is a loose rather than a


palletised product, so a careful watch needs to be kept on handling costs, but Steve Gunning is confident that the ground handling deals the IAG Group has signed will keep these within bounds. Cargo Connector is another


unique IAG offering. This is the system in which a van does a milk-round of major airports, picking up pieces of freight for the day’s flights without forwarders having to book in advance or tie up their own drivers and vehicles trying to get into busy cargo terminals. The service is now offered in


eight US cities, plus London and Frankfurt. Others will probably be added in due course; there


is no ‘shopping list’, but likely targets are the larger and busier air cargo hubs. “A lot of it is up to our sales force to say where it would work.” Qatar Airways has become an equity as well as an operational partner in IAG, but it shouldn’t fundamentally alter things, Gunning considers. “We have a good working relationship anyway and we are exploring routes like India via the Middle East to the UK.” The air cargo industry is


changing the way it does things and it was encouraging to report that the e-airwaybill and other automation made good progress in 2014. Gunning pays tribute to the efforts of all the industry in achieving this. “The target for us is 55% e-AWB in 2015 and yes, I think it will accelerate further - though possibly we have now picked off all the low-hanging fruit. But I think it will reach a tipping point. And it’s not just the AWB – everything that flies around the world is accompanied by a package of documentation and we have to ask, is that the way forward in the 21st century? The e-AWB is just the start. But it goes further than that.


It’s


also about the simplification of how we do business with our customers.” Another area ripe for


simplification is pricing, and IAG Cargo was among one of the first carriers to roll up fuel surcharges into a single, unified rate. “It sounds an easy thing to do, but there was a lot of work behind the scenes in the back office.”


In airfreight, nothing is ever


quite as straightforward as it seems.


Issue 2 2015 - Freight Business Journal


///NEWS


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