Despite it already being behind schedule, Cargolux’s Chinese joint venture with local partners is still not quite ready to take to the skies, but the company isn’t letting the setback affect its good spirits and overall optimism.
The new airline, in which Cargolux will hold a 25% stake and the remaining 75% will be held by Henan Civil Aviation Development & Investment Co. Ltd., the Henan Airport Group and Xing Gang Investment Co. Ltd., is to be called Henan Cargo Airlines.
The board of directors at Cargolux first approved a US$77 million investment in the venture in January 2016, when it was expected that the airline would start operations in 2017. But the parties only signed the JV equity contract in June 2017, with the first revenue flight estimated for the fourth quarter of 2018.
“It’s taking a lot slower than anticipated and I can tell you with certainty that the airline is definitely not going to fly in 2018,”said Richard Forson, president and CEO of Cargolux, in an interview during the transport logistic China 2018 conference and exhibition in Shanghai. “When we get the definitive approvals for all the applications that we made, we’ll be able to get a much more accurate timeline.”
The cause of the delay, according to Forson, is that certain regulatory requirements have to be met. One of the biggest issues is the utilization of pilots who are Chinese nationals.
“That’s clearly not the easiest task in the current market but we’re negotiating with the authorities on setting up the Chinese AOC,” he said. “Of course, HNCA is the majority shareholder so we’re just assisting in the process. We’re still trying to get a definitive answer on exactly how many Chinese pilots are going to be required at the end of the day. One key factor is what the salary packages look like in the marketplace. There are a lot of Chinese airlines that are currently using expat pilots and there might very well be a pay differential.”
The Chinese project aside, Cargolux has a lot to be happy about, having recorded its best year ever in 2017. FTK growth rose to 12.3% and the group carried more than 1 million tonnes of cargo for the first time. In particular, the Asia-Pacific region constituted about a quarter of the total tonnage for the year.
“Overall, the entire network saw significant demand for capacity and obviously those that had not locked in long-term block space agreements got caught out,” Forson said. “In addition to that, our charter business grew about 200%. That has always been our strategy and it seems to be working out fine. Looking at our 2018 year-to-date figures, they’re also well above forecast levels.”
The partnership agreement which was signed with Emirates SkyCargo in May 2017 is also going well, with Forson saying that the next logical step is to look at a deeper level of collaboration.
As far as the rest of the year is concerned, Forson said that most of Cargolux’s customers are bullish, even if he thinks that the levels of demand will dip a bit during the low season and won’t match those of 2017.
“What we’ve seen is our customers looking more at getting block space agreements locked in until the fourth quarter to give them an extra layer of protection,” said Forson. “From our perspective, I have to look globally what they do for Cargolux. The issue now is that I don’t have enough capacity to just give it all out for BSAs. We need to keep a bit of flexible capacity for ourselves.”
The carrier’s active fleet currently consists of 13 Boeing 747Fs and 14 747-8Fs. According to Forson, the airline took delivery of another aircraft this year but that frame is out on short-term lease with another operator and is due to return next year.
“I expect to take delivery of another two aircraft in 2019,” he said. “Depending on various circumstances, that will either be replacement capacity for older aircraft or additional capacity. We looked for late-model -400ERFs because we obviously didn’t want to buy older aircraft and put them back into service. But in 2017 the used aircraft market was very active, with Atlas Air taking in quite a number, for example.”
Regardless of the fate of Boeing's 747 programme, Forson said that, in any case, he is happy with the number Cargolux has at the moment.
“The -8F in its own right is a wonderful aircraft, especially for trans-Pacific and Asia-Europe,” he said. “But we must remember that this is an extremely volatile industry. I think the best thing for a cargo airline is to be agile and flexible. That’s the only way you can survive.”
In terms of specialized products, Forson said that Cargolux already has quite a wide range of offerings as it is, and that the focus now is more on interacting with customers.
“Digitalization of procedures will make it easier and more seamless to transact,” he said. “We’ve also set up an innovation lab within the company to look at being more agile in terms of developing IT solutions in such a fast-changing market.”
With that in mind, Cargolux started a transformation process in 2017, covering aspects such as maintenance, warehouse processes, analytics and data management.
“My vision is that when we do interact with the customers, once that data enters the system everything is accurate and there’s no human intervention thereafter,” Forson said. “The system takes care of everything and produces the necessary reports, etc. If it does detect abnormalities then we manage by exception. The biggest challenge is going to be ensuring that the data is input accurately at the start. The customers also have to be in line every step of the way.”
He added that, as the world becomes more and more connected, the economy will continue to globalize.
“If you want economic uplift, you need global interaction and proper globalization,” said Forson. “I don’t think anyone can stop it.”
By Jeffrey Lee
Asia Cargo News | Shanghai