Just over a month into the launch of IAG Cargo’s Kuala Lumpur-London Heathrow route, the carrier is already seeing positive results.

“Kuala Lumpur is a very, very strong destination for air cargo,” says John Cheetham, IAG Cargo’s regional commercial manager for Asia-Pacific. “Asia is the engine of growth for the world, and aside from the powerhouses of China and India, we see across Southeast Asia great opportunity for the strength and depth of air cargo.”

Malaysia’s strong economy – with gross domestic product growth of between 5% and 6% – provided a significant incentive to open the route, which is flown daily by a B777-200ER aircraft with a payload capacity of up to 19 tonnes. “That kind of growth is [something] we can only dream of in Europe,” Cheetham said, speaking at a July 3 media event in Kuala Lumpur. “This is a very competitive economy. It’s a growing economy, and its very important that we have a position here.”

Cheetham told Asia Cargo News that through its first four weeks, the route has performed better than expected and that “it is already showing improvement.”

In the first four weeks since the route’s May 27 launch, half of the outbound flows have been high-tech goods, most of which come from nearby Penang, which can be reached in less than four hours by road. Some 80% of all goods exported from Penang are high-tech goods, including chip sets, LED displays and other electronics.

IAG Cargo expects perishables to constitute 30% of the outbound flow from Kuala Lumpur. “We have a good mix of perishables, which can sometimes be seasonal,” Cheetham says. “We’re carrying long beans [at the moment], and other times of the year there will be mangosteen, jackfruits [and others]. The perishable industry out of Malaysia is very strong. And despite seasonality of individual fruits, you end up getting a regular performance throughout the year, because when something drops off, it’s replaced by something else.”

Rubber goods (10%) and just-in-time garments (5%) account for most of the balance of the flows from Kuala Lumpur. Cheetham says that IAG Cargo chose Kuala Lumpur in part because of the good balance of commodities which can be flown from the city. “Very often, in certain countries you have one industry sector completely dominating. We don’t feel that’s the case here. There’s a good balance between oil and gas, perishable goods and other primary goods such as rubber,” he says. “A broad range of commodities allows an air freight export market to ride a lot of peaks and troughs.”

While Kuala Lumpur does see significant intra-Asia trade in both imports and exports, Cheetham says the story goes way beyond intra-Asia. “A significant proportion of exports out of Kuala Lumpur are going to traditional Western markets,” including 22% to Europe and 8% to the United States, he says.

But IAG Cargo is banking on the route being about more than merely exports. Malaysia’s growing middle class offers significant opportunities for IAG Cargo to fill aircraft in both directions, Cheetham says. “Along with many other parts of Asia, you’re seeing a blossoming, blooming middle class generation. That’s important because that generates import growth as well. Traditionally, the challenge for Asia has always been the imbalance of exports versus imports, but that dynamic is changing, and with the growth of the middle class, we’re starting to see more demand for imports.”

Cheetham says the import flows so far have seen IAG Cargo carrying a mix of machinery parts, industrial chemicals, perishables – cherries and blueberries, in particular – and pharmaceutical products.

Md Silmi Abd Rahman, director of the Transport, Logistics, Machinery and MRO Section of the Malaysia External Trade Development Corporation, says Malaysia’s logistics industry makes Kuala Lumpur the ideal place for an airline to base its cargo operations. Based on 2014 data from the World Bank, the country ranks 25th in global logistics efficiency, higher than every ASEAN country except Singapore in the global survey. “Other than Singapore. Malaysia is the most efficient in ASEAN,” he says. “You’re not wrong by locating your [operations] in Malaysia. It’s cost-effective here.”

Speaking at the same event, he predicted that improvements in rail lines – including the eventual completion of double-tracking throughout ASEAN on the various rail lines between Kunming and Singapore – would lead to Malaysia’s development as an intermodal transhipment hub.

The addition of the Kuala Lumpur-London Heathrow route is the latest of a recent round of Asian expansion by IAG Cargo, which added flights from London Heathrow to Chengdu and Seoul Incheon in 2013.

Also in July, IAG Cargo announced that its first Boeing 787-9 aircraft would join the fleet in October and launch five times weekly on the London Heathrow-New Delhi route, replacing a Boeing 747 and providing an increase in cargo capacity of around 17% on each flight.

“IAG Cargo is in the midst of one of the biggest fleet upgrade programmes in our group’s history. The 787-9 is at the heart of this transformation, delivering more cargo capacity than its predecessors more efficiently and making it well-suited to our belly-hold operations,” said Steve Gunning, CEO of IAG Cargo. The 787-9 provides belly-hold capacity of seven pallets and 16 tonnes of lift.

“Signs are good for our footprint in Asia,” Cheetham told Asia Cargo News. “It’s a very important part of our business.”

By Gregory Glass

Managing Editor | Kuala Lumpur