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Cathay: rising to the cargo capacity challenge

Nick RhodesCargo Tracker had the chance to catch up with Nick Rhodes, Director Cargo at Cathay Pacific Airways, as he was back in his Hong Kong office catching his breath after returning from the World Cargo Symposium.

“It was a well-run event,” reflects Nick, “I get a lot out of the plenary sessions, particularly the presentations from Brian Pearce on the economic outlook. It’s good to take a step back and see what’s going on in the world and see where the economy is headed.”

Unfortunately, the news on the economic front is not good. The remainder of 2012 looks to be a difficult year. Business confidence has weakened, and eurozone disparities remain a major risk to global economic health. Combine that with a great deal of new capacity arriving –over 650 widebody aircraft deliveries expected over the next two years – and falling asset utilization is a key problem. “The Cargo business isn’t like the passenger business, where you can stimulate demand with special offers and the like,” explains Nick. “As a Cargo Director, my only tactic in a severe downturn is to match capacity with demand – that’s the game here and we are constantly trying to juggle cargo capacity.”

Many carriers are facing challenges on the capacity front, and Cathay is no exception. The company has ordered eight B777 freighters, meant to replace ageing BCF aircraft. But it has also ordered 10 B747-8 freighters, five of which are on order and five are already in the fleet. “These orders were placed based on estimates of a 5% annual compound growth rate in air freight,” explains Nick. To manage the excess capacity in the wake of softening demand, the company has managed to sell four B744 BCF freighters and dry-lease three. “The priority is to fill the bellies of the passenger aircraft first and then operate freighters as required,” points out Nick. “Also, if you’ve got some aircraft close to retirement, parking them temporarily is always an option until the market picks up.”

The tiger and the dragon: cornerstones for Cathay

But the goal of maximizing capacity and exhausting all possibilities prior to parking aircraft remains. To that end, Cathay is expanding services to India and People’s Republic of China. The carrier plans to launch a twice-weekly cargo service to Hyderabad on 17 May, recognizing that city’s role as a pharmaceutical manufacturing hub. It is also adding a third weekly service to Bangalore, and has already commenced service to Zhengzhou, capital of Henan Province in Central China. “There is no home-based wide-body freighter operation in India,” notes Nick. “We see good potential in India and, from May, will operate a freighter service to 5 cities – Mumbai, Delhi, Chennai, Bangalore and Hyderabad.  We also see significant potential in inland China, as manufacturing moves away from the coastal provinces toward the interior of the country.”

From a capacity perspective, being based in Hong Kong allows the carrier to serve points in interior China, such as Chengdu and Chongqing with short duration flights. But Nick is not phased by predictions of a slowdown in the Middle Kingdom: “the Chinese market is still experiencing phenomenal growth and it’s still a great place to be based. What we’re seeing now is a correction in trade flows, as the number of imports to China rises from other manufacturing centres around the world.”

e-AWB expansion

After being the first carrier to go 100% e-AWB in its home market, Cathay has now launched an e-air waybill platform for outstations in Singapore and Malaysia. The carrier has ambitious plans to become 100% e-AWB across its network by the end of 2013. In 2012, the carrier expects to roll-out the use of paperless air waybills across Australia, Europe, Korea, Japan, Chinese Taipei, and Thailand, in addition to Dubai.

Three hurdles pose a challenge to global e-air waybill expansion, namely IT infrastructure, changing existing freight forwarder practices and customs authorities. “The technology has to be right but at the same time needs to be cost neutral or generate savings over the longer term,” explains Nick. Education for freight forwarders in using the e-air waybill standards properly is also a key issue. “In the first three months of using e-AWBs in Hong Kong, we were rejecting about 70% of electronic air waybills coming from freight forwarders due to inaccuracies,” said Nick. “Now, that number is around 30%, so there’s still room to improve.” Cathay also sees value in IATA’s global multilateral agreement, as signing bilateral agreements around electronic data exchange takes considerable time and effort.

Air cargo makes it happen

Capacity however is not just simply a matter for airlines to manage. On the ground capacity is essential for the industry to grow – and in many markets around the world, lack of investment in ground capacity stymies the growth potential of air cargo. “Air cargo makes a sizeable contribution to global economic growth,” said Nick. “Investment in cargo terminals and warehouse facilities around the world must keep pace with demand to ensure we fulfil the potential of air cargo’s role in global growth and prosperity.”


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