What Will Happen In 2010?

Maurice Flanagan CBE, BA, Hon.FRAeS, FRAeS, FCIT
Executive Vice Chairman
Emirates Airline & Group.

In the airline we had no particularly new initiatives in 2009 – just carried on as we always do, doing our best to be profitable whilst keeping up standards and managing fast growth.
      Dnata and Group Services, under
their President Gary Chapman expanded significantly in Airport Services, acquiring businesses in Australia, UK, and Switzerland added to those they already own in Singapore, Pakistan, and Manila.
      Dnata’s joint ventures with Whitbreads for Premier Inns and Costa Coffee, opened new outlets in the UAE and Turkey.
      Our 2009-10 financial year is April to March.
      We had to declare our audited results for the first half, because of conditions attached to a bond.
      Our net profit was $205 million for the airline, $240 million for the Group, much better than for the same period in the previous year.
      We expect the second half to be even stronger.
      During the financial year we added four A380s and ten Boeing 777s to our fleet.
      For financial year 2010/11, more of the same on all fronts, plus a total of seven A380s and one Boeing 777 to be added to the fleet.

Stan Wraight
President
Strategic Air Cargo Solutions Int’l

SW:   I have heard both conservative and pessimistic, and just about every conceivable opinion and quite frankly I think 2010 will be much better than 2009, but still count on an air cargo market that is 15 to 20 percent below 2007 levels.
     Some regions will perform much better than others of course and I think the traditional routes of Asia to Europe and North America will bounce back faster than many expect.
FT:   What surprised you?
SW:  The withdrawal of capacity from all cargo operators, especially 747 and MD11 operators.
     The same people who for years before had been dipping into a seemingly endless pool of optimism on demand, had to park these aircraft.
     It must have led to horrible scenes in the boardrooms around the world.
FT:   Why are there China backlogs and despite slow business elsewhere, resources are not put into that market at once?
SW:  Supply and demand, and common sense ruled for once.
     Parking an aircraft and mothballing it is an expensive process and not reversed easily.
     And if you were an airline executive, would you want to take that risk for 8 to 12 weeks knowing that the market can fall as fast as it can rise?
     I certainly would not, especially after having to tell my board that they had to go in the desert in the first place.
     When an aircraft is parked, you only have the fixed costs to account for, the variables are gone.
     Usually the fixed costs are now less than 50% with fuel and other variables being what they are.
     And of course less capacity drives yield up on the services that remain, a win/win for the airlines.
FT:   Do you think air cargo will make any major breakthroughs in the years ahead?
SW:  I would certainly hope so, but doubt it as far as airlines go.
     There is massive room for improvement in the scheduled airline business in basic processes, training and management recruiting, and business processes that have to be relative to the new environment.
     Unfortunately as the industry has been hit so hard in the past years we have all seen the necessary cut backs and redundancies that resulted. This hit hard and in the legacy carriers especially.
     As a consequence many young professionals desperately needed will not look upon aviation as a career, why would they?
     We have to make a quantum leap to change the image in the boardrooms and most importantly the profitability of cargo as both a contributor to revenue in the case of combination carriers, and as a core business in the case of all cargo operators.
     If we don’t, the money needed won’t be there for investment and one sector of the industry, the one that’s not controlled by integrators, will cease to be a competitive alternative. Belly space will be there always, but sold as an absolute commodity and by using the contribution model which usually only has the effect of undervaluing the product you have and ruining the market for others.
     So a viable cargo market is in every airline’s benefit.
     The biggest breakthroughs and best hopes for the future do not lie with airlines anymore as they have cut as deeply as they can, but I believe in airports, governments and service providers to the industry, an area that’s vastly underestimated for its potential to make a difference.
     The problem is that this sector of the business lacks the clarity and transparency that it will take, I hope we can change that.
     Airline economics today mean margins that cannot support punitive taxes and fees.
     Taj Mahals for airports that cannot be afforded, and airport fees and rules that are simply based on ignorance of the economics of the client.
FT:   Which companies do you admire most?
SW:  I would have to say that over the past 40 years or so I have been in this business my opinions have changed dramatically. Who can dispute the tremendous influence and market leadership in the past that KLM - Lufthansa and Air France showed in Europe, Singapore Airlines – Cathay - China Airlines - JAL and NCA showed in Asia and Northwest in the USA. Fed Ex and UPS, what a success story that has been, truly remarkable.
     In this environment, I would say Swiss. First because it recognized the true value of cargo to even a smaller passenger oriented airline that Swiss became after the Swissair debacle, and made cargo a pillar in its rebirth by placing a seasoned executive as CMO. He then built on the strength of the Swiss market and former Swissair staff by creating a product portfolio that exploited the benefits of quality direct air cargo services.
     And last I have to compliment Lufthansa’s cargo management for having the good sense and market knowledge in not making the huge mistake of trying to take Swiss Cargo and place it under the management of Lufthansa Cargo.
     That would have ruined it for sure, and they obviously saw that to the benefit of the Swiss air cargo clients.
     And who of course cannot admire Emirates and what Ram Menen has done, but enough has been said about that.
     Swissport Cargo in ground logistics and Cologne Airport also come to mind. In aircraft leasing, GECAS 2010 will again test the strength of the mettle in many airlines and especially the executives that run them.
     I just hope that shippers and consignees and especially the governments understand that a vibrant and competitive industry is better for them even in these horrible times than the alternative, which seems to be what everyone is hell bent on creating.

Oliver Evans
Chief Cargo Officer
SWISS International Airlines

OE:  The global economy will continue on a recovery path, and airfreight will be an early indicator as always.
       The complexity of a globalized network of manufacturers, suppliers and buyers, all still undergoing structural changes dictated by the severity of the crisis experienced in 2009, will provide us still with a number of surprises, some of which will be nasty and unpalatable: woe betide the manager who has looked up at the clearing skies, folded his umbrella and left it at home.
      When one major freighter operator starts to bring back capacity parked in the desert, others will rapidly follow (because individual thought and action is much rarer than herd instinct and mimicry), so that overcapacity will ruin economically viable freight rates in a number of markets.
      The massive and unstoppable shift in economic importance away from America and especially Europe towards the East (China and India) which should by now surprise nobody, will still catch some unawares and unprepared.
      New environmental awareness will lead to a plethora of new measures, many of which may be ineffective or counterproductive because of the pressure to "do something" overcoming the capability to discuss and implement rational decisions: costs will go up, for the suppliers but also for the end user. Similarly the ghastly imagination of those who would seek heaven by creating hell on earth will lead to ever more costly and cumbersome security measures which will again have to be paid through the supply chain.
      In 2010 nobody will be bored.
      The best will grab the opportunities.
FT:   How successful have your initiatives from 2009 been?
OE:  We have gained market share in our targeted segments, customers have recognised value and paid a relative premium for it.
      We have tackled costs in all areas, and happily many of the cost savings are structural and recurring, so that we will benefit from them also in the long run, enabling us to invest further in competitive service enhancement. Although we achieved savings with our suppliers, this fell short of our demands and expectations because most gains should come from fundamental process re-engineering, within companies and across interfaces, rather than from negotiation: much hard, hard work remains to be done.
FT:   What are some things you are doing differently than before the financial crises?
OE:  We are utilizing our precious resources (human and physical) even better than before.
      We have discovered often unexpected pockets of efficiency gains even at the heart of processes that had seemed sound.
      We have become more flexible and adaptable.
      Market intelligence, forecasting and customer feedback have risen even further up our list of priorities.
FT:   What can/should everyone in air cargo do to make the industry better?
OE:  Stop bleating. Stop internal bickering, grand standing and politics. Find their own wavelength and path, individually and as a company, instead of following each other.
      Make a quantum leap forward in the quality of legal, constructive dialogue across the industry.
      The customer of 2010 will still have many, many reasons to deplore the cumbersome process of air transport and the extremely high costs associated with it. We cannot wave a magic wand to make his every wish come true in 2010, but we should all strive with every sinew in our body to make the air cargo world of the next decade a decidedly better place.

Ram Menen
Divisional Senior Vice President
Emerates SkyCargo

RM:  The worst is now over and the recovery process is firmly on its way. We are likely to experience steady growth during the first half of the year (a bit subdued compared to the 4Q 2009) and I am hoping for a strong last half of the year.
FT:   How successful have your initiatives from 2009 been?
RM:  We survived!
     So I reckon our initiatives worked well!
     Though our yields were down, we did manage a slight growth in volumes.
FT:   What are some things you are doing differently than before the financial crises?
RM:  We are still doing exactly what we have done.
     Our cost containment, as well as, productivity improvement initiatives which were in place still continue and so does our strategy of working closely with our customer in order to provide excellence in service to cater to their changing requirements.
FT:   What can/should everyone in air cargo do to make the industry better?
RM:  Have long-term strategies for the betterment of processes in servicing the globalized world trade and hold on to your nerves and sense of humor while managing challenges created by cyclical economic downturns!
     Embrace IATA’s e-freight initiatives—it will help save the environment whilst bringing in fresh cost efficiencies within the supply chain operations.
     Work on simplifying everything that we do.

John Ryan
J.R. International Cargo
Consultant Air Cargo

I think 2010 will be a mixed bag with continued consolidation in air cargo as airlines cut back service and downsize aircraft.
     That Delta terrorist issue with an underwear bomber on Christmas day could have some negative effect as well.
     Word is that business travel bookings are being impacted and if seats are not being sold the ripple effect could certainly impact cargo with aircraft and schedule reductions.
     A bright spot are indications that the economy in USA and China and South America are rebounding a bit.
     On another challenge facing the future of air cargo I believe that the way to make the industry better is to keep tight controls on costs, but not forget about the customers.
     Airlines must never forget the agents and still must be seen and serviced.
     Carriers should change their focus from "market share" and stealing each other’s business from the agents by spiraling down prices, and agents and other industry stakeholders should quit demanding that carriers fulfill unreasonable requests (rates etc.).
     If they (agents) want to compete they should look at what added value their company can give to their customers and price accordingly.
     After all air cargo is a service business. The industry can only get better with all parties communicating as business partners to work together in an atmosphere of trust.