The announcement by China Southern Airlines and Air France KLM that the airlines have entered into exclusive talks to launch a joint venture cargo carrier in China, merits some close analysis, because it comes at a time when main-deck and belly-hold capacity have fl ooded the market and as a result rates and yieldsare under extreme pressure.
In this month’s Supplement – pages 46 -54 – most of the leading players in the Chinese market acknowledge that capacity has outgrown demand and profi tability on the once lucrative routes from China has become questionable, to say the least. Indeed, several players have reduced frequencies or pulled out of the market altogether.
The question therefore is justifi ed why an airline, such as Air France KLM, which already is facing the same abysmal rates and yields as all the other carriers operating in this highly competitive – some say impossible – environment, has decided to seriously look into establishing a cargo joint venture with a (well-respected and experienced) Chinese carrier.
To be sure, we are talking here about merits of a cargo joint venture which, if the talks are successful, will compete with the likes of Cathay Pacifi c, which last month unveiled details of a cargo airline it plans to operate in partnership with Air China. Or the already operational venture between Lufthansa and Shenzhen Airlines in Jade Cargo International, or Korean Air, which intends to launch a joint venture cargo carrier with Chinese logistics fi rm Sinotrans this year.
These existing and planned joint ventures are likely to be complemented by a possible acquisition of a major stake by Singapore Airlines in struggling China Eastern Airlines and its cargo subsidiary China Cargo Airlines, while private Chinese air cargo carrier, Yangtze River Express Airlines, has announced plans to add eight to 10 B747-400 freighters and/or B777-300 freighters to its fl eet between 2008 and 2013.
Finally, and far from trying to be complete, are the cargo services that ambitious Shanghai Airlines has started to the US and other destinations, plus the existing networks of well-established cargo carriers such as Cargolux and Martinair, not to mention the highly competitive schedules of the world’s leading integrators or the numerous smaller players that are plying the routes to China.
So what in the world would the planned cargo joint venture between Air France KLM and China Southern have to offer that is not already being offered by the existing competitors? And, if that question is diffi cult to answer, has the proposed venture any chance of succeeding, or for that matter will it be reasonably profi table?
In their joint announcement, the airlines did not give any details on the scope of the talks or the prospects and only pointed out that they already co-operate in both passenger and cargo services, connecting their major hubs in Europe (Paris and Amsterdam) and China (Beijing, Shanghai, Chengdu and Guangzhou).
Admittedly, China Southern boasts an extensive network in Southeast Asia, which is why it likely would have little interest in launching a cargo entity with an Asia-Pacifi c airline. But a formidable Western carrier such as Air France KLM would expand its cargo reach to Europe and the US.
However, these scenarios hardly explain how a new cargo joint venture, even with the full backing of the Skyteam Cargo alliance, would meet the massive challenges in a market which is currently facing dramatic oversupply and disastrous yields.