If asked to name a European carrier that serves 200 destinations worldwide with a fleet of 300 aircraft, it is a fair bet you probably would not name Leisure Cargo. Yet that is the size and scope of the company that manages the cargo capacity of 16 holiday airlines on the continent.

It has made a success of this approach where others have not – notably Lufthansa subsidiary cargo counts, which was folded into the parent airline late last year. Yet to date its efforts to extend the model into Asia have met with only fleeting success.

Leisure Cargo’s origins go back to 1990 when German holiday airline LTU decided that it might as well carry cargo on its flights to various long haul tourist destinations. It appointed Ralf- Rainer Ausländer as its cargo manager. In 1999, it had the idea of offering its expertise in this area to other carriers, and Leisure Cargo came into being on 1 January 2000.

Originally it was a joint venture with Swiss Cargo, the cargo arm of Swissair, but when that carrier foundered in 2002, LTU repurchased its shares. In August2007, LTU was itself taken over by German carrier Air Berlin, and in January2008 Leisure Cargo became a whollyowned subsidiary of that airline’s holdingcompany.

By the time you read this, that might have changed, however. At press time, Ausländer was expecting Leisure Cargo to have a new owner by the end of April. The buyer will be a private equity company rather than an aviation company, and the result is that Leisure Cargo will be completely independent of any airline.

Asked why Air Berlin chose this rather inauspicious moment to sell their subsidiary, Ausländer says it because it “decided to concentrate on its core business”. He insists that it does not mean Air Berlin and its subsidiary carriers will be ceasing to carry cargo, as Leisure Cargo will continue to manage this business for them.

From Ausländer’s point of view, the change of ownership will be a beneficial one, though he insists that in practical terms little will change. “We have always been completely independent, apart from certain administrative functions which are done by the Air Berlin Group and which we will now take over,” he says.

“However, I view the new ownership as a positive move in that before, when we approached some carriers, they were worried about giving their cargo business to a company whose owner competed with them on the passenger side. At a superficial level, carriers might have feared we would favour Air Berlin’s business and they would get the thin end of the stick, though that has never been the case.”

It can’t be denied that Air Berlin will remain an important part of Leisure Cargo’s business even after the sale, however. Ausländer says it accounts for around half of revenue. This includes not just Air Berlin itself – which has a network of European routes and some tourist routes too – but also LTU and carriers such as Belair in Switzerland and Niki in Austria.

Among the other airlines – 16 in all – whose cargo is managed by Leisure Cargo are EuroFly, a Milan-based tourist carrier; Air Europe, also Milan-based, which has leisure flights as well scheduled services to Dakar in Senegal, Cairo and Moscow; Iberworld, a Spanish tourist airline; and local European carriers like Sky Europe of Slovakia and Islas of the Canary Islands.

Back in Germany Leisure Cargo also manages the freight business off TUIFly and Condor, both major German tour operators. Condor in fact switched to Leisure Cargo from cargo counts when that company was folded into Lufthansa in November, and brings with it a substantial 30,000 tonnes of cargo business each year.

More than a GSA
Leisure Cargo is much more than a GSA to these carriers. It takes over their entire cargo operation, and takes on all the costs of that operation. “All the carrier has to do is tell us its schedule and update us on any changes,” says Ausländer. In return, the carrier gets an agreed percentage of the cargo profits, sometimes with a minimum yearly guarantee.

The service includes marketing, advertising, sales, reservations, managing ground handlers, and after sales services such as revenue accounting and claims. The company also operates road feeder services for its carriers within Europe.

But the most important thing from Ausländer’s point of view is that all flights are handled on LTU air waybills, something he says will not change once Air Berlin sells the company. “This makes it possible for us to create a seamless network out of all the flights we manage,” he says. “For a GSA to achieve this it would need 16 different interline agreements. In reality that never happens.”

Examples of the kind of interlining Leisure Cargo can do includes bringing a shipment from the Caribbean into Madrid on Iberworld, and then connecting it ontoan Air Berlin flight to northern Europe.

“By doing this, we can offer the kind of same day connection that you otherwise would only get on a big national carrier,” Ausländer says.

Given the wide range of places that Europeans like to go on holiday, the Leisure Cargo network has extensive reach. LTU alone serves many places in the Caribbean and Central America – including Cuba, Jamaica and Mexico; has seasonal flights to Miami, New York and Los Angeles; flies to Kenya and South Africa; and serves such South East Asia destinations such as Thailand, Sri Lanka and the Maldives.

That being said, most of the routes served do not have massive cargo potential, and while Asian destinations produce some electronics and textile traffic, cargo into Europe tends to be heavily dominated by perishables – tropical fruits from the Caribbean, flowers from Kenya, fish from South Africa and so on.

Southbound, some industrial products are carried, and to island chains such as the Maldives Leisure Cargo can carry quite a range of cargo. But in general outbound from Europe there is a good deal of cargo related to tourist activity in the destination countries – newspapers, magazines and books to sell in resorts, supplies for hotels, and so forth.

“We are not talking about the major cargo centres of the world, so there is a natural limit on the tonnage we can carry,” points out Ausländer. “No matter how many flights a day one has to Palma de Mallorca [the main resort on the Spanish Balearic Islands in the Mediterranean], there is a limit to how much cargo can be found to fill them.”

There is also the fact that the aircraft – mainly B767s and A330s – that Leisure Cargo airlines use on long haul routes are operating with much higher levels of passenger utilisation than conventional carriers. “Lufthansa or British Airways have huge business classes, whereas our carriers are all in economy configuration,” Ausländer points out.

That means they are carrying around 40 per cent more passengers – and their associated baggage – than regular airlines, with a consequent loss of belly space for cargo. In all, he reckons about 10 tonnes a flight for freight is a fairly good average, though clearly this varies from route to route.

Challenging environment
All of this explains why Leisure Cargo carried what might seem a relatively modest 56,000 tonnes of cargo in 2008, making €62.4 million of revenue. Ausländer says this was up more than 10 per cent on the previous year, and that in the first quarter of 2009 there was only a fall of 9.5 per cent in tonnage and five per cent in revenue – much less than the 20 per cent plus falls recorded by most European carriers – while yields increased by 8.5 per cent. Having said that, these fi gures are almost certainly favoured by the addition of Condor’s business late last year, though this was off set by some other carriers falling away.

The relatively high failure rate of smaller carriers is indeed one problem for Leisure Cargo, though Ausländer insists it is something it is well used to and takes in its stride. He cheerfully admits that when Leisure Cargo started in January 2000, it had 32 carriers in its portfolio. More than 16 have fallen by the wayside in the interim – with transatlantic business operator MaxJet, and Aladia of Mexico (which only became a Leisure Cargo carrier in April 2008) being but two of them.

“But this is normal among start-up carriers,” says Ausländer. “If you are a new carrier, we are the obvious choice to handle your cargo and earn you a bit of incremental revenue. But with such carriers there is always an increased risk they will go belly-up. For us that is a sad story, but we don’t lose any money. It is always us who is paying them, so we are not running any financial risk. And aslong as we are adding more carriers to our portfolio, it is not a problem.”Adding carriers could be difficult overthe next year or two, however, as theglobal economic environment is hardlyconducive to airline start-ups. However,Ausländer says absorbing all the variousroutes of Condor into the Leisure Cargonetwork, and working out new interlineopportunities between it and existingcarriers, will keep his team busy for agood time yet.

“Realistically, we can’t add a carrier of Condor’s size every three months,” he says. “We need time to digest it. Of course, we won’t say no if an opportunity comes along, but we are not actively looking for new carriers at present, but rather focusing on doing the best job for the carriers we have.”

Quite how those existing carriers will fare over the next year is an open question. To date, European consumers have not shown a marked tendency to pull back on their holiday plans as a result of the economic downturn, but it may just be a matter of time. “So far we have not seen any drastic cancellations, but our carriers are approaching the market in a cautious way,” says Ausländer. “The big question mark for tour operators will be how this summer plays out.”

He concedes that 2009 is not going to be as good a year for Leisure Cargo as 2008, but says he remains fairly optimistic. “I am not going to be one of those people saying it is the worst crisis we have ever seen. We have had other crises before such as SARS and the Gulf War, and tourism is always the first to be hit. If there is unrest in Sri Lanka or a tourist murdered in South Africa, then holiday bookings are always immediately aff ected. But that means we are used to this kind of situation.”

The global challenge
While Leisure Cargo carriers fly to all corners of the world, they are currently all based in Europe. The company has in the past tried to extend its concept to other parts of the world – for example to Mexico with carrier Aladia already mentioned – but none of these efforts have produced permanent results.

In particular, Asia has proved a frustrating market for the company. In June 2007 a deal was signed with Air Asia, but Ausländer said there was a difference of opinion about how to develop its cargo business, and in May last year the two companies went their separate ways. Meanwhile a contract with SpiceJet of India, which was being mooted early in 2008, never came to anything. “We were pretty close, but it never worked out,” is Ausländer’s comment.

He insists that Leisure Cargo is still open to opportunities with Asian carriers, and is hopeful that some new carriers will be signed up once the present downturn is over. But he admits that integrating a regional Asian operator presents more challenges to Leisure Cargo than adding another airline in Europe.

“There are many destinations in South East Asia that are completely unknown to the cargo market,” he says. “Passengerwise they may be good markets, but to cargo they are very obscure. To form a network in an area where we are currently not represented at all would be very difficult. By contrast, we have a well established network in Europe and with all the major cargo airlines worldwide, so it is easier to integrate a carrier there.” The network includes four offices in Germany – in Dusseldorf, Hamburg, Frankfurt and Munich – which are staff ed by Leisure Cargo employees – and independent GSAs in the rest of the world.

Keeping this network together is eChampII, the hosted air cargo IT system of Champ Cargosystems, which is accessible to any of Leisure Cargo’s partner GSAs over the internet. Having eChamp is enabling Leisure Cargo to participate in the IATA e-freight project. It attends the German working group, and hopes to move its first paperless cargo shipment later in the year.

This is likely to have little impact in most of the more far-flung places of the Leisure Cargo network, however, as Ausländer readily concedes. “Most of these countries are not yet in the e-freight project, so the first shipments will be between Germany and London,” he says.

Looking to the future, does Ausländer see any scope to extend the total cargo management concept of Leisure Cargo to other types of carrier? After all, this was the ambition of cargo counts – to give mainstream carriers the benefi t of Lufthansa’s expertise in the cargo field and enable them to totally outsource their cargo business.

“Look what happened to cargo counts,” is Ausländer’s answer to that, but he says that Leisure Cargo is open to any airline that is interested in having a third party run its cargo business from soup to nuts. This includes carriers specialising in business travel, and who knows, even medium-sized national airlines?

But he points out that national carriers often see their duty as being not just to make money, but to employ their own nationals. “If you go to them and say you could make more profit on your cargo but would lose all your staff , they are not very enthusiastic,” he says.

Having said that he can envisage a day in which smaller European or North African carriers might consider going the Leisure Cargo route. “If they joined us, we could give them access to a much bigger network than they can possibly have on their own, and we would give them a bigger standing with other global carriers,” he says. “In a way, it is like offering them a kind of airlinealliance.”