The speed with which the air cargo industry unraveled stunned everyone, and left in tatters the best laid plans of most cargo carriers. “At the end of last year our networkplan and budget was history,” says Kay Kratky, CEO Jade Cargo International,as he describes the rapid plunge of themarket.

“There was overcapacity in the market by at least 50 per cent, load factors on those routes that used to be the cash cows for the industry were declining dramatically and as a result, the industry started a throat cutting competition for pricing,” he said during a recent air cargo conference held in Shenzhen, China.

“We see companies operating for a zero fare, just asking for the surcharges. And this is not healthy. You can do it for a while, its just a matter of how much cash is left but this is not a sustainable model,” he says.

Overall, the cargo carriers have reduced capacity by 25-30 per cent and this process is still ongoing. “We’ll see if this capacity reduction is sufficient for the next weeks and months to come,” he says, noting that further reductions may be necessary and some carriers may also go out of business.

Nurturing an upturn
The task for everybody, he adds, is to think about what everyone in the industry can do to get out of this current situation or at least stabilise the business model until the market upturn comes.

For Jade Cargo – a joint venture between Shenzhen Airlines, Lufthansa Cargo and DEG, a German investment firm – the current downturn is not a time to navel gaze, but to move forward and innovate.

As Kratky notes, there are still a lot of positives for the China air cargo market.“There are a lot of positive things in the future because a lot of positive facts didn’t change,” he says.

Even though China will experience a decline in GDP, there is still growth and it is still the fasted growing economy in the world. In the near future it will be the biggest economy in the world. “We have huge potential in the domestic area – this didn’t change – and this should give us the thrust and confidence to move forward.”

And for the Pearl River Delta, he notes that while there may be some structural changes, there will be other industries that will move in, ones that rely on skilled workforce rather than on a cheap workforce.

“These structural changes don’t mean it is the end of the day, the Pearl River Delta is one of the powerhouse of China and it will remain, there’s no doubt about it,” Kratky says.

He also notes that China is much bigger than simply the three big economic zones and government moves to develop the central and western parts of the country will provide plenty of opportunities for the air cargo and logistics players.

Strategic growth plans
Jade has been busy developing what Kratky says are five key projects aimed in part at dealing with the current crisis, and also building for the future.

The first is a focus on the Middle East – Africa connection. Kratky says Jade has seen volume growth averaging nearly 150 per cent on African routings and this is a market with some clear potential. Unfortunately others have also spotted this growth potential which means increasing competition.

Starting from 15 April, Jade began twice weekly flights using B747-400 ERF equipment from Shanghai via Shenzhen, Madras and Sharjah to the Nigerian city of Lagos. On the way back to China, there is a technical stop in Sharjah which Jade hopes to turn into a commercial stop soon.

Aside from the commercial potential of the African service, Kratky observes that Jade, as a Chinese carrier, is the largest all-cargo airline and as such has a national responsibility. “There is a strong relationship between China and Africa and we see it as part of our responsibility here in China to support this kind of political and economic relationship,” he says.

Another element of its strategic planning is to connect Shenzhen to the US. It still makes sense to have a footstep into the biggest economy of the world – the US – and connect it to the second biggest and fastest growing economy which is China, he says.

“However, we cannot do it by burning money on every flight,” he says noting that his team has poured over all the possible options, but its just not commercially viable. “The only way we can foresee doing it in the near future is by teaming up with partners. We will not be able to do it on our own,” he says adding that Jade has recently started talks with potential partners that look“promising”.

The next area Jade is focusing on is to offer what he says are “capacity solutions”.“We sit together with our customers and listen to what they need. We ask them, what do you want, where do you want to go, how often, how much capacity do you need?”

In this current climate it is something that Jade’s clients greatly appreciate, and as Kratky notes, its as much about building relationships for the future as it is for the immediate term business.

It basically involves creating tailormade solutions for the client. The first came to fruition last year with Jade operating between two Chinese city pairs for a particular client, and soon Jade will implement a similar solution for a large customer between Shanghai and Amersterdam.

Another important project is to develop a feeder network connecting Jade’s international routings with the main cities across the whole country. With a successful pilot completed last year, Kratky says there are a number of small issues like IT processes to be ironed out, but the system should be in place soon.

“We will connect Tianjin to all major cities in China,” he says, acknowledging that relying on the belly capacity of A319/320 passenger aircraft doesn’t provide much spare capacity, it is a start to something greater.

“This is a beginning, we can develop markets, we can develop customers and we can establish routings that once they grow and are stronger we can then think about connecting those areas directly to the international network with direct uplift.”

Jade has been in discussion with several cities and governments to get support for the idea and Kratky highlights that it directly supports the government’s ambition to develop the central and western portions of the country.

Much of this effort he concedes is for the future, “but we think now is the time in this difficult situation to make the right decision which will bring the fruits in the future.”