Speaking to Payload Asia in Mumbai recently, Emirates divisional senior VP for cargo, Nabil Sultan essentially summed up the position of the carrier’s cargo division when he said simply: “For us there will always be new markets”.
Indeed, considering the carrier’s fleet of over 200 aircraft – all widebodies – flying a network to more than 140 destinations in 74 countries across six continents.
But, the real kicker of course, is the Dubai-based carrier’s aircraft orders that currently sit at phenomenal 380 aircraft – 214 B777s, 96 A380s and 70 A350s – not to mention well over 100 options. Emirates made headlines at last year’s Dubai Air Show when it ordered a whopping 200 aircraft comprised of 150 B777Xs and 50 A380s worth US$99 billion, in one go.
And with that massive aircraft order, to be delivered over the coming years, comes a very substantial belly cargo capacity in addition to its growing maindeck fleet – something that would surely send tremors up and down the spine of many a cargo chief, particularly in light of the market conditions over the last half decade.
But that is precisely the rub: On the face of it at least, Emirates SkyCargo seems largely impervious to the downturn. If one were to look at SkyCargo in isolation from the rest of the industry, one would surely conclude – quite erroneously – that the global air cargo industry was flourishing.
In its most recent results – the first six months of the 2013/14 financial year to 30 September 2013 – SkyCargo saw volumes grow by 5.2 per cent year-on-year, which it self-described as “remarkable” against the declining global cargo trend.
Indeed, International Air Transport Association (IATA) traffic figures from the same period show that globally, freight demand measured in Freight Tonne Kilometres (FTKs) had risen just 0.7 per cent. But the first caveat: These figures were down substantially from its previous full year figures released earlier in May 2013 when SkyCargo celebrated record revenue of US$2.8 billion for the full year on the back of a 16 per cent growth in volumes, to reach an all time high of 2.1 million tonnes.
A second indicator Emirates is not wholly immune to the global contagion is IATA’s regional traffic analysis which shows Middle East FTKs have risen by 12.7 per cent for the same period. So, while Emirates may be well ahead of the global freight trend, it was apparently lagging the regional one, although a number of carriers in the region are coming up from a much lower base.
Capacity influx
And so, with such massive capacity coming into the fleet, is the new head of cargo – in the pilot seat since Ram Menen retired in June last year – worried? Obviously unfazed, Sultan replies without even a hint of irony: “I think we need to order more aircraft”.
“To be honest looking at the future market growth there is a lot of positive vibes between 2014 and 2015 where we will definitely see growth in some of major markets – Europe and also Asia will probably have recovered by then,” he says.
“Already we are seeing some indication of that even though it has been less consistent and that is what the industry has been complaining about. We do see some good future growth and therefore having the capacity available, as and when that peak takes off, will be a critical factor for us ensuring we are able to meet that demand.”
He also assures it’s not an exercise in ‘crystal ball gazing’. “I know in the past there have been various forecasts, very positive, flamboyant sorts of indicators, but I think this time is different. We’ve seen recovery in the European economy, the job opportunities are there, we’ve seen big volumes originating from European markets which naturally creates more jobs and eventually that actually kick-starts growth and before you know it you’ve got Chinese production flowing into Europe and the situation improves dramatically.
It’s a cycle and I think we’ve started to see the initial indicators of that cycle and eventually if it continues, very soon we will see demand exceeding capacity,” he adds.
And for Emirates, capacity also means maindeck capacity. To support its network growth, SkyCargo expanded its maindeck fleet during 2013 by adding three new B777 Freighters bringing its cargo fleet up to 12 with 10 B777Fs and two B747- 400 ERFs, which currently serve 43 global destinations. This year, two more B777Fs will come onboard with two more next year and plans already in place for at least one more in 2016, Sultan says. “So yes, we will definitely grow our freighter fleet because we definitely see demand. It works hand-in-hand for us – additional belly capacity will require additional freighters to feed. As to whether there are plans to retire the two B747-400s, Sultan defers on the question, again pointing to demand growth.
Bellies vs freighters
This brings up the inevitable hot topic in the industry – bellies versus freighters. “In my view freighters still have a major role to play. An airline like ourselves, we would not be able to manage the capacity demand out of certain key production markets if we didn’t have freighters – it’s a critical part of any airline today, especially the passenger airlines, because you are able to deploy it into key production areas and be able to bring in that volume and connect it with your bellies. It is part and parcel and integral to your whole network,” he says.
“Of course the challenge that comes with the freighter is the efficiency and type of aircraft that you operate – if you’re operating the wrong freighter today at $120 per barrel of oil you can imagine the consequence of that, no matter how you shape it, it won’t work. You have to have a new generation fleet that gives you the fuel efficiency and that’s the margin that eventually makes the huge difference.”
But Sultan is resolute on the point that, as an industry, more pressure could be brought to bear on aircraft manufacturers to produce an aircraft that meets the kind of yield that can realistically be generated from the market. “There is no point in them being completely unrealistic in producing an aircraft that is no longer viable, there are market realities and we are governed by them eventually. And if it comes to a point where the yields we are generating versus the tonnage doesn’t make sense, then eventually yes the end result is that a lot of these freighters will be gone and I don’t think that is something the aircraft manufacturers should be proud of.”
He adds that Emirates is working very closely with the aircraft manufacturers and notes that earlier this year airlines and manufacturers had a “serious discussion” in New York, “looking at how we can bring more efficiency, bring more capacity to those aircraft – a whole host of valueadds that we can create, versus the cost structure of producing it.”
Success factors
But at least for now Emirates appears to be doing just fine with its modern fleet of both passenger and freighter aircraft. Pinning down success factors is not always easy, but for SkyCargo among the numerous factors a couple stand out, including its extensive network and fleet to cover that extensive geographic spread. “We look at investment opportunities wherever possible, but from an airline perspective, the fact we have the network that we have today into a lot of major cities and secondary cities in almost six continents across the globe, gives us a massive reach into a lot of these markets,” the SkyCargo chief says.
And the fact Emirates operates 100 per cent widebody aircraft brings substantial capacity to those markets. As Sultan notes, this expansive network enables SkyCargo to pick up traffic from certain parts of the world and export to a different part of the world. “The whole dynamics works – so even though we’ve seen slower economic recovery out of Europe, the fact we have a presence in a lot of other regions African markets, Indian sub continent markets, Asian markets, etc – have helped us to compensate for that and when the equation turned around and we’ve seen the European markets start to pick up and the Asian markets slow down, we were able to immediately put capacity wherever it is needed.”
It is precisely this ability to move quickly to tap markets around the globe wherever there is demand that has turned hard times into happier times. “That has definitely helped us quite tremendously,” he adds. Indeed he points to the fact the carrier started up 15 new destinations last year and for every new passenger route, it is also a cargo route by default. Already in the first two months of 2014 the carrier has begun a new Kiev, Ukraine service and also a daily Taipei, Taiwan service where SkyCargo gains additional belly capacity on top of its existing freighter service in that market. In March the carrier will also start a new US service to Boston.
“For us there will always be new markets. The idea is that every time we launch a new destination, it may not be a major production area, but it might be a good import destination in terms of cargo. Once we have that destination, all of sudden you actually see cargo might be flowing into that country out of somewhere like China, for instance,” again thanks to the vast reach of its network.
“It’s those bits and pieces that add up to sizeable volumes – so yes, some markets might not be a production area in terms of cargo, but at the same time there is no country in the world today that doesn’t import things. There will always be some commodity that will be moving into that market.”
And geography – both in terms of economics and physical location – also plays a key role. The Gulf States are currently enjoying an economic boom, having come out of the global recession fairly quickly and indeed much earlier than many of the key global markets. Much of this, Sultan notes, has been driven by substantial government spending on massive infrastructure projects, such as new airports around the region.
“The region in general and Dubai specifically, is becoming a major hub for cargo movement,” he adds. “It has the facilities, it has the infrastructure, it has the ease of doing trade and transferring cargo all over the world.” And the geographical location – 11 hours from Europe and 14 from the US and Australia – boosts its hub status further. He also reckons that with the growth in the region alongside the Gulf location, there is “probably sufficient business for all of us put together,” in reference to the rapid growth of neighbouring airlines.
The Qantas partnership
Another key development that has helped enhance Emirate’s network and SkyCargo’s volumes is cooperation with Australia’s Qantas. Pointing out that the partnership with Qantas is “entirely different from a normal alliance,” which Emirates has always maintained is of no interest to it, Sultan added: “We still stand firm on the issue of being part of an alliance, because we believe if there is going to be a true partnership then both the parties need to be compatible, there needs to be synergy that actually makes sense – only then that alliance becomes meaningful.”
The problem with traditional alliances, he says, is that typically there is massive overlap on routes. “This is where you’re making alliance not for the sake of actually cooperating and being able to complement each other, but competing over the same routes. So the whole purpose is lost.
“I think our cooperation with Qantas makes perfect sense, we needed a certain sort of access into the Asian/Austral markets and they needed access into some of the European markets and when you put all that together it’s a perfect match,” he says.
“There is a key synergy there, it makes sense and we both contribute as much as possible; there’s no point of conflict and I think that for me, is where the success is in this whole relationship.” On the cargo side of the business he says the logistics of the partnership has been worked out and the two carriers now have seamless capacity exchange between them. “We’ve seen a huge benefit on the cargo front,” he said, with shippers virtually anywhere in the world able to book Emirates and Qantas via Dubai, for instance, to a domestic point within Australia, seamlessly with rates quoted for the entire journey. “The whole distribution channel has become much easier and with the massive combined network we are able to get access to markets within Australia, New Zealand, the Far East and so on.”
“We’ve done the same thing where we have a lot of strength – Germany, Italy, UK where Qantas either has suspended their operations, had a smaller or no presence – and this is the true value of the partnership that works in both our favour,” he says.
Hub expansion
Of course all this adds up to pressure on Emirates’ hub, which Sultan notes is “a solid hub that is functional, efficient and today we have almost 1.2 million tonnes throughput capability.” Expansion plans have already commenced, including a shift to the new Dubai World Central Al Maktoum International Airport (DWC) by April, which will include a new cargo terminal with an annual capacity of 750,000 tonnes in the first phase which can be further expanded by an additional 300,000 tonnes in the second phase. Additionally an expansion to the carrier’s facilities at Dubai International Airport (DXB) next to its existing Cargo Mega Terminal is already planned which will provide an additional 400,000-700,000 tonnes annually.
Although SkyCargo is moving shortly to DWB, the passenger side will remain at DXB until at least 2025 according to current plans which seemingly creates a logistics headache as a result of the passenger belly cargo and the group’s freighter fleet being split between the two airports.
“To be honest there will be no impact on belly cargo – at the moment we are operating everything out of DXB and with the capacity constraints at the facility, DXB is becoming a real bottleneck for us,” Sultan explains. “It’s a bit of relief for us to move those freighters into DWC just to give a little bit more room for our passenger bellies and again we’ve managed – there’s been a lot of logistical work to connect the airports and there’s almost a virtual corridor that connects the airports with bonded trucking. It’s quite seamless,” he says, adding that to move a container from one end of DXB to the other end would probably take more time than bringing it to DWC.
“So it’s that kind of approach that we’ve taken with the investment in creating almost a cross dock station at DXB to ensure that all the trucks that come in easily access the airport and facilitate all the containers after they come off the aircraft.” And of course SkyCargo benefits from the most modern of terminal facilities at DWB which was purpose built to its own specifications.
Competitive landscape
The story wouldn’t be complete without scratching an issue that, like a bad rash, just won’t go away. Being ‘big and bold’, not to mention successful tends to attract critics. And in the case of Emirates there is a legion of them around the world and they unite from unlikely positions – from airline executives, to trade unions, to politicians – in their view that Emirates doesn’t play fair, that it is a state-subsidised carrier with deep pockets and a penchant for throwing caution to the wind in its network and fleet expansion.
“Sometimes I think we are a victim of our own success,” chuckles Sultan. “I think quite frankly if we’re not being criticised by anyone than I would get really worried. People would only make noise if they see their competitors doing all the right things and I question whether they are doing the right things or not, but one can always find excuses for the inefficiencies of their own operations.”
“Emirates has been quite clear – we understand exactly every single aircraft that will come in – where it’s going to be operated, the planning department goes into the detail of knowing exactly the hours, the slot time, everything. This is a plan that has been mapped out from A-Z.
We don’t just go out and order aircraft and we’ve demonstrated that over the last 25 years – there’s good, detailed studies and planning that is conducted and then accordingly the aircraft are being ordered. “Clearly there is a demand for the Emirates product across the globe – we’ve seen it work as we’ve deployed capacity into a new market, or an existing market where we’ve increased our capacity. The path of our product offering has been almost like a magnet – it has grown passengers and cargo simply because of the product offering,” Sultan says.
