Speaking at a press conference at Amsterdam Airport Schiphol in mid-April, executive VP Cargo, Eric Varwijk, said that “times have radically changed” in the air cargo sector. He believes these changes are structural requiring not short term fixes, but a long term strategic view as a result of the ongoing flood of widebody passenger belly capacity in the industry that is rendering maindeck capacity not just surplus, but highly unprofitable.
“What we see that this moment is that the results from our bellies, the results from our combis – thanks in part to the recovery and also as a result of our cost reductions – are improving and we believe we are on good plan,” said Varwijk.
“But on a number of freighter lanes we don’t see the results, at least not improving results. So that is why we continue to study the future of some of those freighters. We constantly study our freighter fleet and we will continue to do so for the next couple of months and we will also discuss with our supervisory board… and all options being from simply continuing with the ten aircraft to further reducing to partnerships with other outside parties and any other option is on the table,” he said.
Noting the changes the industry is undergoing, Varwijk said the air cargo sector is “very much obsessed with freighters,” but more important is taking care of customers and getting their goods from point A to point B in a timely fashion. How that’s actually accomplished is secondary he adds.
“I think freighters in the cargo industry have always been the symbols of the industry,” with those carriers who relied only on bellies, having less visibility in the marketplace. “So when you talk about AF/ KLM, when we introduced freighters in the 1990s we were very proud. But we also know that times have radically changed,” he adds.
At that time cargo was growing twice as fast as passengers and it basically reached a point in which cargo could not be carried anymore in the bellies because the bellies were basically exploding use to the cargo demand for the carriers.
“But at this moment when we look back over the past five years, passenger growth has outpaced cargo growth which means load factors have dropped and it also means looking at the worldwide capacity there has been a huge over capacity.” The only variable cargo players can play with is the freighters, he adds noting this is exactly what is occurring in the market currently as carriers – European and Asian especially – park, retire and sell off freighters.
Customer commitment
Whatever decision the group makes regarding its freighters, Varwijk is emphatic that it remains committed to air cargo and to serving its customers. “We know that only between 5-10 per cent of air cargo needs maindeck and whatever we decide we will still have our combis flying for the years to come – until 2020 – and we can also look at flexible options with other partners.
“We continue to be committed to serve our customers and how we will actually do that is part of the worldwide massive change in the industry where more and more we see more bellies and bigger bellies taking over the role of a number of freighters.” He does however see a permanent role for freighters, “but I think more and more freighters will become a niche product next to the vast majority of bellies.”
Meanwhile, AF-KLM-Martinair continue with plans announced last year to reduce the group’s freighter fleet – which at one time stood at 25 freighters – from the current 14 down to 10. The first aircraft, an MD-11, will exit in the coming months followed by a second one, a B747 will go out and return to the lessor at the end of the year with numbers three and four going out of fleet by early 2015. This will leave the fleet standing at three B747-400Fs and 5 MD-11Fs at Amsterdam Schiphol and two B777Fs at Paris CDG.
As part of its ongoing commitment to its cargo customers, the carrier is aiming to be the preferred airline and a European leader in terms of air cargo services for its customers. “Our mission is to become profitable again by 2016 and to be amongst the top three carriers in terms of being preferred by customers commercial service-wise and qualitywise,” Varwijk said.
High yield products
This emphasis will see the carrier investing in beefing up some of its highyield products including is pharma and express offerings which have now been corralled into two distinct business units.
AF-KLM also plans on deepening it’s the partnership it has with US carrier Delta on transatlantic routes. It will also expand its network by introducing new services to seven intercontinental destinations, among them Mumbai, Santiago de Chile, Panama City, Tokyo Haneda and Jakarta. In order to tap the growing pharma and healthcare sector, the group recently increased the number of weekly freighter flights from Chennai and Mumbai by one and two, respectively meaning full freighter services from Mumbai would double from two to four from 1 April, while those from Chennai would increase from three to four. And a new freighter service to Brasilia saw its inaugural flight 100 per cent filled with pharma shipments.
“From the very beginning we’ve set the standards for pharma air freight solutions,” said Ramon Delima, VP Variation and Industries at the Amsterdam press conference. The carrier group aims to take it up a notch or two by continuing to invest – €25 million over the next four years in state-of-the-art services like dedicated cool storage facilities worldwide, active container handling in Schiphol and CDG and by introducing real-time RFID monitoring of temperature critical shipments along the entire supply chain in partnership with logistics giant Kuehne + Nagel. With a 20 per cent growth in its pharma business in the first quarter of 2014 year-on-year, AF-KLM aims to grow its business 10 per cent annually.
And rapid e-commerce growth around the world which has led a five per cent annual growth in international transport is also driving a study within AF-KLM as to how it can better tap the opportunities of this dynamic sector which is already growing at seven per cent for the Franco- Dutch carrier and comprising a full 12 per cent of the cargo division’s turnover. The carrier is targeting a 25 per cent turnover contribution from express and mail by 2020.
