17-08-2017

‘India needs to improve infrastructure to smoothen cargo traffic flow’

cargo

Frankfurt-based air freight carrier Lufthansa Cargo, a subsidiary of Deutsche Lufthansa, increased its freighter services to Mumbai from four to three last month. It also has two freighter services a week operating from Bengaluru, Chennai and Hyderabad. In an interview to BusinessLine , Peter Gerber, Lufthansa Cargo CEO and Chairman of the Executive Board, talked about the challenges of consolidation in the air cargo market and infrastructural challenges in India.

What’s the kind of cargo movement you see coming from Mumbai, and India?

The increase in the number of freighters to Mumbai reflects good market development in the last nine months. Traditionally, we have had a good market in India, including in selling belly capacity on our passenger flights and our freighter presence. Mumbai is the biggest market and we have significant demand, both outbound and inbound, and that is important because the viability of freight depends on having demand in both directions.

The cargo is a lot from pharmaceutical businesses directed to Europe and the US, some fashion; we also see a strong growth in the automotive sector, either as parts or full cars, sent all over the world.

You’ve had a fantastic run so far this year with six-month revenues at €1,158 million. What would you attribute this to?

There are two main reasons — one is a rebound in the market from the lows of 2016. Second is our cargo restructuring programme. Now, 50 per cent of this programme is done and we’re seeing the benefits beginning to take effect. We’ve adopted new systems and processes and are looking for improvements in cost of €80 million. We will see the full benefits from the beginning of 2019.

Recently, the International Air Transport Association said it expects the growth cycle in air freight to peak next year. Does that worry you?

I think that was more a statistical message. The growth rate is a reflection of the previous year. This year was good because the first half of 2016 was weak.

You have joint ventures for cargo with All Nippon Airways, United Airlines and Cathay Pacific. Do you see more such opportunities come up, particularly in Asia where the market is growing?

What we will see is some consolidation. Our industry is still very fragmented. But, we also have to look at the possibility of consolidation — it’s more difficult in cargo than passenger because there are more legal issues.

For instance, you cannot take more than a 25 per cent share in a US carrier. It’s even more difficult to get a percentage of an Asian carrier. The only market where it’s possible is in the EU; so parts of the market can consolidate freely. This is why most carriers are thinking of joint ventures, because it is the closest way to consolidation.

Then there are legal issues, anti-trust immunity, we have to do IT integration, which is very difficult because you need to be able to book on the flights of your partner seamlessly, and you should get the sales and operations team aligned. Other airlines such as Air France-KLM, IAG and Qatar Airways are also integrating. There is some development but we don’t know yet how deep the integration will be or which model will be successful.

Won’t it make sense to look at Asia, as even air freight rates are rising here?

But it’s not easy. The Asian market is growing fast but we don’t have enough belly or freighter capacity to meet the demand. The North Atlantic routes, in contrast, have a lot of belly capacity and we fly additional freighters because there is a lot of demand from the US to get goods out of Europe. But the other way — US to Europe — it’s a weak market.

We would love to operate more in Asia, but we have traffic right restrictions and slot restrictions too. We don’t have the footprint of our passenger part of the business here, which is much bigger in North America.

What would you like to see improve in the Indian aircargo market?

In India, we need to improve infrastructure so the traffic flows can be handled in a smoother fashion. Modern warehouses for cargo are quite high-tech because you need the flexibility to respond to cargo flows. The Bangalore airport is investing heavily in cargo. We see that stakeholders are keen about moving in the right direction. In terms of digitisation, Mumbai is a good example, as more than 60 per cent airway bills are electronic, which is higher than the worldwide average.

But where the IT infrastructure in the whole industry is not as advanced in some markets, they can’t give us the data consistency and quality we need. The airlines, forwarders, handling agents, customs — all parties have to work in the same direction. As the road infrastructure improves, we can link markets where we already fly with trucks; which in turn gives a good road feeder network to our flights.

Are you looking to increase capacity? And do you have plans to invest in India?

We have been successful in recent years in strict capacity management. Last year, when the market was weak we took out capacity, and now when it’s stronger we brought it back. We have 5 options on Boeing 777F. We have to see if it’s the best opportunity because these are old options and prices escalate. We could get new options.

There are plans of other companies that want to sell their aircraft, we will also look at those opportunities. There is no decision on this up to now. On the cargo side, we aren’t planning investments in India at the moment.

Source: The Hindu Business Line 

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