van Biesen

Cargolux’s CEO has warned that the carrier will need to take “some hard decisions” as it reviews its operations.

In an interview with German publisher DVZ, Richard Forson, who took over from Dirk Reich in August, shed doubt on the very survival of the carrier in its current form, which faces stiff competition and a poor market.

“Can we survive as a main deck carrier within the rate environment we undergo now?” he asked.

And he added that the review would determine “whether the airline is sustainable in terms of its current environment, but more importantly to position it for business in the 21st century”.

Mr Forson also told DVZ  Cargolux may have to diversify into “other areas…maybe unrelated to air”. And that it is looking jealously at its cheaper operation, Cargolux Italia, a known cost-cutter.

Cargolux, according to a source close to the airline, has twin difficulties. During its unhappy and short-lived 35% share sale to Qatar Airways, the Luxembourg government allocated the Doha-based airline fifth freedom traffic rights, under a 2011 bilateral air services agreement. As a result, this summer Qatar announced that it was partially shifting its regional European cargo hub from Liege to Luxembourg.

The airline source noted that, for the time being, the move was not a great threat to Cargolux as Qatar’s cargo was trucked to Liege – and now would simply be trucked to Luxembourg. The concerns would come if Qatar added significant capacity in Luxembourg and began to eat into Cargolux’s market share – a distinct possibility.

According to the source, the agreement was never changed after Qatar pulled out, either due to an oversight by the government, or because of heavy investment by Qatar into Luxembourg’s financial services sector.


Richard Forson

Cargolux’s other problem is its Chinese hub in Zhengzhou.

“Having a hub at Luxembourg already puts Cargolux on the back foot – it must truck in its cargo, adding both cost and time to the operation. With a similar, secondary hub at Zhengzhou, where cargo also requires trucking, it doubles its disadvantages and adds cost.”

Add a poor yield environment – September rates are at their lowest point in four years, according to Drewry today – as well as the requirement to launch Cargolux China, and Cargolux’s position starts to look precarious.

Cargolux admitted last month it was “no longer in a position” to continue covering security costs and re-introduced a surcharge, which had been folded into rates two years ago.

However, it is one of very few carriers investing in cargo. It received its 14th 747-8F aircraft at the end of last month and said yesterday it was in talks with Iran Air over possible cooperation.

The source believed Mr Reich, CEO for two years, had not always acted in the best interests of the Luxembourg airline.

Mr Reich left the carrier in August to “spend more time with his family”. That turned out to be true – in the guise of a new company called R+R International Aviation, a family-run business which is opening an office in Zhenghzou. It plans to offer “senior advice and investments in the fields of aviation, logistics, e-commerce and China”.

The Loadstar’s source claimed Mr Reich had been “a yes man” to the Chinese, putting interests in Zhengzhou above those in Luxembourg.

Mr Reich was recently awarded the Yellow River Friendship Prize “in appreciation of his outstanding contribution to the economic development and social progress of Henan Province” by its governor, Chen Runner.

Perhaps this strategic review will put the Chinese operation and new airline Cargolux China – its launch next year with three 747Fs appears to have stalled – under rather more critical focus.

Cargolux emailed a reponse to The Loadstar: “The reason for the review is to position Cargolux for business in the 21st century in the industry.  As an airline, we are constantly reinventing ourselves to remain competitive, to serve the changing needs of our customers and to drive innovation in the industry. It is what a successful company does to remain at the top of its game and it is something that Cargolux has always done in the past. A strategic review is part of our constant development.  It helps us to deal with the volatility of the industry and shows us how we can become stronger as an airline. 

“Our operation in China is part of our business strategy and will remain an important element thereof.                                                          

“The review serves to ensure that Cargolux is in a much better position to compete in the 21st century, taking into account the competitive environment, the regulatory environment and any other boundary conditions  that are applicable.”

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  • Darryl Becker

    October 25, 2016 at 6:02 pm

    “The Loadstar’s source claimed Mr Reich had been “a yes man” to the Chinese, putting interests in Zhengzhou above those in Luxembourg.”

    The Cargolux management, the Luxembourg government and the social partners (the aforementioned 3 very likely includes the “source”) have said yes to China a long time ago.

    “Perhaps this strategic review will put the Chinese operation and new airline Cargolux China – its launch next year with three 747Fs appears to have stalled – under rather more critical focus.”

    Nice load of wishful thinking and a shred of hope for some emotional satisfaction which, fortunately for those that seek it, will not materialise.

    The strategic review will finish with a lame 15 minute summary presentation about 2 years from now in front of an EXCOM that will consist of at approximately 50% new faces when compared to today. The conclusion will be that it was a nice idea but the review became obsolete 8 months into the process due to changing market conditions and the course of Cargolux will continue unchanged. Unchanged since it cannot be changed. Should the review by then have come up with proposals that infringe upon the social peace, they will not be taken on.

    The usual survival by flexibility, fire fighting, and capturing every extra charter possible will be the MO for a long time to come.

  • the analyzer

    October 27, 2016 at 4:17 pm

    Nice comments from Mr Becker indeed, but lets at least expect that the newly hired VP Corporate Development AND Strategy, Mr Bannerman gets a decent salary for producing more than just a 15 minute summary presentation. 🙂

    This (for sure not very cheap ) Study now called in by a former “Qatari Man” positioned in Cargolux and who becomes CEO only in the second round (in the first round he was obviously not yet good enough for the president of the Board as that round was won by Mr Reich) shows that Cargolux has a Managment problem on high level as they dont know what to do and in what direction to go.

    The Quality of the majority of the commercial VP’s and Directors hired recently by Mr Reich is another example of desperation. I must admit, today its very difficult if not impossible to find the right staff. You just can’t get the right Staff.

    This not because Aircargo has changed but the Cargo itself has changed, business has changed and nobody tells anybody what happens after globalization reached its peaks. So let some visionary and creative, modest people take over the commands of this company. I doubt you can find those people among the boardmembers and shareholder of Cargolux.

    For the rest you dont need any big Study or a Crystal Ball to find out that Cargolux has too much capacity and a big “waterhead” creating lots of costs, thus hampering the productivity and creativity within this Company. The few additional charters they may capture/fix with all those 747 is not the key to success for the future but at least good to polish the cashflow. Althoug getting rid of some 747 will do it as well :-).
    An opportunistic “firefighting” and flexibility strategy can also not be a longterm solution as it impossible to combine it with the adminstration, procedures and control functions in place.

    Lets also not forget that the chinese investors have lots of shares and expect some return over investments. Unfortunately double Hubs (or even triple Hubs if we consider Italy as well) create double costs instead of double revenues ! the “hubbing concept” has always been used in Aircargo business as a cosmetic tool to seal cooperation/mergers/acquisitions by very innovative and creative Managers. History will tell.

    finally if the social peace has not to be infringed by those drastic measures which show up at the horizon, give the Luxembourgers what belongs to the Luxembourgers namely Cargolux. As long as no sacrifices will be done ….Mr Becker is right in his comments ….nothing will change. 🙁