News / Cargolux eyes partnerships with belly carriers in bid for new ACMI business

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Cargolux is looking for belly carrier customers to develop a long-term ACMI business for its freighters.

Under its review of business strategy begun last year, the carrier is seeking airlines that want freighter capacity, but not their own.

“We think ACMI is especially relevant for combination carriers whose core business is passengers and who might not want to invest in freighters,” chief executive Richard Forson told The Loadstar.

“We could make capacity available, and we have identified certain partners for long-term ACMI. We have tested it with one airline and we are now looking at how we can meet its requirements.

“How many airlines we work with will depend on the level of demand. But my view is that the combination carriers will be looking at whether to invest in freighters or not.

“If we can put a product together, we will offer it to all those we think might be interested. We hope to find a partner this year.”

Mr Forson said the strategic review was still under discussion with the board of directors and the unions, but denied there would be a significant change in the business model.

“It’s more about how we become more resilient as a business in a volatile market,” he said.

Key to Cargoux’s future will be driving out cost, he said.

“We are looking at fleet costs: how can we make them more variable? And there are other, discretionary costs – we need to choose carefully when to spend. We are very cost-conscious.

“Then there are variable costs – we are looking at entering into negotiations with our suppliers around the world to bring our costs down.”

He added that the unions were being supportive.

“Our relations are good with the unions. My door is always open. They recognise that these are challenging times, especially when you look at our major competitors.”

The Luxembourg unions have, however, fought vigorously to oppose cost reductions created by putting more aircraft into Cargolux Italia, but Mr Forson pointed out that the four-aircraft limit was only in place until the CWA expires at the end of next year.

Mr Forson would not be drawn on Cargolux’s full-year results, due in April, but said the carrier had “fared better than expected in 2016”.

“The market was weak in the first half, but the extended duration of the peak was surprising. We have flexible capacity though aircraft on an hour-by-hour basis, and were able to offer that in the second half.”

He said: “We want to be more flexible with our capacity and build up a portion of the fleet for that, along with a charter and ACMI side of the business.”

He added that a greater focus on charters and quick reactions to the market had led to a “very good charter season”.

Despite acknowledging strong competition, Mr Forson denied that Qatar Airways’ increased presence at Cargolux’s Luxembourg hub had been problematic.

“Qatar has put capacity everywhere. LUX is just another point at which I have to compete with them. It’s a normal part of business.”

Meanwhile, the proposed joint venture Chinese cargo airline, Cargolux China, has yet to materialise and no date has been suggested for the launch, which was scheduled to be this year.

“The project team is working on the Chinese airline,” said Mr Forson. “They have a timeline, which is on schedule. The date will depend on negotiations and regulatory authorities. Due process is underway.”

He added that the carrier’s Zhengzhou hub was “working very well”, with the carrier moving more than 100,000 tonnes of cargo through it last year. Cargolux, contractually obliged by its Chinese shareholder to increase services incrementally at the hub during the initial period, now only needs to increase capacity depending on market conditions.

But the carrier is eyeing cross-border e-commerce opportunities for the Chinese market.

“It’s on the radar,” said Mr Forson, “how do we participate to a greater extent in cross-border e-commerce? China will be the biggest market by 2020, worth $1trn. Much will be domestic, but there will be international opportunities too.

“Internationally, there are different considerations, such as VAT, customs and so on. But going in and coming out is an area we are actively researching.”

This year will also see the carrier focus on new technology, which Mr Forson said would require “significant investment”.

“We want to get into digitisation, data and transparency with customers,” he explained. “And how you analyse big data, to get more information to make decisions and analyse, in an industry that is so volatile.”

The airline is also looking at replacing manual processes, developing cargo processes and to simplify its business.

“We are actively pursuing technology now. It can take out unnecessary cost, boost yield improvement and set minimum pricing levels – it’s all part and parcel of optimisation.”