Volga-Dnepr Group: A new approach to the expansion conundrum

Robert van de Weg is well known in the air cargo industry. That is partly down to the fact that he has spent the last two-and-a-half years working for AirBridgeCargo (ABC) Airlines, one of the industry’s most well-known cargo carriers, but also because of the impressive list of companies he has worked for in the past.
Van de Weg started his air cargo career at KLM in the Netherlands in 1992, spending more than nine years with the airline and ultimately holding the position of vice president, KLM Cargo.
In 2002 he joined Atlas Air as vice president Europe, Middle East and Africa and senior vice president sales & marketing, before joining Cargolux in 2003 as its senior vice president, sales and marketing.
Then in May 2014, van de Weg joined ABC as senior vice president of marketing and sales. In October he was promoted to the post of senior vice president of sales & marketing at the Volga-Dnepr Group, parent company of ABC.
Van de Weg’s promotion couldn’t have come at a better time as the air cargo industry is going through a period of improvement, with growth at Volga-Dnepr outstripping industry-wide performance.
New aircraft
One of the reasons for an improvement in Volga-Dnepr’s demand figures in 2016 is the fact it has been busy adding new aircraft and routes, which have resulted in tonnage growth of as much as 30% year on year each month.
Van de Weg says that “as long as the aircraft keep coming, this [growth] trend will continue”.
The fact that the carrier confirmed an order for 20 B747-8 freighters earlier this year, with five already delivered and two more due to arrive next year, means that the industry should expect to see continued growth at the airline for some time.
“Of course it has not been easy to do and it’s a very tough job for the organisation, but so far we have been managing it quite well,” he says.
“Circumstances were not really in our favour while we were doing this because markets have essentially been flat and we have seen signs of life only since August where growth seems to be accelerating a bit and actually, as a matter of fact, right now it is very good.”
So what has caused the recent increase in demand in the industry?
Van de Weg says there are four main reasons for the boost. Firstly, he says there is always a peak around this time of the year, although he does admit this varies from year to year.
The second reason, and possibly the main reason, for the boost was the perception that there would be plenty of spare capacity in the market.
He says this led shippers to believe that there was not an urgent need to move cargo earlier in the year because it didn’t appear there would be any problem obtaining space during the peak.
Shipper rush
In turn this created a rush as shippers began putting their supply chains into action ahead of the Christmas holiday.
“The summer and spring of 2016 were pretty dead and what typically occurs then is that shippers and forwarders do not prepare for the upsurge very well because they don’t feel the sense of urgency,” he explains.
“In 2014, it was very strong in spring and summer and people were already getting nervous in June and July, thinking ‘my goodness what’s going to happen in October, it’s going to be havoc’.
“So everybody prepared early and when these months actually came there was no havoc at all.”
He also identifies the need to re-stock inventories and some pick-up related to the bankruptcy of container shipping firm Hanjin, one of the largest in the world.
However, he adds that the Hanjin boost happened in late September and early October and has now gone.
He says that yields are also starting to improve on the back of the increased demand.
Van de Weg says that the ad-hoc market in Asia has seen yields “skyrocket” to levels not seen for a couple of years, while prices from Europe to Asia are also improving.
Other markets are not performing quite so well at the moment, he admits.
Looking to the year ahead, van de Weg says: “The most common school of thought is that it will be back to  relatively flat next year and that is our assumption as well.
“But you always have to imagine an upside and a downside for that.
“I think there is some hope to an upside because if indeed there continues to be 4%-6% airfreight growth that is a clear sign that things are picking up.
“And then there is no reason why it won’t continue. An upturn in airfreight tends to last about 12 months, so it could continue.
“It is perhaps too early to think that is the most likely case, but I am personally cautiously optimistic that we may have seen the worst.”
The improvement in demand figures is also well timed because of the aforementioned fleet additions.
But is van de Weg concerned whether demand will increase fast enough to cater for the expansion?
Future capacity shortage?
He says that there could well be a shortfall in freighter capacity over the coming years.
He explains that between 1997 and 2005 there was a boom in orders for B747-400 and MD-11 freighters, but these aircraft are now reaching an age of 20 years and could soon be retired, especially if oil prices start to increase, making them more uneconomical compared with newer more fuel efficient aircraft.
“I think we will still probably face a few rough years, but I also believe that you can make a scenario that by 2020-25 a lot of that capacity will start to be retired, especially if there is another rise in oil prices, and then the situation could inverse.
“But of course we still have that overhang of capacity that was built during ‘the sky’s the limit’ times.”
While van de Weg’s new role marks a step up the ladder, it is also in line with a strategic shift, with all airlines under Volga-Dnepr being marketed as a single business to certain customers.
This means customers won’t have to talk to Volga-Dnepr when they want a charter flight and then ABC when they require a scheduled operation.
“Not all customers, but there are many customers, require services from all our businesses so we want to have a co-ordinated approach,” van de Weg says.
“Of course there are plenty of customers that just use ABC and for them nothing will really change, but there are other customers that use the various services and we want to approach them as one.
“Instead of just making [our company tag line] ‘cargo supermarket’ a statement, we want to really execute it.”
Van de Weg estimates that as many as 60% of customers in the company’s portfolio regularly use the services of more than one of the Volga-Dnepr Group’s airlines.
To spearhead the change in approach the company will focus on four vertical sectors where it will be proactive towards customers with the new single company strategy.
Those four sectors are: aerospace, oil and gas, government and humanitarian, and energy and heavy machinery.
“So on those four segments we are proactively identifying customers and traffic flows that we want to promote and work with this concept,” says van de Weg.
“We are not just saying to these customers that you can approach us as one, but we are also actively trying to promote the group of companies with one face.
“Of course that doesn’t mean we won’t target other sectors, but those are the ones who we are really going to promote this approach to because we believe that in these segments there is the most potential for us.”
Van de Weg said Volga-Dnepr had started the single company approach earlier in the year and had already seen promising results in the aerospace and heavy machinery sectors and while its oil and gas figures were improving, the sector overall continues to struggle because of low oil prices.