IAG focused on growth
10 / 06 / 2015
IAG Cargo remains focused on capacity discipline, asset utilisation and its flagship premium product range.
David Shepherd, head of commercial at the cargo arm of British Airways and Iberia, says that the group’s Prioritise Express product and its temperature-controlled Constant Climate offer for pharmaceuticals have both seen substantial growth.
“The Prioritise product has grown a lot over the last three years and we have increased our ground handling capability at Heathrow in order to cope with demand, and we have managed to grow into that capacity.”
Constant Climate sees more than 100 IAG Cargo stations around the world quality assessed for handling pharma, while the airline is actively engaged in a training regime for companies handling pharma.
Says Shepherd: “The pharma product has grown massively over the course of the last five years. We continue to have a niche in that market where we have convinced not only our freight forwarding partners, but also the end suppliers and customers, that we have a demonstrable capability in moving pharma.”
IAG Cargo’s mix of our business in the premium category has grown according to the carrier’s stated strategy.
Adds Shepherd: “Continuing to provide the right level of ground handling capability will remain very important, making sure that we not only have the capacity but also the processes and capability to keep the customer happy whenever they are prepared to put that trust in our hands.”
But with so many airlines and airports proclaiming their pharma-handling credentials, is there the potential for this high yield sector to become commoditised?
Not so, says Shepherd: “If we look at the way that the regulation has gone over the past three years, you have seen the US Food and Drug Administration (FDA) and its European counterparties increase the level of regulation on the transportation of pharma. They understand the importance of ensuring temperature-controlled integrity throughout the transportation of the goods.
“Also, as patents begin to unwind and generic production increases, the regulation over the transport of lower value goods is going to remain quite high as well. It remains paramount that airlines invest in the supply chain infrastructure required in order to set the pharma manufacturers mind at rest – that you have the capability to maintain the integrity of their product.
“We believe that we have done that.”
But have not too many air cargo participants jumped on the pharma bandwagon?
Answers Shepherd: “There are lots of airlines who say that they have a pharma product, but very few that can prove with Good Distribution Practice (GDP) authorisations that they have the processes in place, and very few of them can convince the end supplier that they can maintain integrity of product in all circumstances.
“It is an expensive sector of the market to be in and you need to invest, and that is why I do not think it will become a commodity. Only those that invest will succeed.”
IAG Cargo has also introduced a single freight rate and not what is termed ‘all-in rates’ by some sectors of the industry.
Adds Shepherd: “Just to be clear about that, we don’t have surcharges anymore. The customer gets a single freight rate, once again something we have done in response to customer demand, something that we didn’t do lightly. We considered our approach to pricing very carefully before implementation and consulted with all our customers, taking the right level of time, and paused for thought before executing that policy.
“The feedback from customers is that it provides simplicity, more transparency and that they quite like it.”
There is much talk in the industry of capacity discipline, but how does that manifest itself at IAG Cargo?
Shepherd points to the IAG Cargo decision last year to end a lease on three B747-8Fs, switching instead to a space purchase programme on Qatar Airways freighters, stating: “We have also been quite tight in how we add more capacity into the market.
“We work with our passenger business in terms of what type of aircraft to put into which specific markets, aligning our capacity with customer demand, and we are allowing ourselves to continue to procure freighter capacity.
“You hear a fair bit in the media that we are out of the freighter market, but we are certainly not. We link Europe with the UK in order to grow our market share in Europe and we serve specific lanes with freighter lift, we just happen to procure it in a different way.
“We think that our business model is absolutely the right way to be and that it gives us the capacity discipline that we talk about.”
IAG Cargo is perfectly happy with its business model of network bellyhold and purchasing capacity on someone else’s maindeck.
Said Shepherd: “The vast majority of cargo that flies on freighter aircraft is suitable for lowerdeck lift. That is a fact, and therefore I don’t agree that you need freighters in order to run a networked passenger operation.
“We retain a position as top ten cargo airline in IATA rankings and we don’t have any freighter aircraft. We are quite comfortable in that particular skin.”