CAL: Still room for a niche freighter specialist

YOU MAY think that the era of all-cargo airlines with a couple of B747 freighters is now past, but at least one longstanding player in the business is still thriving and looking to expand.
Cargo Air Lines (CAL) was founded in 1976 to provide export lift for Israel’s agricultural producers and today operates two B747-200Fs. But in this era of high fuel prices and growing long-haul belly capacity, chief executive Eyal Zagagi is still eyeing growth opportunities on five continents.
It is perhaps worth addressing the aircraft issue first. The carrier’s -200Fs are factory-built with nose doors, which Zagagi says is critical for handling the kind of outsize shipments that can fly only on freighters – and a key advantage in an industry that is increasingly switching to B777Fs that do not have this facility.
But the carrier realises the need to upgrade and has sourced two B747-400Fs (also factory-built) for delivery in August and October. They will replace the -200Fs on CAL’s core services between Tel Aviv, Liége in Belgium and New York JFK, but what will then happen to the -200Fs has not been decided. “We are still considering what to do with them and are looking at several options,” says Zagagi.
The B747Fs are not CAL’s only maindeck lift. It also codeshares with TNT on its B777F flights from Liége to JFK and back. This makes the carrier one of the most high-frequency maindeck operators between Europe and the USA, according to Zagagi, with daily flights, and pick-ups and deliveries in both directions.
And while CAL is a private company, which does not publish results, Zagagi insists it is profitable. “We are surviving very well, with annual revenue of around $150m, and we are growing,” he says.
How then has CAL managed to thrive when other small maindeck airlines have not? A key answer is its focus on vertical segments whose needs can be met only by all-cargo services. Zagagi says two thirds of its business is non-standard. “We like to say that non-standard is our standard,” he says. “It is what has enabled our company to be profitable year after year.”
Its original specialisation of perishables exports for Israeli growers is still important, but it also carries a lot of pharmaceuticals, live animals, aircraft engines, oversize items, fine arts and even orchestral instruments and equipment. To handle these it has its own ground handling company – Liége Air Cargo Handling Service (LACHS), a Belgian outfit that it acquired outright in 2005 – and a network of dedicated trucks operating throughout Europe and the USA.
Perishables exports from Israel are a smaller part of the mix than they were 10 years ago, though Tel Aviv-Liége traffic (and vice versa) still accounts for 60 per cent of volumes. CAL is the largest maindeck carrier into Israel, since EL AL has only one freighter, though, with its belly capacity added in, the national carrier is a larger cargo operator.
But Israel is not a growth market these days – “static or even slightly declining” is how Zagagi describes it. Industrial exports have risen to offset some of the decline in perishables exports, but where once CAL’s traffic was more export than import, these days it is the reverse.
“Tel Aviv will always be a strong part of our business and we are proud of our leadership in the Israeli market,” Zagagi says. “It is an excellent market for us and we want to maintain that business. But as a percentage of our total revenue and profit we want it to become smaller through the expansion of business outside of Israel.”
To this end, despite still being headquartered in Tel Aviv, CAL’s main hub and centre of gravity is now Liége. Zagagi and his team are looking for opportunities to grow their operations from there to new parts of the world.
He stresses that this is a measured process. “We are a small airline and always will be, and so we have to add new links at a pace we can swallow.” But he does suggest that the pace is being stepped up a bit. “We have been growing moderately, but we are now taking on the challenge of finding more significant growth,” he says.
One example of this can already be seen. JFK has always been the carrier’s US base, but it has now added some eastbound services out of Moncton in Canada, where CAL’s was the first B747 to land on the newly extended runway. “We initially expected demand mainly from the seasonal lobster and sea agriculture business,” admits Zagagi. “But we soon realised they could also pro-vide us with year-round cargo from other customers, for example in the oil and gas sector.”
The carrier is now looking at the possibility of a third destination in North America – perhaps Atlanta – and at other opportunities in South America, Africa and the Far East. “In years to come we expect to have more lines, but we will do so selectively,” says Zagagi. “We don’t want to duplicate the services of the bigger carriers, but we think that by being small and flexible we can take advantage of opportunities they do not.”
The B747-200Fs could come into play here, with one possibility being to base them in Africa. In this context it is interesting that LACHS – which until now has serviced only CAL – has just taken on its first third-party customer in the shape of Africa specialist ANA Aviation, which has recently moved its operations from Ostend. Zagagi admits that he might not be averse to developing some cooperation in this direction.
The possibility of basing aircraft in Africa also explains what otherwise might be a puzzling aspect of CAL’s expansion wish-list – the inclusion of the Middle East. Clearly geopolitical considerations limit the options for an Israeli company in this region, but the situation might be different for African-registered aircraft. Zagagi says the option of having the B747-400s EU-registered is also being considered.
As for the Far East, CAL already serves this market indirectly, feeding cargo from Asia to Liége via interline partners and then shipping it on to Tel Aviv. This gets over the problem of overflight bans imposed on Israeli carriers by its regional neighbours.
Not all aspects of Israel’s political position are a disadvantage, however. While many Western carriers have had to introduce new security measures in the wake of 9/11, tight security has always been part of CAL’s DNA. Zagagi says this can help to win sensitive or valuable charter business.
“Our procedures and processes in conjunction with the Israel authorities are extremely rigorous, and we also have to be very sensitive about what we carry and where we fly to and from. But that gives us a critical advantage with some types of customer,” he says.
CAL is IOSA-registered, has ISO-9000 for its LACHS operations, has EQUIP (Enhanced Qualified User Program) accreditation from CSafe, and is recognised as a Quality Equipment Provider (QEP) by Envirotainer. The last of these even chose LACHS to be its Liége station.
Armed with all these advantages, Zagagi remains optimistic about the future, saying that while the growth of long-haul belly capacity is a threat “we don’t think it is terrible.
“We will continue putting the emphasis on our verticals and looking for the more lucrative opportunities,” he says. “We do carry general cargo of course, but our focus will be on the higher yield areas that only freighters can serve.”
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