AirBridge leaps ahead

In an era when many  European carriers are shedding their freighters as uneconomical, AirBridgeCargo’s recent expansion has been eye-watering.
The carrier clocked up 17% growth in the first half to 218,000 tonnes, following an almost identical rise in full year 2014. Then at the Paris Air Show in June it signed a MoU with Boeing for twenty – yes, twenty – more Boeing 747-8Fs.
Given this, it is a bit surprising to hear Denis Ilin, AirBridge’s executive president, talk about “the pretty challenging times we are going through”.
He admits that the headline numbers for the carrier were good in the first half but says “they did not come easily, I can tell you”.
Among the headwinds are a slowing of exports from China to Europe – AirBridge’s main trade lane. Yields out of China, which Ilin describes as “not healthy for a couple of years”, fell even further in the first half of 2015.
So why the stellar results and the big freighter order? One thing that Ilin firmly refutes is that AirBridge is dumping rates to win market share.
“My focus is not at all on tonnage,” he insists. “I don’t care about tonnage but about margin. 
“We are not a state company and we are not supported by banks, so I look at my margins every day. We are definitely not paying for business. We grow as long as we can grow profitably.
”So how does it grow? One answer is increased capacity. AirBridge took delivery of its sixth B747-8F in October, but also added a 747-400ERF in August of last year, a -400F in February and a wet-leased -400BCF in June.
That follows its pattern in recent years of adding two aircraft a year. In all, the fleet is now 15 aircraft – six B747-8Fs, five ERFs, three -400Fs and the BCF. The goal is to have 25 B747Fs by 2022, which means 10 more aircraft over seven years.
It is in this context that the twenty B747-8F order has to be understood.
“Yes, it is a big number, but in the medium term it is not a huge amount of capacity,” says Ilin. 
“Some of the -400Fs are old and will need to be replaced, and it is also our aim to become a global carrier. 
“We currently have one big trade lane from China to Europe and back and already use 15 freighters.
“To be a global carrier, we will need more. And the best time to buy is not when everyone else is trying to do it, but when the market is low and you can get a good deal.
”The 25 freighter fleet will presumably be all or mainly 747-8Fs, though Ilin praises the ERF and says he hopes to operate it as long as practical. He also does not rule out at some point getting mid-range aircraft – A330Fs or 767Fs.
Just adding capacity doesn’t mean it will get filled, or be filled profitably, however. Over the past year and a half Ilin identifies several factors that have helped AirBridge do that.
One is what he calls “basic quality” – simply making sure that the clients get what they expect. 
“The customer wants us to collect his cargo when he wants, to deliver it when he wants, and have security and no damage, and we have been concentrating on all those things. We have also re-designed our schedule to enable transit from origin to destination within 48 hours.
"This has involved improving processes at the carrier’s Shere-metyevo hub so that cargo reliably makes connections.
“Two years ago we had just 180 connections through our hub in the summer season: this year it is over 600,” says Ilin.
“We started to really care about flying on time and that meant our regions could offer a lot more connections. That opens up new business opportunities.
”All of this success does not seem to have been dented by US or European Union sanctions against Russia over the situation in Ukraine, imposed late last year.
Ilin says the Russian economy has undeniably been affected by the fall in the rouble, which hit purchasing power for imports, but he says it is impossible to tell if the fall in the oil price would have caused this anyway.
Otherwise the main impact of sanctions was the uncertainty that they created for AirBridge customers when originally imposed.
“But apart from some procedures that had to change it has been business as usual, and now that customers have seen that, the nervousness has gone.
”There is one final factor which is aiding AirBridge, which is that other carriers are pulling back from markets, leaving them ripe for the picking.
Ilin points out that destinations added in the past year – Helsinki, Dallas, Los Angeles, Basel – are not virgin territory. 
“Other carriers abandoned them, but customers there still wanted someone to come and pick up their cargo.
“Our hub system allows us to be pretty flexible in introducing new destinations to Europe or Asia or creating triangular routes.
“Some of these markets may be small markets, but they are good enough for me, good enough for two stops a week.
“We have also grown in the major hubs, such as Frankfurt, Amsterdam, Shanghai and Hong Kong. 
“Suddenly we find we are one of the dominant players. 
“And customers see us as a more stable provider of capacity than other carriers.
”Despite this he is honest enough to admit that the first-half figures were somewhat flattered by the US west coast ports crisis, which boosted February and March figures.
“Without them we would have still had double-digit growth, but not 17%.
”From China to Europe, AirBridge squeezed out one percent tonnage growth, though this “took ten times more effort than usual”.
Interestingly, traffic from Europe to China was up 24% and is almost approaching parity with westbound cargoes in tonnage terms. 
There is still a big yield gap, however, even with the recent rate falls out of China.
Looking ahead, Ilin says that after a poor second quarter and a stable July, the peak season looks to be a limited one in yield terms but respectable in volume.
“So this year will not be fantastic, but if we can repeat in the second half what we did last year, we will still have 10%-11% growth for the year.
”For the future, the plan is to hold onto existing markets and branch out into new ones. A recently launched freighter from Moscow to Shanghai and on to Los Angeles and Amsterdam is a sign of things to come.
Twice a week now, Ilin hopes to boost it to five times a week by the year end, with two weekly services out of Hong Kong and three out of Shanghai. 
A service to Singapore will also start in September, aimed at opening up South East Asian markets, and after that the Middle East and Africa will be on the agenda.
Asked if that will not take him into highly competitive Emirates/Qatar/Etihad territory, Ilin says: “I thought that initially, but I have customers who want us to fly from, say, North America to the Middle East. 
“Global accounts want a global carrier – one who can do a bit to China and a bit to the Middle East.You could call this niche business, but when I look at markets I don’t look at averages, but at specific customer requirements. That is what we do every day and that is how we build our business.”   ■