David Kerr - Etihad Cargo strikes a balanced approach
05 / 05 / 2017
David Kerr runs a $1bn cargo business at Etihad Airways but grimaces at the phrase “billion-dollar man”, emphasising instead the teamwork behind the success.
Interviewed against the backdrop of IATA’s World Cargo Symposium (WCS) in Etihad’s home hub of Abu Dhabi, there was plenty to discuss: digitisation, disruptors, protectionism and a pervading air of industry optimism.
As senior vice president cargo, Kerr has a freighter fleet of five Airbus A330Fs and five Boeing 777Fs, with a sixth B777F set to be delivered in the third quarter of 2018 as the last of the airline’s maindeck order book.
Etihad Cargo carried 592,700 tonnes in 2016, which was flat year-on-year, but this trend reflected a typical result for many carriers.
Etihad Cargo expanded its freighter services to several new markets, including Columbus Rickenbacker, East Midlands, London Stansted, Copenhagen, Brussels, Addis Ababa, Casablanca, Colombo, Muscat and Zhengzhou.
The expansion brought the number of freighter-only destinations to 15.
Partnership and teamwork are an important part of Kerr’s lexicon as he describes the growth of Etihad Cargo: “The journey has highlighted partnerships: working together with other operators on capacity growth has been an increasingly important part of our strategy, sharing risks and sharing rewards.
“We have moved through at least three cycles of having flexible ACMI aircraft options to develop markets and then bringing in the new aircraft of our own to build volumes, to drive efficiency and sustainability.
“That combination of flexible capacity and now an increasing focus on partnerships within and outside of our group is the road map for further capacity development.”
Kerr began his career with fast-moving consumer goods group Unilever, before moving to American Airlines’ passenger business and then onto the US carrier’s cargo arm before his 2010 move to Etihad.
The switch to Abu Dhabi came after Kerr had worked with then Etihad Cargo boss Des Vertannes on the interline front, connecting over London with American, taking the business from scratch to one generating $3m a year.
Part of the attraction for the move to the Middle East and running the global sales team was the “amazing project” in Abu Dhabi and to join the journey that Etihad was on: “The chance to harness something that was new and growing quickly presented a great opportunity and challenge.”
Kerr has the strong backing of James Hogan, the soon to depart Etihad Aviation Group president and chief executive, who gave a keynote speech at WCS. Hogan said that Etihad Cargo was well positioned to maximise opportunities in 2017 thanks largely to the company’s investment in partnerships.
Said Hogan: “The Etihad Aviation Group’s seven equity partner airlines form the world’s sixth-largest cargo group and wider partnerships are playing an increasing role in our business.
“We are working with Avianca to extend our reach in the important market of South America; with AirBridgeCargo (ABC) in the US, Middle East and Moscow for the oil and gas industry; while our Preferred Handling Partner programme builds strong partnerships and ensures consistent quality and service across the Etihad Cargo network.”
Of Avianca, Kerr says that the partnership reflects the Colombian carrier’s need to provide a channel out of South America into Europe, and also Etihad’s desire “to build up our platform in Italy ahead of our investment in Alitalia, in turn to grow into the northern hub of Bogotá to connect then into Avianca’s belly and freighter network across the region”.
Kerr says that the two complementary networks have driven new business and proven a better solution in terms of connectivity, winning a “significant share” of the Europe/ South American business with a twice a week B777F.
Expansion would see additional frequencies, taking into account the seasonality of the predominantly perishables traffic out of South America: “The strength and reputation of the service and the trust that we are building across both carriers issignificant and there are opportunities to grow.”
The ABC relationship is a capacity purchase agreement out of the US, with an operation in different forms ex-Houston into Abu Dhabi and connecting with Middle Eastern oil and gas markets, in particular into Dammam in Saudi Arabia.
Says Kerr: “We’ve been able to sustain the service through the downturn, while other carriers have been coming rapidly in and out of the market.”
He adds: “It is a great programme for us and the capacity solutions have taken different forms, which works very well for us. It is a firm bloc agreement and it allows us to give confidence to our customers about the reliability of the service and the availability of capacity. It has a flex in it that allows us to take more capacity when required.”
The Preferred Handling Partner programme, which includes key global players Swissport, Menzies, dnata and WFS, represents “a matrix with quantitative and qualitative elements”.
Says Kerr: “It is a very strong and sustainable platform that sees the partners come with us as we grow new routes and open new markets.”
Etihad recently appointed LUG as its handler in Munich and Frankfurt, highlighting that Etihad is not a slave to the programme: “If there are best in class providers in any given market, significantly better, then we will obviously go with the best in class.”
Etihad’s charter business is also growing “significantly” and the carrier had one of its busiest years in 2016, serving very specific ad hoc markets, including a large number of equine charters with movements of thoroughbreds to and from competitions and for stabling.
“And then we have long-term customer programmes, fixed programmes, and we have seen that area grow steadily over the years as well.”
Despite the general feeling of optimism on the stage at WCS, there was also wary talk of protectionism and a new US political environment framed by the arrival of President Trump.
Kerr, wearing his diplomat’s hat, says: “Part of our mandate in the UAE is to develop, support and facilitate trade and tourism. Our role in enabling trade is important as we are both a transit point and also a facilitator for imports and exports. The local economy also depends and thrives upon trade and open markets.”
Kerr believes that air cargo industry concerns are centred more on economic health and growth.
“Governments are recognising that austerity is leading to social unrest and change. The programmes are now more about investment and encouraging export expansion, the fundamental things that will sustain our business.
“Obviously, protectionism could put a cap on that opportunity but it is about getting a balance. I think that economic growth is much more fundamental than any concerns about protectionism on the margin.”
But what of the longer term prospects for the industry: “We were encouraged by the strength of the market rebound in the back half of 2016, nothing remarkable about that because it is what one would expect in a normal year, but what was remarkable is that we haven’t seen it be so strong, as compared with recent years.
“The other more encouraging fact is that it has been sustained through into the first quarter of 2017 and so gave ground for optimism here at the conference.”Kerr makes the point that there is a “hidden story” behind those growth averages, with certain markets growing faster than others and some markets struggling with overcapacity.
“We see opportunity for markets firming up in terms of value and we are moderating our own capacity, organically, but growing it with our partnerships in other markets.”
One example is airberlin, where Etihad, from the emirate, manages its equity partner’s capacity out of Germany and across the Atlantic with daily frequencies and also manages the capacity on flights out of Berlin and Düsseldorf into Abu Dhabi.
“The growth slowed in our own organic network whereas the growth with our partners across the platform we put in front of our customer base is increasing.
“It is that diversity and balance that helps us navigate some of the more challenging headwinds that have disturbed the last two years. “But we are very encouraged by the early signs this year which give some optimism for a stronger back half of the year.”
The Abu Dhabi hub is set for further investment in cargo handling, with a new terminal planned that will double the capacity to 2m tonnes at the end of the development phase.
In terms of additional freighters: “There are plenty of interesting options in the market so we keep abreast of that, but ultimately the market needs to return to greater value and health to encourage further investment at this stage.”
There was a lot of talk about digitisation at WCS, but Kerr expresses caution: “I think history shows that investment in technology is difficult to justify as a business case, given the value of the [air cargo] business and the small part we play in the bigger supply chains as airfreight.”
“That is the history but as technology becomes more cost-effective and applications become easier to implement and more opportunistic and disruptive, then that is what we are seeing and hearing about.”
He adds: “There have been conscious industry decisions not to invest [in technology] but it has to be improved in the long run because you’re going to be challenged by other entrants, simpler technology and ultimately other modes of transport that will continue to invest due to their size and scale.”
Which brings us nicely to disruptors, such as Amazon leasing freighters in the US: “The investment is being made in response to Amazon’s requirements in the US for an overnight service that in part can be provided by existing players but clearly not at sufficient scale for Amazon’s growth.
“I see that as an opportunity, as Amazon and like-minded companies in that space grow internationally, and we already see e-commerce as part of our daily business whether it be through traditional channels or postal services or more direct relationships.”
Asked about his ambitions for Etihad Cargo, Kerr seeks “a truly global network that has a great amount of capability” and that the technology investment it is making “comes to fruition and is able to adapt and harness the change that is ongoing in our business today”.
And the final $2bn question. Will Etihad Cargo aim to double its revenues?
“There is no immediate target on our scale and size here, but we want to be the best at what we do and that obviously does not always mean being the biggest.
“Scale is less important to us than harnessing the very best solutions that we can for a loyal customer base and the future business that we seek to acquire.”