Cargo remains a core business, says Air France-KLM
01 / 11 / 2013
IF YOU WANT an illustration of how the rise in belly capacity is changing air cargo, look at Air France-KLM-Martinair Cargo. In 2005, before they merged, the three carriers had 26 freighters – 12 B747Fs at Air France, three B747Fs at KLM, and seven MD-11Fs and four B747Fs at Martinair.
Fast-forward to 2013 and Erik Varwijk, executive vice-president of the carriers’ now combined cargo operations, is announcing that its fleet will be cut from 14 freighters today to 10 by 2015.
That leaves just two B777Fs at Air France, and five MD-11Fs, two ERFs and one BCF at Martinair. (A further Martinair ERF remains on lease to Etihad and is not included in this list).
What makes all of this even more shocking is that less than 10 years ago, both carriers were enthusiastic for investing in new freighters.
Air France was the launch customer for the B777 freighter in 2005, ordering five, with the first two being delivered in 2008, and both it and KLM were among the few airlines to buy Boeing’s souped-up -400ERF version of the B747 freighter. Meanwhile, Martinair was a pioneer of the B747-400BCF conversion, adding four to its fleet in 2008.
It would be easy to blame the slump in air cargo traffic – now in its sixth year – for the decline of their fleets since then but, in fact, another factor is also at play.
Air France was also a pioneer of the passenger B777-300ER, taking delivery of 37 since 2004, with four more on order, while KLM has received seven, with one more to come. With their 25-to-30-tonne belly cargo capacity and only two engines compared to the four on the B747-400s they replace, these aircraft are quite simply changing the economics of the business.
And more is to come. Air France recently ordered 25 B787-9 Dreamliners, due for delivery from the end of 2015, and 25 A350-9s, which will arrive from 2018 onwards. Both types will be just as belly cargo-friendly as the B777-300EWR.
And it is not just Air France, of course. Varwijk sees a trend across the world for significant growth in belly cargo and a declining number of freighters, and also a less dynamic air cargo market. As a group, he says, AF-KLM is targetting modest cargo growth of 1-3 per cent a year.
Against such a backdrop you might think that the carrier would be tempted to get out of freighters altogether. Varwijk insists not, however, saying the group remains committed to operating its remaining freighters until 2020 and beyond. He also insists that maindeck capacity is essential if the carrier is to offer a full service to forwarders. “We intend to be in all markets with all forwarders,” he says.
Quite how this can be achieved with a smaller freighter fleet is something Varwijk does not elaborate on. Asked which freighter routes will be trimmed, he says decisions will not have to be made until later in 2014, but insists that “our worldwide network will be maintained and further developed”, and points to new destinations coming online such as Curitiba, Caracas and Cairo.
Undoubtedly one answer will be more flexibility on routing, something the carrier has already been practising in recent years. Examples include more stops in the Middle East on Asian routes, and a willingness to cut out stops altogether and move cargo by other means if there is more demand for an alternative.
Rob Veltman has been appointed to a new post of vice-president of full freighter management to oversee such decisions, with a brief to maximise the returns on freighter routes.
In quite a few cases, belly capacity is also replacing maindeck. An example is Shanghai, from which Martinair freighters were withdrawn in 2012 at least partly because of a big rise in passenger frequencies, which created new belly space.
The carrier now claims to be the largest passenger operator from Europe to China, with more frequencies and more destinations than any other.
That being said, Varwijk admits there has been something of a retreat from Asia on the cargo side in the past couple of years. “Partly, this was due to the market and partly due to the competition dynamics. But in future we intend to expand there again, and if the market rebounds we will be back.”
Other carriers might have a different opinion on this question, however, and it is hard to fight the suspicion that Arabian Gulf operators such as Emirates, Etihad, Qatar Airways and Saudi Airlines Cargo have been get-ting much of the growth in recent years that AF-KLM might have historically had.
The official line on this is that AF-KLM have been concentrating on yield not market share, but improvement in this area seems to have ground to a halt recently, with unit revenue per available tonne kilometre merely stable in 2012, down 1.9 per cent in the first quarter of 2013, and down 5.2 per cent in the second quarter.
The carrier’s cargo business is also still making a loss, albeit a slightly smaller loss in recent quarters than in 2012.
It is difficult to make comparisons about such things however since, for belly cargo, Air France-KLM charges its cargo division a percentage of the whole running costs of the aircraft based on volume – while many other carriers charge only incremental handling and fuel costs.
One thing Varwijk is very insistent about is that cargo remains a very important business to the Air France-KLM Group, and since he sits on the group’s executive committee this is something he should know about.
“Passenger ‘planes cannot operate profitability without cargo,” he says. “For that reason, the passenger side does not decide on its own where to fly: it is a co-decision. If there was only a passenger market and no cargo, it would raise questions about whether we fly there.”
There is also every intention to keep Martinair as a separate entity, with its own AOC and, more crucially, its more flexible pilot working conditions. The Dutch carrier is considered a strong brand in some African and South American markets.
Meanwhile, Alain Malka, head of Air France Cargo, also insists that a maindeck offering will remain vital at Paris’ Charles de Gaulle airport, even though it will account for only 10 per cent of the carrier’s cargo capacity after the changes.
It is always possible, he points out, to wetlease the Martinair freighters as needed. “We have done this in the past and will do it more in the future,” he reveals.
Malka also reckons that the B777F is clearly the best freighter of our times, which raises the question of whether it would not have been better ultimately for Air France to take all of the five it ordered and get rid of the B747-400ERFs earlier.
The reason this did not happen, of course, was the absence of hard cash, which was in short supply back in 2009, prompting the carrier to relinquish two B777F slots to FedEx and cancel another one.
All of this change leaves Air France-KLM’s cargo strategy capable of two widely differing interpretations.
Is the carrier in cargo decline, moving towards a maindeck exit, losing market share to Asian and Middle Eastern rivals?
Or is it sensibly adjusting to a new, more belly-focused world? Ultimately, only time will tell.