The virtual global cargo airline
27 / 02 / 2013
IF YOU were asked to name an airline that had risen rapidly in the past five years to become the 15th largest carrier of general air cargo in the world, you might think of Emirates or one of the Asian carriers.
But in fact this new giant of the air cargo business is none other than DHL Aviation. Whereas once it took space on commercial airlines for much of its long-haul needs, since 2007 it has been creating its own network.
Dr Joerg Andriof (pictured right), senior vice-president of global network management for DHL Express, says it now has 29 long-haul freighters, and a fleet of 260 aircraft in all. “We believe we are the most international cargo airline in the number of destinations we cover,” he says.
Some definitions are needed at this point. One is that it is the in-house airline of the DHL Express business that we are talking about here, and not DHL Global Forwarding, its sister company and the world’s largest forwarder, whose airfreight volumes are not included in these figures.
Another is that when Andriof claims DHL Aviation as the world’s 15th largest cargo airline, he is not including express packages in that. Add them – the boxes and documents that go on the belt sort – and he reckons DHL Aviation is the largest cargo airline in the world.
There may also be some surprise about how important DHL Aviation is as a conventional cargo carrier because, more often than not, its name is not on its long-haul aircraft. The 29 widebodies in its fleet incl-ude B777s, B747-400s, B767s and – since November of last year – one B747-8, but the actual operators of the routes tend to be subsidiary carriers in which DHL has a stake.
The most obvious example is AeroLogic, the 50/50 joint venture between Lufthansa Cargo and DHL, which operates eight B777Fs. The B747-8 and other B747-400s, meanwhile, come from Polar Air Cargo, of which DHL owns 49 per cent. Other shareholdings include 40 per cent of Air Hong Kong, 49 per cent of Tasman Cargo Airlines and ownership of Blue Dart in India. Other carriers simply fly under contract to DHL – notably Southern Air and ABX in the USA.
Andriof describes this as a ‘virtual global airline’ and it is the word global that is the key to the business strategy. “One reason we use such a diverse range of operators is traffic rights.
It gives us the flexibility to operate on a global scale,” he says. “For example, we are not a US carrier, and FedEx and UPS have all sorts of traffic rights and fifth freedoms that we don’t have because we are a European company. But our partnership with Polar gives us the same advantages.”
Such partnerships give DHL extraordinary reach. It has a West African hub in Lagos, for example, and serves Latin America out of Miami and Panama – with its own freighters reaching 20 and 30 destinations in each case.
It has not one, but three widebodied freighters a day flying between Hong Kong and its US hub in Cincinnati – a B747-8 via Anchorage, a B747-400 that also stops in Seoul, and a B777 that flies non-stop for the most urgent shipments. Similarly, there are three freighters a day – each with slightly different routings – between Hong Kong and DHL’s Eur- opean hub at Leipzig.
DHL Aviation offers conventional air cargo space on all of these flights, a function that is the responsibility of John Roach, senior vice-president of aviation, commercial, at DHL Express. One might think that this excess capacity is just a byproduct of the express business, but Roach insists otherwise. “It is a very important part of our strategy,” he says.
The explanation for this is to be found in the way express operates. Unlike conventional cargo, the operator can never be sure in advance precisely how many shipments will turn up on the day. Express is by its very nature last minute, urgent. “That means that we have to have the capacity available to carry any shipments that are offered to us,” Roach points out. “We can’t say, sorry, our aircraft are full, you will have to wait till the next day.”
Traditional cargo therefore acts as the buffer, a flexible business that ena-bles DHL to have all the express capacity it needs. But that does not mean it is a minor part of DHL Aviation’s throughput. Roach says that on intercontinental routes, the split is roughly 60 per cent express and 40 per cent general freight.
And even though express is higher yielding, there is a limit to how much the general cargo portion can be reduced. “We must not squeeze our general cargo customers too much, because we need to keep them,” Roach says. “They are definitely not regarded as second-class customers.”
DHL Aviation also strives to be strictly neutral when it comes to dealing with DHL Global Forwarding. “Does the carrier get preferential rates and access to capacity? Absolutely not,” insists Roach. “Of course we have a close relationship with them, and we sell to them directly internally, whereas the rest of the excess capacity is sold via GSAs.
“But, at the end of the day, they are only 20 per cent of our excess cargo business. We have to be 100 per cent neutral or we would soon be found out and the other 80 per cent of our cargo business would be at risk.”
As well as selling excess capacity to forwarders, the other part of Roach’s job is sourcing additional capacity from commercial carriers – that is to say buying space on third-party airlines in much the same way that any freight forwarder would.
Surprisingly, given the gro-wth in DHL Aviation’s own intercontinental routes, he says this side of the business is also continuing to grow.
“Last year, our freight spend with third parties exceeded what it was four years ago,” he says. “We reckon we are in the top 10 of airfreight pro-curers worldwide.” An example in the past year was the purchase of capacity on “a carrier from Hong Kong to Miami”, which catered for the growing traffic between Asia and Latin America.
If it sounds like a paradox that DHL Express is both using its own lift and using ever more third party capacity, the explanation lies in the company’s continued growth. One indicator of this is the fact that it has the same volumes through Brussels now as it did when it moved its European hub from there to Leipzig in 2008.
The general cargo business of DHL Aviation, meanwhile, has grown 30 per cent in the last year, and a bit more in revenue, so yields actually increased. Not many cargo airlines could say that in 2012.
Nevertheless, Andriof says that, in 2013, the network focus will be on optimising the routes already in place – at least in the first half of the year. “If the economy continues to recover, we may invest in more services in the sec-ond half,” he reveals.
The gradual replacement of regional fleets will also continue, with the 13 A300-600 conversions that the company ordered from EFW in 2011 (almost certainly the last conversions of this type) still coming on-stream to replace A300-B4s in Europe, and B767s replacing DC-8s in the USA.
The next stage will most likely be the replacement of its B757 fleet, probably with B767s. “We will probably make a decision on this next year,” Andriof says, though he stresses that there is still mileage in the B757s and DHL is still happy with their operating performance.