Since its formation, IAG Cargo has seen dramatic growth in Latin America and the Asian region and is continuing to add more capacity to Latin America as demand continues to grow while in Asia, where IAG Cargo has a comprehensive network, further growth hinges on the performance of China
Latin America and Asia trade have been the jewels in IAG Cargo’s crown since its formation in April 2011 with the merger of British Airways World Cargo and Spain’s Iberia. “In the last four years we have seen strong year-on-year growth to Latin America,’’ said John Cheetham, regional commercial manager, Asia Pacific, at the 7th WCA conference in Hong Kong, where he was one of the key speakers.
Cargo being loaded onto an IAG cargo plane
“The growth has come at a very good time for us, obviously because of the formation of IAG Cargo and merging of the two networks. We increased our Latin American capacity quite dramatically and at the same time the market is continuing to grow in Latin America,’’ he said. IAG Cargo’s destinations to Latin America have grown to 16 with the addition of Montevideo in Uruguay and Santa Domingo in the Dominican Republic in September 2014. Key market sectors for the additional uplift include perishables, such as meat, fruits and vegetables, as well as leather goods.
The routes are served from IAG Cargo’s hub in Madrid by Iberia Airbus A330 and A340-300 aircraft. Each flight delivers between 9.4 and 12.7 tonnes of capacity on the five times a week Madrid-Santo Domingo route, and between 6.5 and 11.7 tonnes of capacity on the four times a week Madrid-Montevideo route.
Rodrigo Casal, vice-president, LatAm, at IAG Cargo, said: “One of IAG Cargo’s key differentiators is our ability to connect global businesses with key markets in Latin America. These new routes will build on this strength and provide important trade connections that will help support global economic growth.
“We see this service being particularly important for perishables producers looking to supply European countries and Asian manufacturers looking for routes into Latin America; drawing on our operational excellence to deliver on their requirements.”
Cheetham said, “We don’t purchase any freighter capacity at the moment, but we have a fairly good offering to Latin America, second to none.” Most of the flights to Latin America are from Madrid. Some BA services to Latin America such as to Brazil fly direct from London. IAG Cargo’s Iberia flights also fly to Latin America. By using a twice-daily wide-body airbridge to link its London and Madrid hubs IAG Cargo provides customers with unparalleled network linkage between Asia and Latin America.
Regarding its other popular destination, Asia, Cheetham said we have a very comprehensive network. “We have online services all operated by British Airways to Incheon, Tokyo, Hong Kong, Bangkok and Singapore. We are going to start services to Kuala Lumpur by end of May and Sydney. We are also online in Delhi, Mumbai, Bangalore Chennai and Hyderabad.
“In China, we connect with Beijing, Shanghai and Chengdu. Chengdu is a fascinating city and is one of those cities starting to grow and grow and becoming real centers of production. We are very pleased that BA has invested there by putting in aircraft enabling us to service that market.”
Asked to compare which of the two key markets, Latin America and Asia, were performing better for IAG Cargo, Cheetham said it was a bit of both in terms of supply and production.
He added, “On the supply side how Asia performs is always good for world trade and beyond that you have got the two big powerhouses, India and China. If China performs well you will see Korea perform well, you will see Southeast Asia perform well. India has been very strong this year.”
Regarding 2015, he said, “It all depends on how the markets perform after Chinese New Year, whether we will see a quick recovery or protracted recovery.’’
IAG Cargo does not fly freighters anymore but it has a comprehensive bellyhold service across the whole region. It also books space five times a week – Wednesday, Thursday, Friday, Saturday, and Sunday – on Qatar Airways 777s.
“We take about 80-90 percent space on the aircraft from London Stansted to Hong Kong,’’ Cheetham said. “We have been booking capacity on Qatar Airways in the past year and that is working very well for us.’’
Turning to IAG Cargo capacity, Cheetham said: “We are making some aircraft changes to increase capacity. We are constantly looking at the capacity we have and we do have the opportunity where if our customers demand more freight we will purchase aircraft to provide more capacity. In short, we are trying to line up our capacity with customer demands.
“We are gradually phasing out Boeing 747-400s, which carry 12-14 tonnes, and will probably replace it with 777s, A350s and A380s as well. We bought the A380 with enhanced cargo uplift. We can now uplift four pallets on the A380 and can get double figures in tonnage.
“Previously people had concerns of A380s replacing 747s, which would mean a maximum reduction in capacity, but that is now not the case with us because we bought an enhanced capacity version. It is a different configuration, which allows us to have few more units in the load.’’
IAG Cargo plans to phase out the Boeing 747-400 as well as the B767, which carry six and four pallets respectively. The B767 planes will be replaced by the B787-8, which carries five pallets, A330-200, carrying six pallets, B787-9, carrying seven pallets and B787-10, carrying 7.8 pallets. The B747-400 will be replaced by the A380, carrying four pallets, B777-300, carrying nine pallets and the A350, carrying nine pallets.
Asked if IAG Cargo planned to return to operating freighters in the near future, Cheetham said, “We constantly look at schedules and match up those with demand. But regarding their decision on freighters, he said, “In the short term we won’t be looking to change that.’’
With a global network of over 350 destinations across 80 countries, IAG Cargo has an extensive range of products to suit every freight requirement, whether shipping temperature-sensitive pharmaceuticals, live animals or general freight.
Turning to other markets, Cheetham said. “Over the last year we have seen strengthening in the air cargo market, in particular to North America. We have seen a softening of demand in Europe and to a certain extent in the UK as well. But we have quite a broad offering to London. We also book space on DHL freighters to feed London.’’
Asked about its product Cargo Connecter, Cheetham said it started off just with New York and now it has expanded to a number of cities. Cargo Connector is now available in seven US cities: New York, Los Angeles, Chicago, Dallas, Atlanta, Seattle and Houston. It is also available at IAG Cargo’s UK hub at London Heathrow and Frankfurt, Germany.
Asked to explain what Cargo Connector does, Cheetham said, “IAG Cargo van drivers go around to the freight forwarders in the vicinity of the airport and speak to them. They can make a booking and then get instant confirmation on that booking and take the cargo to the airport. It saves the forwarders delivery costs and saves them from making any advance booking as well as gives them immediate access to the whole IAG network. There are a high percentage of freight forwarders in the vicinity of an airport.”
Basically, freight forwarders can now opt to have IAG Cargo collect and courier deliveries of less than 300 kg direct from their premises to the airport at no additional cost.
IAG Cargo launched this service as part of its strategy to attract smaller forwarders to use its services. For many years, IAG Cargo, or British Airways World Cargo, as it was then called, focused heavily on courting the multinational freight forwarders and largely neglected the need of smaller agents. However, in the last 18 months it has signaled a change in its priorities as the carrier attempts to attract more high-yielding traffic controlled by independent forwarders.
IAG Cargo has also linked up with WCA to attract smaller forwarders. By bringing together such freight forwarders under one umbrella, WCA plays a crucial role in the future of air cargo.
“The way the SME (small and medium enterprises) forwarders have managed their businesses through the global financial crisis is an example to everyone,’’ said Cheetham. “They have shown flexibility, they have shown a level of customer focus that allows them to not only hold their market share but also in some cases grow their market share. It is a very good sign. They are getting bigger and bigger.
“It is important we have the opportunity to design our products around their requirements. The WCA conference has given us the opportunity to speak directly with them and interact with them. We will continue to do more of that. We need to make sure the freight forwarders have the ability to interact with us in the way they want us to do whether that is through online distribution channels or other means.”
Asked if IAG Cargo planned to return to operating freighters in the near future, Cheetham said, “We constantly look at schedules and match up those with demand.” But regarding their decision on freighters, he said, “In the short term we won’t be looking to change that.’’
BA terminated a contract with Global Supply Systems, a UK cargo carrier, under which it leased three B747-8Fs, at the end of April in 2013 and then signed a deal with Qatar Airways to buy capacity on the Gulf airline’s five weekly flights between London Stansted and Hong Kong.
“We terminated our contract with GSS so what we saw was the volume in the third quarter of 2014 looked lower than in 2013. But on a like-to-like basis we saw good growth. If you strip out the freighter operations actually we grew our revenue by 7.6 percent.
In the third quarter of 2013, IAG Cargo reported commercial revenue (flown revenue plus fuel surcharges) was US$295.8 million compared with $320.9 million for the same period in 2013.
IAG said that volumes of 1,331 million cargo tonne kilometres (CTKs) on a like-for-like basis for the quarter represent an increase of 12 percent compared to Q3 2013, while capacity increased by 4.1%. Overall yield (commercial revenue per CTK) for the quarter was down 3% at constant exchange rates.
Commenting on the results, Steve Gunning, chief executive officer at IAG Cargo, said: “This is a positive third quarter for the business and we’ve seen good load factor improvements across markets, despite an increase in capacity.
“The strong performance of our premium products has offset continued underlying price pressure, particularly in the North American market, with Constant Climate, our market leading product for temperature-sensitive freight, delivering impressive volumes. While we have seen a decrease in yield, this is primarily due to flying increased sector lengths. More generally, while trading is good, there are still fundamental issues with the market in terms of excess capacity.”
Talking about the Constant Climate offering, Cheetham said, “We have made a number of investments over the last few years. We invested in 2013 in a Constant Climate facility in London, a constant temperature-controlled facility that is designed for our constant products, which covers pharmaceuticals.” IAG Cargo has made big strides in this section of its business.
IAG Cargo was the world’s first cargo carrier to be awarded a GDP (Good Distribution Practice) certification by a national government health agency in what is widely recognized as meeting the diamond standard for pharmaceutical transportation.
Following an inspection by the UK’s Medicines and Healthcare Products Regulatory Agency, the carrier has been granted Wholesale Distribution Authorization (WDA) for medicines intended for both human and veterinary use.
With the opening of a new climate-controlled station in Bordeaux, France, IAG Cargo has opened its 100th station in its global Constant Climate network.
This Bordeaux operation follows the recent opening of stations in strategic locations around the world, including Nairobi, Kenya; Hong Kong and Shanghai Pudong in China; and Osaka, Japan. Stockholm, Sweden, is expected to be the next location.
“This is a hugely exciting time at IAG Cargo,” said Alan Dorling, the group’s global head of pharmaceuticals and life sciences. “We have rapidly grown our Constant Climate network to its current position to be amongst the best the industry has to offer.”
Talking of other investments, Cheetham said: “We have also invested in our premium facility Premia, which looks after our premium products. We increased capacity by 20 percent a few years ago and now we have the changed the layout and streamlined the processing which has increased our handling ability by 50 percent.’’
Customers using relevant IAG Cargo premium products, including Constant Climate and Prioritise, will benefit from an even higher standard of customer service, helping to ensure that shipments get to their markets on time and in perfect condition.
Prioritise is IAG Cargo’s market leading premium product solution with speed and reliability at its core, with shipments receiving the fastest publicized cut-off and delivery times of any air carrier.
The Prioritise service provides a simple solution for all unitized and loose cargo. There is a dedicated facility at both London Heathrow and Madrid, which ensures that Prioritise freight is given preferential status at all times.
Priortise has no restrictions on size, weight or volume of cargo, and has a performance guarantee that offers a 50% refund of freight charges, subject to terms and conditions.
Touching on perishables, Cheetham said: “We have facilities dedicated in both Madrid and London where we are able to provide a number of value-added services such as repacking, relabeling and quality control. The requirements are quite different from pharmaceuticals.” He was referring to IAG Cargo’s offering Constant Fresh, which is a fast solution for the transportation of perishable goods, specifically designed to keep them fresh and optimize their shelf life.
With dedicated and custom-built perishable handling facilities at the Heathrow and Madrid hubs, IAG Cargo ensures speed and reliability of service matched by expertise in the handling of perishable shipments.
The carrier uses Cool & Fast Frigo trucks to transport perishable goods between aircraft holds and the perishable handling centre at Madrid airport. It has dedicated Frigo trucks to transport perishable goods to any European destination in 24 hours from Madrid.
