As uncertainty continues to plague the global cargo markets, Russia’s Volga Dnepr group has cast its eye on the new emerging markets. The VD group, already having a strong presence in China, wants to further penetrate that market and also tap the cargo business potential inherent in other Asian markets.
The year 2012 was a “challenging but interesting year” for Volga Dnepr, according to Tatyana Arslanova, vice president (strategy and marketing) of Volga-Dnepr Group Managing Company which, among other things, looks after the development and implementation of strategy of the entire Volga-Dnepr Group, besides overseeing its financial and economic performance.
“We achieved our targets in strategic terms, but as you know, there are quite a few challenges facing cargo operators worldwide,” Arslanova said in an interview with the American Journal of Transportation at the recent Transport/Logistics fair of Munich. “We are, of course, interested to tap new markets for our cargo business,” she added.
Tatyana Arslanova – VP Strategy & Marketing, Volga-Dnepr Group
The VD group’s air-cargo charter services are provided by Volga Dnepr Airlines which offers air-charter flights using the AN-124-100 and IL-76 ramp freighter aircraft deployed for “non-standard” transportation (oversized and heavy cargo). Its fleet includes 10 AN-124-100 “Ruslan” and 4 modernized IL-76TD-90VD aircraft. On the other hand, its “sister” Air Bridge Cargo (ABC) Airlines provides scheduled air-cargo flights operated by a fleet of B747 freighters. “We combine the synergies of the two main businesses to provide a full range of air-logistics solutions using both chartered and scheduled transportation,” Arslanova maintained. ABC, which claims to be Russia’s largest scheduled air-cargo airline, has a fleet of 13 B747 aircraft (two B747-200F, one B747-300F, five B747-400ERF, three B-747-400F, and two B-747-SF). The carrier transports freight via Moscow’s two major airports, Sheremetyevo and Domodedovo. Using Sheremetyevo as a hub, ABC operates flights on major strategic routes in Russia, Europe and Asia, serving 21 destinations in 11 countries; in Asia, it flies from Shanghai, Beijing, Hong Kong, Zhengzhou, Tokyo and Seoul to key European airports such as Frankfurt, Paris and Amsterdam; from Moscow it flies through Amsterdam to Chicago.
“We had a 13% growth in our 2012 cargo volume … we transported some 420,000 tons through our cargo carriers, with Volga Dnepr accounting for 120,000 tons and Air Bridge Cargo 300,000 tons,” said Arslanova who highlighted the fact that the Antonov 76 military cargo aircraft was “very good for transporting heavy and large-size cargo”.
With the global economic focus turning to Asia, the VD group has also built up a good business in China which has become a “solid market”. “Our major market in Europe is Germany which still continues to grow. Exports from Europe to China continue to grow and our strategy is to tap this demand in China which is still buying from Europe as Chinese consumers are now buying upper-end products from Europe. We see growing export traffic from Europe to China,” she maintained.
“We are continuing to grow, particularly, in Central China. We operate 12 flights a week to Shanghai, eight flights to Hong Kong, six to Beijing, six to Zheng Zou and three to Chengdu,” she said.
Besides China, Arslanova was still optimistic about Japan and Korea though these were challenging markets, with the VD group experiencing a 10% traffic decline in these countries. “We have reduced our frequency to these countries from thrice a week to twice a week,” she said.
According to Arslanova, VD has been clocking a 95% load factor in traffic from China; in comparison, West European cargo flights from Amsterdam, Frankfurt and Paris airports to China provide a 70 to 80% load factor.
Forecasting her group’s business for 2013, Arslanova said, “we expect one to two percent growth in international traffic. But we see cargo traffic rising to Russia from China, Europe, etc. As an import-oriented economy, Russia imports a lot of hi-tech products, mobile telephones, consumer goods, luxury items, etc.”.
Arslanova discerned a shift in production from China to other Asian countries, particularly in the Association of Southeast Asian Nations (ASEAN). “We have plans to enter the ASEAN region in the future, though not this year, but possibly in 2014 or 2015. The United States market is an interesting market for us. We started operations there in 2011. In 2012 we started delivery from China to the United States. The United States accounts for some 10% of our traffic. We are expanding our operations in the United States. New York, Atlanta and Houston are potential contenders. We have five flights a week to Chicago,” she said.
Europe’s air-cargo circles have recently been abuzz with rumors about VD making a bid to acquire a stake in Cargolux. But a declining cash flow is frustrating this move by VD whose sales and freight volume declined in the first half of the year. VD’s difficulties are linked with its associate company Air Cargo Germany (ACG), in which VD acquired a 49% stake in April 2012; ACG, which has reportedly been asked to pay a hefty penalty to the U.S. based Associated Energy Group, was unable to repay a credit of the equivalent of 10 million euro given by local institutions.
According to the London based Loadstar, the chances of VD investing in Cargolux appear to have faded as its charter business last year raked in only half of the previous year’s revenue of some US$ 1.6 billion.
In hindsight, according to German experts, the much-expected synergy between the ACG and the ABC was apparently exaggerated and did not live up to expectations: indeed, the only real synergy between the two airlines was ACG’s discontinuation of the use of its Hahn airport base and its shift to using Frankfurt airport, thus increasing ABC’s services from Germany top cargo hub.
Volga-Dnepr is precluded from providing ACG with a stronger financial shot in the arm because any further funding would make the Russians exceed the European Union’s 49% foreign ownership rules. At one time, the ACG even had the offer of a bank guarantee from the State of Rhineland-Palatinate – ACG’s Hahn airport is located in Rhineland-Palatinate – but the offer fell through because of being potentially classified as official subsidy. Further borrowing by the ACG would have also increased the airline’s debt burden. The solution, some German experts contend, would lie in finding equity funding from a European entity. The German cargo carrier, as some analysts privately told the AJOT, is passing through “difficult times”, reflected in the return of two of the carrier’s B747-400BCF aircraft to the KLM-Martinair. This will leave the carrier with just two freighters out of its hitherto four-freighter fleet. In effect, the carrier will be carrying less tonnage and also getting less revenue, all of which are “not good signs”, as German experts say.
