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Magazine Stories September Issue 2009
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Friday, 13 February 2009
At BA, the action centres on cost control, a modern fleet and being agile in response to market change
BRITISH Airways World Cargo (BAWC) has reported commercial revenue (flown revenue plus fuel surcharges) of GBP673 million for the full year ending March 31, 2009, up 9.4 per cent on 2007-08.
Volumes of 4,638 million cargo tonne kilometres (CTKs) for the year represented a decrease of 5.2 per cent compared to the previous 12 months on capacity that was down 5.1 per cent.
During the damaging fourth quarter, BAWC experienced a 15.5 per cent drop in volumes against the same period in 2008 - the British carrier’s largest quarterly volume decline on record.
Tony Nothman, BAWC senior vice president Middle East, Africa, Asia & Pacific shared his insights on the carrier’s strategy - and problems - going forward.
AC: Your managing director Steve Gunning says the airfreight industry needs to address the current demand/supply imbalance and your ceo Willie Walsh says BA could park as many as 16 aircraft this financial year. Will there be freighters among the parked aircraft? What markets are most likely to be affected by capacity cuts?
British Airways reduced capacity by 3.1 per cent in winter 2008 and then by 2.5 per cent this summer compared to the previous year. A further four per cent reduction is planned for the coming winter.
Capacity was cut in a number of areas, including short-haul freighter capacity - by one rotation a week - between the UK and Stockholm and the UK and Leipzig.
While we have no plans to make further reductions to our freighter capacity, the current, exceedingly volatile economic environment means this could be reviewed, dependent on the dynamic nature of the major markets we serve, such as China and Hong Kong.
In relation to the loss-making year just ended, Willie Walsh wants to make changes to staff wages and productivity agreements. What does this mean for BAWC?
Productivity initiatives are vital to ensure the efficient running of our business and BA has tasked each department to deliver a package of efficiencies that will secure both our cargo and passenger businesses for the future. This is a structural, permanent shift in the nature of our business, not a short term solution.
As part of the drive to maintain a competitive cost base, we now are undertaking a review across the range of our suppliers and looking at ways to increase productivity and drive efficiencies.
BAWC’s overall yield increased by 15.4 per cent versus last year, driven by higher levels of fuel surcharge. Excluding the impact of exchange rate movements, yield increased by 6.6 per cent. How do you expect this year to compare to last year?
Exchange rate variations have impacted yield and coupled with significant over-capacity in a number of markets, and they continue to do so.
What is your assessment of the Australasian market?
The Australasian market has picked up off the back of declining fuel surcharges, enabling us to be competitive. However, the continued slow down in consumer demand across Europe has impacted our volumes and yield on the route.
What products and destinations dominate your ex-Australian aircargo services and similarly, what are the source markets and products that are strongest into Australia? Are there any trans-shipment points other than Heathrow that are vital to support your Australian services?
From a long-haul perspective outbound from Australia, we carry mainly general cargo with no specific commodity dominating the mix. From a short-haul perspective we carry consignments including perishables and pharmaceutical products destined for South East Asia. On imports, we transport general freight from Europe.
BAWC volumes dropped sharply (15.5 per cent) in the last quarter of 2008-2009, as did yields. US, UK and Indian markets held up. Was the Chinese market one of the worst affected? What’s your view on the Chinese market this financial year for imports and exports?
China has been one of the markets most adversely affected by the economic crisis. However despite this decline, BAWC’s diverse customer base and strong regional sales team helped us achieve an increase in market share. Importantly, we did this at a time when many other carriers found themselves over-exposed and forced to take out capacity. We currently operate two freighters per week out of Pudong and six freighters per week out of Hong Kong in addition to our daily belly-hold capacity.
Going forward, we believe the Chinese government wants to readdress the country’s historic trade imbalance. We expect that this investment will result in a growth in domestic consumption in China which will have a knock-on effect on imports.
China is one of BAWC’s emerging markets and we are continually investigating new ways to further develop our activities in the region. We don’t envisage that there will be any major changes in Chinese trading patterns until at least the end of the year, subject to a rebound of the US and European economies.
Delta and Air France Group have just announced their global alliance. What impact do you expect this to have on your UK hub, given the importance of the US and Europe to BAWC’s results?
Their alliance will increase capacity in an already-flooded market, putting yields under further pressure. However, our strong customer base, global network, diverse product offering and improved service performance will give us a competitive advantage at Heathrow.
If Lufthansa completes its deal with BMI, do you expect the resulting carrier to have much impact on BAWC’s business at Heathrow?
Right now, it is too early to tell.
V Australia, Delta, Qantas and United will soon be competing across the Pacific. Yields will be under pressure for all of them. What if any impact do you expect on BAWC?
BAWC does not currently compete on the Pacific. We recognise that there is over-capacity in that market resulting in dilution of yields, but any impact on BAWC will be as a result of any capacity switched from transpacific to European routes.
US president Obama is being wooed by the conservationist movement. There has been a suggestion that his administration might participate in a program to tax aviation gas. What steps has BA/BAWC taken to boost its green credentials?
BA takes its corporate responsibility, including environmental initiatives, very seriously and continues to invest in aircraft to improve its green footprint. The industry has come to the conclusion that what’s good for the pocket is also good for the planet, and improved fuel efficiency will have a beneficial effect on both. Since 1990, we’ve improved our fuel efficiency by 28 per cent, cutting more than 60 million tonnes of carbon from the atmosphere. This is the equivalent of over three times our annual carbon emissions. From a freighter perspective, recent schedule changes mean that our long-haul freighters are now saving 2.5 million kilograms of fuel and reducing CO2 emissions by 7,700 tonnes each year. However, there is still much more work to do. We’ve therefore set a new target to further improve fuel efficiency by 25 per cent by 2025 and will be lobbying governments to improve airspace efficiencies and reduce delays through the provision of appropriate airport infrastructure such as a third runway at Heathrow.
New technology is a very important factor in our drive to reduce emissions and we have committed to buying 12 Airbus A380 and 24 Boeing 787 aircraft as replacements for 34 of the airline’s long-haul fleet — aircraft that are greener, quieter and more fuel-efficient, with significantly lower carbon dioxide emissions and with reduced impact on local air quality. These new aircraft are scheduled to be delivered between 2010 and 2014.
Senior airline executives late last year tipped as many as 30 airlines failing during the northern winter. Did BAWC post any significant cargo gains due to competitor collapses?
BA World Cargo did gain market share in some countries and markets, though it is very difficult to attribute this solely to the collapse of other, smaller carriers. It would be fair to say we reacted to losses by widening our customer base and product mix to ensure we best-matched our customers’ and potential customers’ needs in affected markets.
CargoItalia and Lufthansa are now contesting the freight market between Italy and the world. What impact do you expect they will have on the ex-UK market this year and more importantly, how do you see their impact on the transatlantic market once they’ve had time to bed down their services?
Italy remains one our three largest areas within Europe. BAWC operates a successful multi-modal service in Italy, including trucking, narrow-body aircraft and freighters through our relationship with DHL. In fact, over the last few months we have grown our market share in the region.
We have not experienced any significant impact on the transatlantic market. Our extensive network to the US from the UK and our excellent connections to Italy ensure we can deliver freight to meet our customers’ needs, effectively and efficiently.
It’s been said that some airlines (Qantas among them) may reconfigure some aircraft to remove premium seats and replace them with economy seats. BA is taking delivery of some aircraft without First Class cabins. From your perspective, is it time airlines re-thought their dependence on premium passengers?
All airlines have to manage market expectations by providing the right mix of capacity across their aircraft fleet and they will continue to generate greater margins from premium seats. Although demand for premium class has weakened in recent months, passengers will continue to fly premium class due to the enhanced service offering. Airlines need to reconsider capacity to align with market needs and it is important that airlines choose the correct aircraft that provide the necessary balance of capacity in all cabins. New generation aircraft offer efficient capacity options which will help to drive improved route returns.
