Asian growth drives up airfreight confidence

BA World Cargo posts strong results JOY ORLEK THE FUTURE of the airfreight industry is a good news bad news scenario with a range of negative factors conspiring against the confident growth outlook. “It’s one of the fastest-growing sectors – anticipated to grow 6.4% per annum globally – with Asian markets set to possibly exceed that target,” managing director of British Airways World Cargo, Gareth Kirkwood, told FTW at the airline’s financial year-end wrap-up in Scotland last week. The airline posted a strong set of financial results, achieving flown revenues of £482.1m (R5.8bn) for the financial year ended March 31, 2005, an increase of 4.1% against 2003/2004. With the effect of the exchange rate removed, flown revenues were up 11.8% Volumes meanwhile increased by 11.1% to 4.954 million cargo tonne kilometres against an increase in capacity of 4.6%. Pleasing results in a difficult climate, but in an industry where the passenger market continues to drive capacity, sustaining these levels is a fine balancing act. Add to that issues like spiralling fuel costs, commoditisation of cargo, a proliferation of players and geographical imbalances which are worsening in line with Asian growth, and the result is extreme pressure on operating margins. All of which calls for a carefully engineered approach to issues like revenue management. “It’s vital to ensure that we make a profit on every shipment,” says Keith Packer, senior vice president commercial. The company’s investment in Next Generation Revenue Management has made a considerable contribution, as has its policy of focused management of ‘red’ routes, which include the Far East and Johannesburg. But more than that BA has achieved considerable success through an innovative ‘One + one’ customer partnership programme. Launched in October 2003, the programme is tailored to the airline’s key customers. “Globalisation in terms of manufacturing is a growing trend and it’s likely to continue. Through this programme we want to work with global customers who have global business,” says Packer. The 1+1 programme offers these customers guaranteed capacity out of capacity-squeezed areas like Hong Kong in exchange for guaranteed capacity on less dense routes like the Americas, creating what BA describes as a win-win deal for both parties. “The partnerships are based on the size of the companies and their ability to act globally,” says Packer, and the airline’s 1+1 partners now represent 41% of its total revenue. This kind of customer focused approach combined with prudent revenue management will continue to shape the airline’s strategy going forward, says Kirkwood. Fuel surcharges in no way compensate for the spiralling fuel costs, which makes it all the more vital that the airline optimises all the business it accepts. “There’s no escaping the fact that industry conditions remain tough. Fuel costs, competition and security issues amongst others continue to provide a background of pressure and uncertainty for carriers. “However we are continuing to look for opportunities to invest in and develop our business. Freighters are under constant review, and if we do add capacity it would be on our network out of Asia. “But in view of the significant investment, we would only go ahead if there was a return on investment.”