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Cathay Cargo doing OK

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Cathay Cargo doing OK

Old 18th Apr 2015, 03:39
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Cathay Cargo doing OK

Courtesy of Aviation Week:

Cathay Pacific’s new cargo terminal in Hong Kong is proving it can increase the efficiency of freight operations, both for Cathay and a growing number of other airline customers.

The HK$5.9 billion ($761.3 million) facility completed its first full year of operations in 2014. Although it is still well short of its potential capacity, this year will likely see significant volume gains, says Kelvin Ko, CEO of Cathay Pacific Services Ltd. (CPSL).

Last year the terminal handled 1.45 million metric tons of cargo, while its upper limit is estimated to be 2.6 million metric tons per year. This year Cathay expects to increase its own freight volumes, and new customer EVA Air will also boost the facility’s tonnage.

Taiwan-based EVA shifted its freight operation to the Cathay terminal in January, becoming its largest external cargo customer. The facility already serves AirAsia, Thai AirAsia and Royal Brunei, as well as Cathay and its subsidiary airlines Air Hong Kong and Dragonair. CPSL is seeking more customers, and is “constantly speaking to other airlines,” says Ko.

Cathay’s new terminal joined other large players in the freight handling market at Hong Kong International Airport, which is the world’s busiest cargo hub. Ko says the terminal was always expected to have surplus capacity in the short-term. “You build a cargo terminal for long-term [demand]—you can’t open it bit by bit,” he says. “So once it’s open, it’s a big step up.”

The terminal will naturally increase its efficiency as volumes increase, says Ko. However, it is already taking advantage of new technology and processes to improve processing times.

Aircraft-to-aircraft transfers comprise more than half the freight handled at the terminal. The time it takes to unload, break down, process and reload cargo has been reduced from the standard 8 hr. to 5, and can even be cut to 3 hr. by prior arrangement.

Reducing the transshipment time between long-haul flights and Cathay’s Asian network gives customers more business opportunities, and makes additional connecting city pairs viable, says the airline’s Cargo Director James Woodrow. “Anything that drives speed and connectivity is good for our business.”

_______________________________________________________
Investments In Freight Pay Off For Cathay Pacific

When Cathay Pacific opened a massive new cargo terminal and ordered three more Boeing 747-8 freighters in 2013, it seemed to be taking a major risk. At that time, the air freight industry was in the doldrums with no end in sight. But Cathay persevered with its expansion plans and bet that cargo demand would come roaring back.

Fast-forward to 2015, and Cathay’s bold moves have been justified. Cargo demand is growing again, and the new aircraft and Hong Kong cargo hub are helping the airline take advantage of improvement in key markets.

With a fleet of 22 freighter aircraft, Cathay is one of the largest cargo-carrying airlines in Asia. And the cargo division is crucial to the success of the company—“it tends to be that when cargo does well, the [overall] business does well,” says James Woodrow, Cathay’s director of cargo.

For many years, the opposite was true—the dire cargo market was dragging down the airline’s profits, and the same was happening to the other large Asian cargo carriers.

The slump hit in earnest in early 2011, and lasted for almost three years. Demand finally began to improve in March 2014, and “got stronger and stronger throughout the year,” says Woodrow. Falling fuel prices, seaport congestion on the U.S. West Coast, the launch of new high-tech consumer products, and automotive recalls have all helped maintain the momentum.

Beyond those factors, the growing “underlying strength” of the U.S. economy has spurred demand on transpacific routes, Woodrow says. This is a big deal for Cathay, as the transpacific is by far its largest cargo market, connecting Asia to North America via its Hong Kong hub.

Cathay has deployed its new fleet of 747-8Fs on the North American routes, and has steadily increased transpacific frequencies to the point where it has 37 weekly freighter flights. The carrier operated up to 41 weekly flights in its October-November peak last year, and Woodrow hopes to build up to 43-45 weekly freighter flights during this year’s peak.

Other markets are not as buoyant, however. Woodrow describes intra-Asia cargo demand as merely “OK.” While there is volume growth, it remains a highly competitive market for air freight.

Asia-Europe flows are the most challenging of Cathay’s three main cargo markets. Asian carriers—including Cathay—and Middle Eastern airlines have added a large volume of passenger aircraft belly capacity to this market, dampening freight yields.

In addition, the significant weakening of the euro has made imports into Europe more expensive. One positive effect of the devaluation is that it should boost exports from countries such as Germany, balancing flows in a market traditionally skewed toward imports from Asia.

Cathay has also been working to build new markets. For example, it has recently expanded freighter operations in Mexico, and now has a five-times weekly service that stops in Mexico City and Guadalajara. Mexico City is largely an import market, while a lot of produce and high-tech exports come from Guadalajara.

The Mexico service is an extension of its Hong Kong-Los Angeles 747-8F route. It would be risky to put five direct freighter flights a week into a relatively new market, but a freighter may be dedicated to Mexico “once we’re confident that we’ve got steady volumes,” says Woodrow.

India is another market where Cathay has been building its presence. It recently launched freighter service to Kolkata, its sixth Indian destination. The carrier has increased its cargo network in India dramatically over the last three years, as the Hong Kong hub is geographically well-placed to connect India and China, the world’s two most populous nations.

Among Cathay’s greatest strengths are its cargo services to the major high-tech manufacturing centers in mainland China—with five freighter destinations—and Southeast Asia, which are connected to other regions via Hong Kong. Serving a broad spread of destinations from a strong hub “is the connectivity game that the Middle East carriers play, and we’re big enough that we can play it too,” says Woodrow.

Cathay will grow its overall cargo capacity by about 10% this year, with a similar increase in both its dedicated freighters and in the belly capacity of its passenger fleet, Woodrow says. It can do this because of the greater efficiency of the new 747-8Fs, and the rising number of passenger aircraft such as the 777-300ER that can also carry large cargo volumes.

The airline has 13 747-8Fs and will take delivery of its 14th next year—the last of its current order for the type. Cathay also has six 747-400ERFs, and five -400Fs of which three are operational with the remainder parked.

Boeing agreed in 2014 to buy back the six -400Fs that Cathay was operating at the time. One was returned last year, one will go this year, and the remaining four in 2016. The carrier will still finish the year with 22 operational freighters, since the one returned will have been a parked aircraft.

The freighter total is down significantly from the fleet in the “high twenties” it has previously operated, Woodrow says. But he notes that the carrier has steadily increased the size of its freighters, and also frequencies in key markets, such as transpacific.

Because the -8Fs are newer aircraft, Cathay can rely on high utilization rates. It achieves up to 16 block hours a day per aircraft with the -8Fs, much higher than Cathay’s older 747 freighter fleets. “We can keep pushing their utilization; these are expensive assets so we want to sweat them as much as we can,” says Woodrow. “And we can [also] try to work our ERFs a bit harder.”

Another potential option is retaining some of the -400Fs a bit longer. If Boeing has not found lease customers by the time they are due to be returned, Cathay could possibly continue to use them, Woodrow says. But any such decision would likely depend on demand strength and the price of fuel. For example, if oil is back to $100 a barrel in 2016, the carrier would be unlikely to pursue this alternative.

The continuing growth of the passenger fleet is a major source of new cargo capacity for Cathay. Whereas the carrier has reduced the number of freighters serving Europe in recent years, it has much more belly capacity in that market as the passenger fleet has added destinations and frequencies. This allows more direct connections to Hong Kong.

It also helps that the 777-300ERs in the passenger fleet have excellent cargo capacity. The airline now operates five daily 777 passenger flights to London, and if each carries 20 tons of cargo, that represents about the same capacity as a single daily 747 freighter. Similarly, Cathay has so many frequencies to Singapore with its A330s that it can carry 150 tons of cargo every day on that route as belly cargo, in addition to freighter services.

“You have to think of modern widebody [passenger] aircraft as mini-freighters,” Woodrow says. For example, a 777-300ER with a light passenger load recently carried 36 metric tons of cargo on a single flight from Manchester.

Cathay has no plans to order more freighters at the moment, says Woodrow. The carrier “continually looks” at its fleet plan, although it will “see what the underlying strength of this [cargo] recovery is” before contemplating more orders.

Because it has new belly space becoming available, and the option to increase aircraft utilization, Cathay still has the opportunity to raise cargo capacity over the next few years, Woodrow says. “We’ll keep evaluating [the fleet], but we’re not in a rush to get our checkbook out at the moment.”
JammedStab is offline  
Old 18th Apr 2015, 06:23
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We're they ever 'in a rush to get their chequebook out??'. Except, of course, when it comes to "Bonus Time".
Arfur Dent is offline  
Old 18th Apr 2015, 14:23
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Come on, someone has to say it....

There's no money in freight
broadband circuit is offline  
Old 19th Apr 2015, 07:29
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There's no money in freight
I was wondering when it was going to come up!
Frogman1484 is offline  
Old 19th Apr 2015, 09:19
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Of course there's money in freight!



Just none FOR YOU!
Cpt. Underpants is offline  
Old 19th Apr 2015, 13:20
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I keep thinking "office space"

https://www.youtube.com/watch?v=g2_Yi-1Ryf4
Shep69 is offline  
Old 19th Apr 2015, 13:33
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Of course there's money in freight!
Just none FOR YOU!
Er what pays your wages....... Money doesn't grow on trees
Mr Angry from Purley is offline  
Old 19th Apr 2015, 18:49
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No, Mr Purley, it doesn't. Except when it comes to managers awarding themselves HUGE bonuses whilst screwing the frontline workers over.
Kasompe is offline  
Old 20th Apr 2015, 15:01
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Multi-Prong Model Key To Cathay Success, CEO Says

Cathay Pacific relies on a tested model to defend its market position

It is somewhat surprising that Cathay Pacific CEO Ivan Chu claims to not lose any sleep over the competitive challenges facing his airline. After all, it operates in a region where the established mainline giants are under increasing pressure from several quarters. But Chu is adamant Cathay’s business model is strong enough to thrive despite the new threats that are hammering many of its rivals.

Among these factors are the rapid growth of Asian low-cost carriers (LCC), the emergence of long-haul LCCs, Middle Eastern airlines capturing connecting flows in key markets, the rising international ambitions of the mainland Chinese carriers and the continuing expansion of competing Asian connecting hubs.

This daunting list contributes to the financial struggles afflicting many of the Asian legacy carriers. Some, like Malaysia Airlines, have required a government bailout, while others such as Garuda Indonesia and Thai Airways have launched restructuring efforts. Even Singapore Airlines—which has weathered the financial challenges better than most—is embarking on new strategic approaches

Cathay, however, is sticking with the business model that has served it successfully for decades. It relies on a full-service product, high frequency on trunk routes, international connections via its Hong Kong hub, a growing home market and a large cargo operation. These facets are supported by the airline’s fleet strategy and extensive aircraft order book.

Chu says Cathay’s model is “very competitive” against the LCCs in particular. Its strength is based on multiple strands that the LCCs cannot match, such as brand power, premium yields and the scale of its international network and cargo services.

Such advantages allow Cathay to price aggressively in some of its economy offerings. For example, three years ago the carrier launched its “Fanfare” product, steeply discounted tickets that go on sale in Hong Kong every Tuesday. Cathay sells about 2,000 tickets a week through this channel, which is similar in size to a small LCC operation, notes Chu. “We do want to connect with the price-sensitive sector” as well as premium traffic, he says.

Chu cites the success of Cathay in the Hong Kong-Singapore market as a good example of its competitiveness versus other models. This route is served by many airlines, including LCCs, yet Cathay has managed to maintain its market share and yield.

The airline’s approach is in marked contrast to many other Asian full-service carriers, which have been establishing their own LCC subsidiaries. Singapore Airlines has been actively growing its portfolio of LCCs and is directing much of the group’s growth to these carriers.

While many overseas LCCs fly into Hong Kong, Cathay has not faced serious competition from budget carriers based there. This may change in the future, with Qantas and China Eastern Airlines attempting to set up a Jetstar Hong Kong joint venture, along with local investors.

Recent financial results help vindicate Cathay’s strategy. The carrier boosted its net profit to HK$3.15 billion ($406 million) in 2014, despite the fact that it received little help from lower fuel costs due to unfavorable hedges.

Passenger demand remains robust. The carrier set new records during the recent Chinese New Year travel period, with daily passenger numbers exceeding 110,000 on two days. It is also achieving a load factor of 84% this year, says Chu.

The scale of Cathay’s operation means maintaining its premium brand strength is particularly challenging, with the need to ensure consistency across more than 10,000 cabin crew and about 8,600 ground staff.

“But the fact that it is hard gives us a strong competitive advantage, because we know most people can’t do it,” says Chu. While it is relatively easy to write a check and acquire the hardware, it takes many years to establish a premium brand reputation.

Cathay’s well-established brand helps it meet the challenge of rapidly expanding mainland Chinese airlines, which are in some cases trying to emulate Cathay’s success as a long-haul connecting carrier. The Hong Kong-based carrier has an entrenched product that is popular with corporate customers, and Chu believes that the other Chinese airlines will find it difficult to break into the mainstream of business traffic in the near future.

The vast potential of the China market also reduces the competitive threat. “The pie is growing so fast” that all players have the scope to increase traffic, Chu says.

The mainland Chinese carrier with the greatest international presence is Air China, which has close links to Cathay. They have significant cross-shareholdings, cooperate on some routes, and jointly own Air China Cargo. The cargo joint venture gives Cathay important exposure to the Yangtze River Delta manufacturing region, says Chu.

Rapid growth in outbound international Chinese travel will be one of the airline industry’s biggest opportunities over the next 10 years, Chu predicts. He says Cathay is “uniquely positioned to capture this traffic,” thanks to its subsidiary Dragonair, which operates flights to 22 points on the mainland.

Hong Kong’s growing ground transport links to the mainland are effectively expanding Cathay’s home market. Instead of regarding just Hong Kong as its catchment base, Chu notes that Cathay can draw traffic from Guangdong province—a market of more than 100 million people. Already, thousands of cars, ferries and buses cross the border into Hong Kong every day, and new rail and road projects will make Hong Kong even more accessible.

This will balance Cathay’s reliance on connecting traffic to some extent. But Chu stresses that transit traffic via the Hong Kong hub will always be a core part of the airline’s business and currently comprises about half its customers.

Hong Kong’s hub status is highlighted by the fact that more than 63 million passengers came through the airport last year —making it the 10th busiest in the world—even though Hong Kong itself only has a population of around 7 million. Half of that passenger total flew on either Cathay or Dragonair.

A planned third runway is vital for the continued growth of the Hong Kong hub, Cathay executives say, particularly as other Asian hubs are vying for a larger share of connecting traffic.

Cathay’s network strategy is notable for its focus on building multiple daily frequencies on trunk routes, rather than spreading its flights more thinly over a larger number of destinations. Frequency is valued by business travelers, Chu says, and this approach also aids connectivity. For example, Cathay’s four daily flights to Sydney are timed to connect to five daily flights to London, making it one of the larger players on the Kangaroo route.

Transpacific flights to North America have always been a major strength for Cathay. It has more than 100 flights a week to seven points in the U.S. and Canada, including four flights a day to Los Angeles and five to New York City metropolitan area airports.

Chu notes that Cathay’s goal is to connect Asia to North America via its hub, and it has built out its North American service over the past five years. He cites the San Francisco route as one example, which has increased to twice daily and will soon grow to 17 times a week. If that goes well, it will increase to three times daily.

The next network goal for Cathay is boosting its European operation by adding more destinations and frequencies. It started flights to Manchester in December, to Zurich in March and will introduce a Dusseldorf route in September.

While the European economy and currency remain relatively weak, Cathay’s load factors and yields in this market have been quite high. Strong outbound travel to Europe has helped make it “a pretty profitable operation,” says Chu.

Cathay’s network strategy is supported by its fleet plans. The carrier has 22 Airbus A350-900s on order, with the first delivery expected in February. It also has 26 of the larger A350-1000s in its order backlog and has agreed to buy 21 Boeing 777-9Xs for delivery from 2021.

The -900s will be well-suited to routes between European cities and Asia, Chu says. These aircraft could either open new routes in this market, take over some 777-300ER services or add frequency to existing 777 flights. While Europe will be the primary focus for the -900s, the range and size of the -1000s will be a better fit for the transpacific routes, he says.

Cathay decided at the end of 2013 to order the 777-9Xs instead of taking additional A350-1000s. The airline already operates a fleet of about 50 777-300ERs and is very pleased with their performance. The fact that the -9Xs will be a further improvement over the -300ERs makes them a compelling choice, Chu notes.

The 777-9Xs will have more capacity than the -1000s, which will broaden Cathay’s size options on a given route. The carrier also likes the idea of having two aircraft families—777s and A350s—in its long-haul fleet.

In general, the new widebody orders can be used for either expansion or aircraft replacement, Chu says. If Cathay decides it does not want to add capacity, it can return some leased -300ERs as the newer types enter the fleet. This option, combined with its range of aircraft sizes, gives the airline considerable flexibility in its fleet plan and allows it to be nimble in its response to the industry environment, he says.

The A350s will begin arriving just as Cathay completes deliveries of existing fleet types. It is due to receive the last four 777-300ERs from its current order by the end of this year, as well as its final two Airbus A330s. The carrier is among the world’s largest operators of both types.

Despite its substantial widebody order book, Cathay is also considering what additional fleet moves it should make. Narrowbody replacement is one of the carrier’s next priorities, Chu says. This would cover the A320s and A321s operated by its subsidiary Dragonair. Although it is “not urgent,” it is “important that we look at” the replacement of these aircraft, he says.

At the other end of the scale, Cathay is also watching to see what sort of offering Airbus will come up with for an updated A380. If a new engine option yields greater efficiency, “we’d be interested in looking at it,” says Chu. However, he stresses that Cathay is a big fan of the widebody twin-engine aircraft types, and the carrier would only consider a larger type if it offered better operating economics.

Multi-Prong Model Key To Cathay Success, CEO Says | Commercial Aviation content from Aviation Week
JammedStab is offline  
Old 21st Apr 2015, 09:51
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Cathay is by any measure an outstanding operation and always has been but a $400 million dollar yearly profit these days is not that impressive.


United made almost $2 Billion last year, I realize its a lot bigger operation, but the margins at CX don't seem what they used to be.
stilton is offline  

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