Cargolux lands China investment

   It’s been a long time coming, but it sounds like Cargolux is about to take its initial steps toward a full-blown Asian cargo strategy. Hopefully, the all-cargo carrier proceeds cautiously, bearing in mind lessons learned from previous enterprising European airlines.
   In an interview with Reuters, Cargolux Chief Executive Officer Dirk Reich said the freighter operator will solidify its plans for a Chinese offshoot by the end of the year. He added the carrier’s Asian operation, which could consist of five Boeing 747-8 freighters, may start flying during the first half of 2017.
   In press reports, Reich has said the Cargolux team is unsure whether these freighters will be new purchases through Boeing or pickups of used aircraft. In the Reuters interview, he said air cargo shipments out of Asia have been propped up by the latest iPhone release, adding the surge in activity is just the start of the traditional busy cargo season. Despite the latest news of an economic downturn in China, Reich told reporters he believes growth will continue at a sustainable clip. The carrier’s activity out of Zhengzhou Airport, he explained, would benefit from expected growth of air freight transport between China and the United States.
   After recent worldwide declines in air freight traffic, the International Air Transport Association (IATA) measured unchanged results for August in its latest report. It noted, however, continued air freight weakness in the Asia-Pacific region, but that this will likely turn around, as trade from Asia has stopped dwindling, IATA reported.
   The Association of Asia-Pacific Airlines said cargo traffic in August “remained relatively weak,” adding freight demand was down 0.3 percent compared to the same month last year, while capacity grew 3.3 percent over the same period.
   “Overall, however, after accounting for the initial growth spurt earlier this year, air cargo demand has still registered a 3 percent increase for the first eight months of the year,” Andrew Herdman, the association’s director general, said in a statement.
   The continued Cargolux entry into China—the carrier currently offers freighter flights out of Zhengzhou to Luxembourg and Chicago—will be measured in the context of the failed Jade Cargo venture, a project Lufthansa initiated with Shenzhen Airlines and a German bank in 2004. Lufthansa owned 25 percent of the company, which it eventually divested in March 2012 after a series of cash infusions. (At the time, Lufthansa Cargo CEO Karl Ulrich Garnadt said the airline had lost Lufthansa nearly 16 million euros in 2011.) Jade began selling itself off later that year, and it will reportedly hold an auction for three of its B747-400 freighters in October. This all happened during Lufthansa’s strategic decision to shift capacity from Asia to the Americas.
   While Zhengzhou is still an emerging airport, Cargolux enters a competitive Asian cargo field. Hong Kong-based Cathay Pacific is ranked fourth on the list of the largest worldwide air cargo carriers; although it’s not an all-cargo airline, Cathay, along with Singapore Airlines and China Cargo Airlines, looms large in this arena. In September, Cathay reported that its cargo-ton revenue was up 7.9 percent for the first eight months of the year when compared to the same period in 2014, while the actual amount of cargo carried rose 6 percent. Capacity was up 7.8 percent.
   Upon announcing 2015’s interim results in August, Cathay Pacific officials said they expected the second half of the year to be toward the low end of the growth spectrum due to more competition on international routes. The carrier is still seeing large growth from its relatively new cargo terminal at Hong Kong International Airport, and it reported a 17 percent tonnage increase in the first half of 2015.
   Cargolux has partnered in its Asian endeavors with Zhengzhou-based Henan Civil Aviation Development and Investment Co., which purchased a 35 percent stake in Cargolux in January 2014. The 35 percent stake had previously been acquired by Qatar in 2011 before it decided to sell its interest in 2012. The partnership with the Chinese company led to a freighter route between Zhengzhou and Cargolux’s base in Luxembourg, and at the beginning of this year, the two parties signed a memorandum of understanding meant to push the partnership to the next level.
   In a press release, HNCA said the MoU would, among other things, “build Zhengzhou Airport as a major hub of Cargolux in [the] Asian-Pacific area.” For an airport that was the eighth largest cargo hub through the first eight months of 2014, the continued involvement of Cargolux is a very big deal.
   Ross, a former American Shipper editor, writes about air transport and freight issues. He can be reached by email.

This column was published in the November 2015 issue of American Shipper.