IAG Cargo Sees Progress Despite Lower Results

Revenues declined, yields went south, volumes shrank. At first glimpse, IAG Cargo’s Q2 financial results, made public by the carrier last Friday, don’t really look like a success story. However, when taking a second look they appear to be quite promising.

IAG’s Head of Cargo Steve Gunning is pleased with the results achieved in Q2  /  source IAG Cargo
IAG’s Head of Cargo Steve Gunning is pleased with the results achieved in Q2 / source IAG Cargo

When taking note of IAG Cargo’s Q2 results, some of their staff might have had an uneasy feeling or maybe even have been speechless. Volumes of 1,321m cargo ton kilometers (FTKs) decreased from April 1 to June 30, 2014 by 5.1 percent compared to Q2 2013. Overall yield (commercial revenue per FTK) was down 7.4 percent and down by 2.8 percent excluding the effect of currency exchange.

From headwinds to tailwinds
The figures look slightly better, however, when taking into account IAG Cargo’s exit of their own freighter operation by terminating a lease agreement at the end of last April which encompassed three Boeing 747-8Fs.
IAG’s Head of Cargo, Steve Gunning commented: “Q2 was a transitional quarter, a new ball game after stepping out of our freighter program.”
These three months might be a game changer and become a starting point for headwinds turning into tailwinds pushing IAG Cargo forward in the near future. “The net effect of that pivotal period is quite encouraging. That’s why we are basically pleased with the results achieved in Q2,” the manager confessed when asked for an assessment by CargoForwarder Global.
Transitional and pivotal - because a number of key factors have turned to the better, which hopefully might be signposts for a brighter and primarily profitable future of IAG’s cargo biz.

Shoulder to shoulder with QR Cargo
First of all, the pact with Qatar Cargo has to be mentioned. It’s a long-term commercial agreement signed last January guaranteeing IAG Cargo capacity on five Boeing 777F flights per week operated by QR Cargo between Hong Kong, Doha and London Stansted.  This model of sharing capacity on a specific intercontinental route enhances IAG Cargo’s flexibility, ups productivity and reduces costs. So far, things seem to run extremely smoothly. Steve states happily: “We’ve been really pleased with their excellent performance.”
Asked about a possible extension of this deal by joining forces on other routes he says that an enlargement of the agreement is currently being explored between both sides. This could include transports between places in India such as Hyderabad to Madrid, via the Middle East, for example. But he also stresses that there are other possible candidates IAG Cargo could liaise with for expanding the own global reach without adding any capacity to the market. Why? Because “we still see an oversupply of capacity out there and this situation will presumably persist for some time,” he reasons.
A second factor for delivering enhanced results in the coming months is the cost saving program which IAG subsidiary Iberia including their cargo division are currently undergoing. Says Steve who participated in shaping the pillars of the cost-cutting plan: “It will definitely lead to improved productivity and enhanced services.”
Iberia has meanwhile become an integral part of IAG Cargo. It’s a single merged BA and IB business offering the market a unified product portfolio, identical quality standards, having a single sales force facing the customer, the same revenue management system and a single operation. “Due to Iberia we have become very strong in Latin America, serving many places there.”
Currently, IB Cargo is contributing 20 percent to IAG Cargo’s total turnover.

Free-of-charge service
Another field IAG Cargo is tapping is the ‘Cargo Connector Service’ within the U.S., but also at London.
For more see our report published June 29, 2014
Meanwhile, eight U.S. cities have been integrated in this program, with more to come, indicates Steve an impending enlargement of this pick-up service. “We offer this to capture the smaller parcel biz,” he explains. It comprises the pick-up of shipments at warehouses of shippers or forwarders located close to the airport and weighing no more than 300 kilograms per piece. The costs incurred are shouldered by IAG Cargo. “Our innovative Cargo Connector more than pays back,” the manager enthuses. Not only by capturing additional biz but also by establishing direct contacts with the carrier’s clients. “Cargo Connector helps us a lot to better understand what our customers need,” the manager concludes.

What these and other measures aimed to streamline the biz, avoid unnecessary costs and gain additional tonnage might lead to will be evidenced in IAG Cargo’s upcoming quarterly financial results.

Heiner Siegmund

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