Exclusive – Cargolux Intends Developing a Network Comparable to those of the Integrators

This strategic and operational aim was announced by Dirk Reich, CEO of Luxembourg’s flag carrier in an exclusive interview with CargoForwarder Global. Shortly before, officials from the Grand Duchy and the Omani government had sealed a capacity sharing agreement between Cargolux and Oman Air at Muscat Airport.

Dirk Reich
Dirk Reich

Q: Dirk, Cargolux and Oman Air have just signed a joint venture agreement aiming at sharing transport capacity and capture additional market opportunities. Where exactly do you see the short and mid-term benefits for both carriers resulting from this pact?

A: This is a true win-win partnership. Oman Air and Cargolux individually use their sales and marketing strength and market leading image in their respective markets to share the risks of the development of Muscat as a new airfreight gateway in the Middle East. We believe that this will in the short-term lead to a significant higher load factor on flights and long-term will lead to one of the market leading networks between India and Europe in terms of transit times and geographic coverage of India.

The deal is based on standard shipments
Q: Your capacity sharing agreement is limited to carrying general cargo. Will more sophisticated products like temperature critical pharma shipments, express goods or valuables, to name just three, be added at a later stage? And if so, how do you sort out the financial situation?

A: Innovative products and specialties like oversized heavy goods that require the nose door capabilities of the B747 freighter are one of the key advantages that we can offer compared to other airlines that have limited main deck capacity or have chosen the Boeing 777 as their freighter. Cargolux is one of the few airlines that have been pharma certified throughout the network. We will start with a focus on general cargo but we are certainly also accepting specialties on a case-by-case bases.

Q: The agreement implies routing an increasing number of Cargolux flights via Muscat, a destination that's not really much known for cargo activities up to now. Are you taking on the role as a development aid worker for the Omani air freight sector?

A: Cargolux, being neutral and not part of any global airline alliance, has a record of long lasting partnerships with younger, smaller carriers or belly operators that want to move into the cargo business. This can reach from an interline agreement to a block-space agreement up to providing maintenance services to companies such as Silk Way and AirBridge Cargo.
Today’s cargo volume at Muscat airport of almost 130,000 tons p.a. is expected to double and in the midterm grow to a volume of above 500,000 tons p.a. when the new seaports are further developed, sea-air concepts implemented and when the planned logistics centers in Salalah and around Muscat are fully operational.

Cargolux and Oman Air Cargo are targeting a win-win situation / source: hs
Cargolux and Oman Air Cargo are targeting a win-win situation / source: hs

Indian market is main target
Q: According to the announcement delivered by Cargolux and Oman Air at the JV signing ceremony weekly return flights from Luxembourg via Muscat to Chennai in India are only the first step taken by both airlines. What comes next?

A: We plan to start a second weekly flight to Chennai and to add an additional Indian destination within the next 2 months and to increase the number of flights to daily freighter departures to Luxemburg and to India within the next 18-24 months. During this period, we also expect the first joint freighter connections from our hub in Zhengzhou via Muscat to Africa and a closer integration of the expanding Oman Air belly network with the global Cargolux freighter network.

Long-term thinking
Q: You are developing a multi hub system consisting of Luxembourg, Zhengzhou and now Muscat, not to forget Milan in Italy where your subsidiary Cargolux Italia is based. Isn't this operational diversification a two edged sword because of the increasing complexity of processes?

A: Cargolux has chosen a dual hub strategy with a clear goal of linking our 2 hubs of CGO in China with the hub in Luxembourg in the heart of Europe with multiple daily flights. Those hubs also have multiple weekly flights to key regional gateways such as Chicago, Milan, Hong Kong, Lagos or in the future Muscat - just to give you a brief overview. This is a key differentiator of Cargolux: We do not only operate from one hub, but are developing a truly global network with presence in all key air freight markets, comparable to the global presence of the integrators. Creating a competitive advantage means differentiation and investments into new markets and products. We want to ensure that Cargolux continues to be the natural partner of choice for European customers that want to have a high quality European option to the growing carriers from the Gulf and Asia also in 20 years from now and not just tomorrow.

Profits need to go up
Q: Finally, how did Cargolux perform in Q1 and have you been profitable in fiscal 2014?

A: We shall publish our annual results once approved by the AGM by the end of April, but I can already indicate that we shall show another year of profits for 2014, despite the huge challenges that our industry was facing beginning of last year. Is it enough to be happy? No!
Our profitability is not high enough for the huge investments into our network and the fleet replacement program that has led to one of the youngest fleets in the cargo industry with an average aircraft age of only 5.5 years. In the first quarter we have seen a growth in tonnage of 7 pct, as such again outperforming most other European players and as a result of participating in the double digit growth of the transpacific route, as a consequence of the harbor strikes at the U.S. West Coast. However, we need to further improve our efficiency and productivity to ensure long-term positive results.

Interview: Heiner Siegmund

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