Volga-Dnepr Group / Press-center / Media Coverage

Upwards trend continues

11/14/2008

The Russian air cargo carrier AirBridge Cargo (ABC) has been in the headlines prima-rily because of its personnel changes in recent months.The ITJ's editor-in-chief Ursula Schmeling met Robert Song, commercial director global, and Ludwig Hamburger, regional director Europe, Middle East and Africa, at ABC's office in Frankfurt am Main (Germany) to see what other interesting news the Company has.

Mr Song, are you satisfied with the commercial developments of ABC?

Song: Yes, indeed I am. In the first half of 2008 we increased capacity by 33% and the tonnage carried rose by 57% to 62,000 t compared to 39,400 t in H/1 2007. The interim revenue this year climbed to USD 212 million, an 81% increase on the USD 117 million for Hl/2007.

How did ABC achieve this disproportionate growth, given the falling freight rates?

Song: We have a good fleet mixture which gives us a relatively low cost basis and al-lows us to offer competitive prices. We have three B747-200Fs, which are more affordable to finance and which we use on medium-haul routes such as the one from China to Siberia (Russia) or from Siberia to Europe.

We have one B747-300F which we will decommission next year, as we now have three B747-400ERFs which were delivered last year and this. These aircraft are used on long-haul international non-stop routes like Hong Kong-Moscow (Russia), Nagoya (Japan)-Moscow, Shanghai (China)-Moscow.

Furthermore, we expect to take delivery of five B747-8Fs between February 2010 and 2012. This gives us the efficiency required to grow.

There must be more to it though.

Song: We have considerably improved our service quality since the arrival of the new B747-400ERF. Our on-time Performance has improved. Year on year, we have been better able to optimise pay load and volumes and have also cut costs. For example, we closely monitor fuel prices along our routes and tank up wherever it is cheapest at any given moment.

Hamburger: We have restructured our sales Organisation and ground handling Operations in Europe. This has considerably trimmed costs, as well as making us more effective.

We have put together a whole new sales team in Europe in the last few months. But remember I have only been with ABC for 120 days. With our high flight frequency out of Frankfurt it pays us to have our own sales office here. In other countries we use the Services of GS As. Furthermore, we have appointed four companies with an outstanding reputation in their respec-tive markets.

We switched handling agents in Frankfurt ' too. With Fraport we are now in the first i line for direct ramp access and we have six dedicated trucking docks branded for ABC clients only. Swissport is our agent in Amsterdam (Netherlands). We have also concentrated our trucking Services with two companies - Wallenborn out of the Netherlands and NLS out of Frankfurt. In addition we have established a special truck desk in our office here in Frankfurt to handle customer enquiries round the clock. We offer clients a 24/7 service via our customer service unit based in Moscow.

Song: We are very responsive to customer needs. When one of our clients wanted us to fly into Budapest (Hungary) because his key customer had decided to supply the Russian market from Hungary instead of China, we rescheduled our flights with-in a week.

Our goal is to improve Connectivity and open new markets supplemented with new trucking arrangements for our business partners. We believe that the key to our success is to work with a handful of selected freight forwarders as our business partners and combine our strengths to de-liver freight Solutions. We work hand in hand with our selected partners and this is part of our Strategie selling in action.

When you talk about partners do you mean airlines or customers?

Song: I mean our forwarding partners, mainly Europe or Asia-based companies. Airlines are only a very small part of the supply chain. Only in tandem with the forwarders do we get any control over the supply chain and can position our selves as dedicated Solution providers. Our Cooperation is based on an open books policy.

Who are your interline partners?

Hamburger: We have many. They cover 65 destinations on all continents. But the two strategically most important ones are the Japanese carrier Nippon Cargo Airlines (NCA) and Cargolux (Luxembourg). Our partnership with these two enterprises goes beyond interline and capacity sharing. It includes shared handling agents, technical Services, stocking of parts, etc, as we have all ordered the B747-8s that are due to be delivered from the next two years.

How is your Cooperation with KrasAir working out? The Company is report-edly in financial difficulties.

Song: Look at the size of Russia and the CIS. The tie up with the Russian airline KrasAir is part of our long-term strategy to offer not only trucking Connectivity in Russia but also Connectivity by air. So far, the volumes are not significant though as most distribution centres are still in the metropolitan areas of Moscow and most of the Russian imports are channelled via Moscow. But this will change.

From 2009, we will also be able to offer intra-Russian flights operated by two new TU-204s which are due to be delivered then.

You are offering flights to St Petersburg (Russia). What are the volumes like there?

Song: Increasing, but still small. We are the only air cargo carrier offering main deck capacities in and out of St Petersburg.

Several car manufacturers are just set-ting up assembly plants in the region or have recently established them. It is too early for sizeable spare parts imports. The market will take three or four years to mature. But we wanted to be there and ready when the automotive industry in and around St Petersburg becomes a major economic factor.

Did you feel any slowdown of international trade and a fall in volumes since the summer?

Song: Well, volumes in general are down, not only eastbound from Europe to Asia and Asia to the Americas, but also west-bound from Asia to Europe and from the Americas to Asia. This downward trend actually started before the Olympic Games in Beijing (China) in August, when the Chinese government imposed many transport and aviation related restrictions to tighten security measures. In the mean-time the high-tech industry is suffering from a fall in demand and this naturally has consequences for our forwarding cli-ents and us. In addition, yields continue to shrink, trade imbalances are not im-proving and security, financing costs etc, are increasing.

We at ABC have been less affected so far. Our scheduled flights still enjoy higher than benchmark load factors.

However, there is no doubt the total market volume is no where near the peak seasons of past years.

What are your expeetations for 2009?

Song: The Situation will not get better. The yield will stay low as supply of capacity exceeds demand, but I believe we are well-positioned and ABC is here to stay.

Where does ABC stand today?

Song: We have become the biggest cargo carrier in/out of Russia only four years af-ter we were founded. The ABC business case is built on the Strategie geographic position of Russia on the route between Asia and Europe, as well as between Asia and North America via the polar route. The fast developing economy of Russia, the increasing purchasing power of its consumers, high imports and low exports, at least as far as airfreight is concerned, are other comerstones of what drives our business. Hamburger: We offer fifteen flights per week from/to Frankfurt and six to Amsterdam, one of these via Budapest. In the Coming year we will focus on adding more intra-Europe destinations to our network to better serve the needs of our partners.

What is your ranking in Russia com-pared to the national carrier Aeroflot?

Song: We are well established in the Russian market and enjoy government Support in many areas. For example, there is federal financial support for the develop-ment of the Krasnoyarsk hub (Russia). We are the beneficiary of a bilateral air agreement between Russia and Hong Kong which gives 5th freedom rights to one cargo carrier, and which allows us to go to Hong Kong and fly from there to India or Japan.

In Russia we are able to fly to virtually any airport that our customers wish. Our western competitors cannot do that. We offer direct Services to Domodedovo and Sheremetjevo, the two biggest airports in the Moscow metropolitan area. We have road feeder Services beyond Moscow. We offer a unique Service for vulnerable products such as mobile phones, with security escorts to safeguard shipments from when the plane opens for unloading to the point where the goods arrive at the warehouse. We deliver füll visibility within Russia. For us, freight availability is the only true measure on Service.

How do you judge your image world-wide?

If you think in terms of car brands, we shall never be a Ferrari, as we predomi-nately operate a fleet of 747 freighters. We need to focus on being able to consistent-ly deliver large volumes of shipper built units instead of kid-glove little boxes for express. But we want to be like a reliable, efficient, high selling Toyota.

Are you planning any new Services for this winter or next year? Hamburger: Our winter schedule came in-to force on 22 September. It includes four flights per week from Frankfurt to Shanghai (China), five to Hong Kong, three to Beijing and one to Nagoya (Japan). Song: We are looking at Spain (Barcelona, Madrid) and Italy (Milan), as well as Israel (Tel Aviv). If any forwarder can offer us 50 t a week for a particular trade lane on a regulär basis, we shall add that to our schedule network. For 2010 and beyond, when we have the B747-8F, we shall also look further afield to North and Latin America.

What about branded products?

Hamburger: We are not yet ready for this. We are a niche carrier that primarily trans-ports major key IT accounts and outsized cargo. That is why we have established reliable procedures for dealing with out-of-gauge and vulnerable cargo (high-tech equipment, mobile phones, etc) as men-tioned before. We are Tapa approved and a member of Cargo 2000.

Are you also targeting the perishables market?

Hamburger: So far we did not have the ground handlers with the necessary capa-bilities. However, Amsterdam has moved to a new warehouse that is first line and in Frankfurt'we are ready. In Moscow we are taking active participation in the new cargo village project at Domodedovo, while at the same time a similar project is taking shape in Sheremetyevo. This will no doubt enhance our capabilities for per-ishable shipments from Europe, but we have no direct flights to Latin America yet. These will come with the new B747-8F.

Song: We have started working on reliable procedures to handle perishables. Estab-lishing seamless cool chains is one of next year's priority targets.

In a worsening economic environment how will you meet future challenges?

Song: The main thing is to keep a keen eye on the cash flow, and remain focused on unit cost reduction. Our aim is to further improve our network, space and fuel efficiency, our internal efficiency, our on-time Performance and our IT Systems. We will continue to look for opportuni-ties to leverage synergies with our sister Company, the Russian heavylift and charter specialist Volga-Dnepr. For example, the ABC charter desk is now based in the Volga-Dnepr UK office, which we only created recently. It has already generated a revenue of over USD 30 million so far this year. We are also integrating in other areas such as Operations, route and load planning, engineering, human resources and finance.

Mr Song, Ludwig Hamburger reports to you. To whom do you report? Who is replacing Denis Ilyin and what will be the role of Robert Strodel? Who will be the next CEO of ABC?

Song: Alexey Isaikin is Joint president of ABC and Volga-Dnepr. I have no idea who will be the next CEO of ABC. Robert Strodel is a Consultant to advise on strategy for all facets of the business. He will act as a kind of auditor to make sure our business processes can equal those of our European and Asia competitors. But there are actually numerous Consultants working in the Volga-Dnepr group. I report to Tatyana Arslanova, who has replaced Ilyin. If I am not travelling to see customers, I spend half of my time in Moscow and the other half in Shanghai as I am also vice-president and area direc-tor Asia-Pacific region. The reason for the dual role is to feed experience in international companies into the head office.

Who owns ABC and the Volga-Dnepr group?

Hamburger: ABC is 100% owned by the Volga-Dnepr group. And the group is ma-jority owned by Alexey Isaikin. The rest of the shares are in the hands of institutional investors.

Is ABC profitable?

Song: Volga-Dnepr is profitable. ABC is now showing all the right trends for sus-tainable profits, which have secured the purchase of five Boeing B747-800s that will arrive in 2010.

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