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JANUARY 2009 Trends & Analysis INTERNATIONAL EDITION Creating a Sustainable Reputation
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January 2009 CONTENTS Volume 12, Number 1 COLUMNS Opinion Q&A 8 AMERICAS Mr. Smith goes to 18Former Cathay Pacific Washington for an oil change CEO looks into the future 12 EUROPE 2009: It could be good, bad or really ugly says Lufthansa 14 MIDDLE EAST An ethical Maximising the money - from business? Abu Dhabi aviation 16 ASIA 20Emirates Chairman says it’s possible Pearl River carries manufacturers to Viet Nam
2009 Airline Guide DEPARTMENTS 23More capacity - and hopefully more freight 2 Viewpoint 4 News 46 People U.S Hub 47 Events & Spokes 48 Bottom Line They just keep growing 40and growing and...
Delta Blues
Pearl River Slows as 43global downturn hits
www.aircargoworld.com Air Cargo World (ISSN 1933-1614) is published monthly by Commonwealth Business Media. Editorial and production offices are at 1270 National Press Building, Washington, DC, 20045. Telephone: (202) 355-1172. Air Cargo World is a registered trademark of Commonwealth Business Media. ©2008. Periodicals postage paid at Newark, N.J. and at ad- ditional mailing offices. Subscription rates: 1 year, $58; 2 year $92; outside USA surface mail/1 year $78; 2 year $132; outside U.S. air mail/1 year $118; 2 year $212. Single copies $10. Express Delivery Guide, Carrier Guide, Freight Forwarder Directory and Airport Directory single copies $14.95 domestic; $21.95 overseas. Microfilm copies are available from University Microfilms, 300 North Zeeb Road, Ann Arbor, MI 48106. Opinions expressed by authors and contributors are not necessarily those of the editors or publisher. Articles may not be reproduced in whole or part without the express written permission of the publisher. Air Cargo World is not responsible for unsolicited manuscripts, photographs or artwork. Please enclose a self- addressed envelope to guarantee that materials will be returned. Authorization to photocopy items for internal or personal use is granted by Air Cargo World, provided the base fee of $3 per page is paid directly to Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, and provided the number of copies is less than 100. For authorization, contact CCC at (508) 750-8400. The Transactional Reporting Service fee code is: 0745-5100/96/$3.00. For those seeking 100 or more copies, please contact the magazine directly. POSTMASTER and subscriber services: Call or write to Air Cargo World, Subscription Services Department, PO Box 5051, Brentwood TN 37024; telephone 888-215-6084.
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001TOCINT.indd1TOCINT.indd 1 112/19/082/19/08 1:11:121:11:12 PMPM Editor Editor’s Simon Keeble • [email protected] Note Associate Editor Jessica Binns • [email protected] Contributing Editors Roger Turney, Ian Putzger
Art & Production Director Jay Sevidal • [email protected] Editorial Offices 1270 National Press Bldg., Washington, DC 20045 (202) 355-1153/1172 • Fax: (202) 355-1171
PUBLISHER Going Dutch Steve Prince • (770) 642-9170 • [email protected] NT’s welcome by the UK government to partner with the Roy- Advertising/Business Office 1080 Holcomb Bridge Rd. • Roswell Summit al Mail is entirely consistent with both history and EU compe- Building 200, Suite 255 • Roswell, GA 30076 Ttition laws. But will it be the Dutch or Germans who will sort (770) 642-9172 • Fax: (770) 642-9982 and deliver for 28 million British homes? China India Beijing Office Madhav Kulshreshtha In a year that will see the launch of the Lufthansa/DHL Aerologic joint ven- Nancy Sun (Sun Junqin) [email protected] [email protected] +91 124 420 3323 ++86 10 5879 5885 ture, the final acquisition of an ailing Martinair by founding shareholder KLM Japan Shanghai Office Masami Shimazaki poses an opportunity for the Dutch. Isabella Hou (Hou Ying) [email protected] [email protected] +81-42-372-2769 ++86 (21) 5116 8877 While Deutsche Post’s management in Bonn - led by now disgraced former Thailand Guangzhou/South China Chower Narula McKinsey consultant Klaus Zumwinkel - used its market position and piggy Sherry Yuan [email protected] [email protected] +66-2-641-26938 bank to acquire a dominant position in the global mail and logistics industry, ++86 10-5879-5885, ext. 601 Taiwan three hours drive away TNT was creating a European competitor. Europe, United Kingdom, Ye Chang Middle East [email protected] David Collison +886 2-2378-2471 However, unlike the German DHL reincarnation that went on to lose a few +44 192-381-7731 [email protected] Australia, New Zealand $billion, Dutch TNT sold its non-asset based business for lots of cash to con- Fergus Maclagan Hong Kong, Malaysia, [email protected] Singapore +61-2-9460-4560 centrate on being an Integrator. Joseph Yap +65-6-337-6996 Korea And Postman. [email protected] Mr. Jung-won Suh +82-2-3275-5969 Now, as the Dutch, French and Germans face off in a European Union ap- [email protected] parently free of artificial barriers to postal competition, it will be interesting to International Advertising Offices see who grabs the British mail prize - surely not the Spanish, they already have Classified Advertising the airports. and Reprints Laura Rickman • [email protected] KLM/Air France, Martinair and TNT have an interesting confluence of all- (770) 642-8036 cargo capacity that could be used to expand door-to-door freight and mail de- Administrative Assistant Susan Addy • [email protected] livery between Europe and Asia. Display Advertising Traffic Coordinator Martinair was begun 50 years ago to take advantage of business opportuni- Tracey Fiuza • [email protected] (973) 848-7106 ties ignored by a fairly sclerotic KLM. Electronic Rights and Syndication Barbara Ross • [email protected] Founder Martin Schroeder was careful not to compete with the national air- (973) 848-7186 line and soon discovered all sorts of ways to make money from it – whether it CUSTOMER SERVICE OR TO SUBSCRIBE: (888) 215-6084 was providing capacity or pilots for a scheduled service, or flying in-calf heifers to developing nations on behalf of Dutch farmers. To paraphrase a former Cargolux slogan, you name it, he did it. And for sev- eral decades the airline produced profit after profit for its KLM, Nedlloyd and bank shareholders. 400 Windsor Corporate Park Now the carrier and its 2,000 employees are facing, as IATA’s Director Gen- 50 Millstone Rd., Suite 200 • East Windsor, NJ 08520-1415 eral and CEO Bisignani puts it, “the worst revenue environment in 50 years.” (609) 371-7700 • (800) 221-5488 President and CEO Alan Glass The EU Competition Commission has already implied that Martinair is un- Interim CFO Pete Spinelli likely to survive as a long haul passenger airline. Vice President, Magazine Group Liam Power President, PIERS Brendan McCahill However it has always been a cargo innovator. Particularly under Schroeder’s Vice President, Directory Databases Amy Middlebrook iconic leadership. Such experience could now serve as a catalyst for KLM and Vice President, Production & Manufacturing Meg Palladino TNT to form a new all-cargo company in order to further compete with the Director of Circulation John Wengler Boys from Bonn. Or Leipzig. Or Frankfurt. President, OAG Aviation Steven G. Casley & Cargo Solutions The EU might welcome some additional delivery options from TNT’s CEO POSTMASTER: Send address change to: Air Cargo World, 400 Peter Bakker. Clearly the British do. Windsor Corporate Park, 50 Millstone Road, Suite 200, East Windsor, NJ 08520-1415.© 2008 Commonwealth Business Media Inc. — All Rights Reserved For more information visit our website at www.aircargoworld.com
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Royal Mail’s 11,500 outlets across Britain that currently provide a six day a week postal service to 28 million homes. Mendelson explained: “The univer- sal service helps to bind us together as a country. And, as well as its social importance, it is the means by which many companies build and operate their businesses, but it doesn’t come free.” In fact the UK government is spending $2.6 billion to 2011 to main- tain the network’s viability. In the UK, TNT Post handles more than 2.3 billion addressed mail items per year and employs close to 1,000 people. Combined UK revenues are $2.2 billion. Another interested party likely will be Deutsche Post. In 2007 its UK mail TNT Bids For UK Mail Stake subsidiary produced revenues of $232 million – plus $3.5 billion from DHL rompted by the UK Government’s endorsement of a new UK in the same year. report into the future of Britain’s mail service, TNT says it Pwants to take a substantial stake in the organization. Martinair Falls To TNT CEO Peter Bakker commented: “Royal Mail and TNT have ex- KLM After 50 Years plored partnership opportunities in the past. The views of the Hooper Commis- sion provide a clear framework for the UK postal sector going forward. Assuming fter 50 years of independence, the UK government implements these recommendations, I think that exploring a AMartinair has become a 100 per- strategic partnership with Royal Mail makes a lot of sense for both our companies.’’ cent subsidiary of KLM following EU Peter Mendelson, Secretary of State for the UK’s Department for Business Enter- Competition Commission approval for prise and Regulatory Reform, explained that the shift to electronic communication the A.P. Moller - Maersk Group to sell had cost the Royal Mail $750 million in lost profits in 2007 alone. its 50 percent stake. “I believe that Royal Mail and the postal market can thrive in the future - pro- In 2007 Martinair had a net loss of vided that decisive action is taken now. Without far-reaching change, the opportu- approximately $90 million on revenues nities brought by technology will become overwhelming threats. This need not be of $1.3 billion. Based on historic ex- the case,” he said. change rates, total assets that year The Royal Mail is less automated and less efficient than many of its EU coun- were valued around $860 million – terparts. Other European postal companies automate up to 85 percent of mail for down from a 2006 level of $950 million. delivery to individual home or business. In Britain sorting in local delivery offices KLM President and CEO Peter Hart- is still done by hand. man did not disclose a purchase price Mendelson noted that Royal Mail has a “large, growing and volatile pension but added, “The airline industry in gen- fund deficit” that is costing the company $1.2 billion a year and “looks set to rise eral is experiencing turbulence, Martinair substantially when the fund is re-valued in 2009.” He is recommending the UK in particular. With the European Com- government take responsibility for it. mission approval, economies of scale The Hooper report also said that Royal Mail suffers from a low level of trust and and synergies become available.” too many strikes. A EU study late last year determined The proposed partnership deal with another postal provider does not include the sale “would not significantly im-
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pede” cargo or passenger competition 2008 to $10.2 billion in value. The last time this happened was a six in the European Economic Area (EEA) Putting this into perspective, ISuppli percent downturn in 2001. or in a substantial part of it. The report notes that at the beginning of the dot. With 45 percent of the global cargo concluded: “The effects of the pro- com collapse, there was $13.4 billion in market, Asia-Pacific carriers will see posed transaction would be limited, excess inventory that took two years to losses more than double from $500 not only because KLM already jointly work down to “manageable levels.” million in 2008 to $1.1 billion in 2009. controls Martinair, but also because Derek Lidow, president and chief ex- European airlines losses will grow to Martinair’s competitive strength has ecutive officer of iSuppli, explains that $1 billion; Middle East and Latin Amer- been constantly decreasing and, to re- many companies have reduced inven- ica airlines will double their losses to gain its strength, Martinair depends on tory targets as revenues drop; demand $200 million respectively; and African KLM’s agreement to a renewal of its has declined much faster than expected airlines will see losses of $300 million. long-haul passenger fleet. and OEMs have not been able to cut Bisignani added, “Labor must Competition Commissioner Neelie production as fast as they would like. understand that jobs will disappear Kroes said, “In this case I was very As a result retailers likely will not when costs don’t come down. Indus- conscious of the need to safeguard have built up major excess invento- try partners must contribute to effi- the interests of consumers flying to ries of finished products in the fourth ciency gains. And governments must long-haul holiday destinations. After quarter. stop crazy taxation, fix the infrastruc- a thorough investigation, I am now iSuppli says that by the end of 2008, ture, give airlines normal commercial satisfied that consumers will continue the automotive supply chain increased freedoms and effectively regulate mo- to have a competitive choice of airline its inventory by up to $1.7 billion in nopoly suppliers.” services after the acquisition of Marti- unwanted semiconductors; wireless nair by KLM”. OEMs and consumer product maker New Zealand’s Turn President and CEO of Martinair, inventories rose by $2.4 billion and At Cargo Cartel Paul Gregorowitsch added, “With its semiconductor companies added $2.2 50 years of history in the field of air billion to their excess inventory. he New Zealand Commerce Com- cargo and passenger business, Marti- Tmission has filed suit against 13 nair can play an excellent complemen- IATA Goes From airlines for cargo price fixing. tary role in the worldwide product of Bad To Worse The Commission alleges that Air the KLM Group. For Martinair and its New Zealand, British Airways, Cargolux, 2000 employees, this is encouraging ATA forecasts an industry loss of Cathay Pacific, Emirates, PT Garuda In- news after a long period of uncertain- I$2.5 billion in 2009 with all regions, donesia, Japan Airlines, Korean Airlines, ty. The Martinair restructuring activi- except the US, expected to report Malaysian Airline System, Qantas, Sin- ties can be actively continued given larger losses than last year. gapore Airlines, Thai Airways Interna- this perspective.” Giovanni Bisignani, IATA’s Director tional and United Airlines colluded to Martinair operates a fleet of 747-400 General and CEO said, “The outlook is raise prices by imposing fuel surcharges and MD 11 freighters plus B767 pas- bleak. We face the worst revenue envi- for more than seven years. senger aircraft. KLM operates 747-400 ronment in 50 years.” Commerce Commission Chair Paula freighters and 747-300 Combis. Bisignani noted the continuing Rebstock said, “The alleged collusion contraction of air cargo that started to impose additional charges will have Semiconductor in June 2008, “Air cargo comprises 35 caused extensive harm. Many New Stocks Soar percent of value of goods traded inter- Zealand businesses and every con- nationally. The 7.9 percent decline in sumer will have been directly affected urther confirmation of declining October is a clear indication that the by the increased air freight costs over Fair cargo traffic comes from research worst is yet to come - for airlines and many years. company iSuppli Corporation that re- the slowing global economy.” Air New Zealand General Counsel ports excess semiconductor stockpiles This year, IATA expects cargo traffic John Blair responded, “Despite exten- in the global electronics supply chain to decline by five percent overall, fol- sive reviews of our own files and inter- nearly tripled in the last quarter of lowing a drop of 1.5 percent in 2008. views with key staff, Air New Zealand
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has not been able to identify any evi- dence of price-fixing or cartel behavior. “To have the Commerce Commis- sion announce that it will embark on proceedings against 13 airlines, having failed to engage with us for almost three years, is clearly an approach designed to justify their existence and seems more about grandstanding than about getting to the bottom of the allegations and fa- cilitating a co-operative approach from the airlines.” Blair said Air New Zealand had invested several million dollars over the past three years and reviewed over a million documents. “The Com- merce Commission’s disdain for en- gagement has made this exercise many Despite a global cargo downturn, Brussels-based Cargo B Airlines has leased a times more expensive than it needed to brand new B747-400 freighter from Nippon Cargo Airlines for three weekly flights to Latin America serving Sao Paulo, Quito and Bogota. be,” he added. ■
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PO Box 686, Dubai, UAE. E-mail: [email protected]. mercator.com ReportsRegional
AMERICAS
Smith Leads With Paycut FedEx executives cut salaries and merit raises to save costs
vehicles, Smith has told U.S. legislators that America should adopt a three-step program to reduce its dependence on foreign oil. “Given the gravity of this issue, I tru- ly believe the outcome of this national conversation will be a defining moment in American history. “To me, the solution to U.S. energy independence consists of the maxi- mization of domestic fuel production from all sources – including the Alaska National Wildlife Refuge; the maxi- mization of renewable energy to the extent that it’s technically feasible – wind, solar, nuclear and bio mass; and a movement to electrify the short-haul transportation system, using plug-in hybrid technology and encouraged edEx Corp. Founder & CEO Fred Smith is taking a 20 percent through government incentives and paycut this year as part of cost reduction program aimed at other programs.” Fsaving the company $200 million and a further $600 million in With 80 percent of all daily personal 2010. driving less than 40 miles, Smith says “Our financial performance is increasingly being challenged by some of the plug-in hybrid technology for short- worst economic conditions in the company’s 35-year operating history,” he said. haul transportation has the potential “However, with the decline in shipping trends during our second quarter and the to significantly reduce U.S. reliance on expectation that economic conditions will remain very difficult through calendar imported oil. 2009, we are taking additional actions necessary to help offset weak demand, pro- “Reducing demand for petroleum by tect our business and minimize the loss of jobs.” converting the short-haul automotive Other senior FedEx executives will lose up to 10 percent of their salaries and merit- sector to plug-in would free up more based increases this year as the company aims to reduce costs by over a $1 billion. diesel and middle-distillates for use by With the xpress package traffic down two percent year over year, FedEx Corp. re- jets and long-haul trucks. porte second quarter revenue of $9.54 billion, up one percent from 2007; operating “Electric power is already available in income of $784 million, up $1 million from a year ago; an operating margin of 8.2 people’s homes and efforts should be percent, down from 8.3 percent the previous year and net income of $493 million, put toward producing electrical power up three percent from last year’s $479 million. in the cleanest and most economical Meanwhile, as FedEx takes delivery of ten battery-powered UK-based delivery way. After all, it’s a lot easier to clean up
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1,100 power plants than it is is conducting the first part 250 million personal automo- The solution to U.S. energy biofuel-powered major flight biles,” Smith said. independence consists of a US passenger airline this month. The passenger-free of the maximization of flight will be powered by a … Briefly domestic fuel production special fuel blend including San Francisco-based from all sources. components derived from freight forwarder Falcon algae and jatropha plants Global says it has become — sustainable, second- America’s first TSA-certified sions on the 16-hour direct service. generation fuel sources cargo screening facility. Falcon will Emirates will operate three weekly that don’t impact food crops or water now be providing in-house screening flights between San Francisco and resources and don’t contribute to de- services in time to meet the Congres- Dubai with up to ten tonnes of cargo forestation. Continental has cut its sional mandate of 50 percent screen- before going to a daily service in May... greenhouse gas emissions and fuel con- ing by February 2009 and 100 percent Over 249,000 UPS employees have sumption by 35 percent since 1997. screening by 2010....Emirates claims pledged more than $53 million to The airline has also reduced, by 75 its new B777-200LR non-stop Dubai- United Way. The company match- percent, its nitrogen oxide emissions San Francisco service is the world’s ing contribution is expected to push from ground equipment at its Houston longest green flight. The airline worked UPS’s total donation for 2008 to over hub by switching to electric ground closely with Dubai, Iceland, Russia, $60 million. Since 1982, including service equipment....Wal-Mart has Canada and the United States to save this year’s pledges, UPS and its em- established a partnership with many approximately 2,000 gallons of fuel ployees have donated $924 million to of its leading sustainability suppliers and 40,000 pounds of carbon emis- United Way...Continental Airlines to facilitate the creation of green jobs