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Market diversification gives IAG Cargo a boost

By control on August 1, 2011

Geographic diversification is the name of the game for IAG Cargo, the newly created company borne from the merger of British Airways (BA) and Iberia. With commercial revenue up 16.3 percent from the first half of 2010, IAG Cargo has leveraged the key strengths of both airlines to improve overall operations.

In addition to an 8.3 percent year-over-year increase in freight tonnage, IAG Cargo reported an 8.6 percent surge in capacity during the first half of 2011. Overall yield also improved, increasing by 7.3 percent. Company executives attribute this to increased fuel surcharges and improved market conditions.

The merger has also boosted operations tremendously, IAG Finance Director Rachel Izzard maintains. “One of the main factors in bringing the [cargo] units together was our diverse mix of sales areas,” she told Air Cargo World. “We’re not just dependent on one area of sales pulling through.”

IAG Cargo Global Head of Sales David Shepherd concurs, revealing that the pharmaceutical sector has been particularly lucrative for his company. Plus, he said, merging BA and Iberia’s operations has enabled IAG to develop its premium product and Express offerings. “Our premium products are best-in-market class and our customers are getting huge benefits by combining our product portfolio,” Shepherd said.

Along with product development, the company’s extensive reach has also driven its mid-year success, Shepherd maintained. “We’re a massively regionally diversified business,” he told Air Cargo World. For instance, he said, “The market capacity we have in North America is absolutely huge, between 38 to 40 flights per day, depending on the day of the week.”

Latin America, India and Asia-Pacific are also key markets for the European carrier. Although Shepherd said that business in the Asia-Pacific region — and China, in particular — has been particularly slow, he’s “cautiously optimistic” that improvements are on the horizon. After all, he explained, “the amount of long-haul capacity we have in the Asian market makes it important that this market improves.”

Not surprisingly, IAG is closely monitoring the Chinese export market to measure the risk it presents in terms of growth and yield. “However, as IAG Cargo, we benefit from having a geographically well-diversified revenue base, and we are cautiously optimistic that our measured capacity increases will put us on a firm footing for the rest of the year,” Managing Director Steve Gunning said.

IAG signed an MoU with Airbus earlier this year to acquire eight A330s for Iberia; these aircraft will be Iberia’s first twin-engine, wide-body planes.

IAG CEO Willie Walsh says these aircraft will be more fuel- and cost-efficient than the planes they replace. “Another advantage is they can be easily assimilated into Iberia’s existing long-haul fleet, reducing the need for additional crew training and maintenance costs.”

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