Three to watch: Reich righting the ship at Cargolux

DirkReich-smallWhen Dirk Reich, a former executive with forwarder Kuehne + Nagel, was appointed president and CEO of Luxembourg- based cargo carrier Cargolux International in March 2014, the carrier was deeply riven by personnel changes, labor concerns over foreign investment ventures and the lingering stain of the surcharge price fixing scandal that toppled former CEO, Ulrich Ogiermann, in 2010.

Since then, Europe’s largest scheduled all-cargo carrier has yet to solve all of the above problems, but its downward trajectory has been reversed as it has successfully launched its Zhengzhou, China, operation as a second hub. Cargolux also managed to make a tidy profit of US$3 million in fiscal year 2014, despite a $40 million impairment charge on its 747-400F fleet as a result of the surcharge scandal. The carrier also increased its revenues from $2 billion in fiscal 2013 to $2.1 billion in fiscal 2014. The revenue growth stemmed from a nearly 10 percent year-over-year increase in cargo carried to more than 828,000 tonnes, and an 11.2 percent rise in freight tonne kilometres flown to 6.4 billion.

For most of this turnaround period, Reich has been at the helm as he successfully navigated some stormy waters. This year, as it celebrates its 45th anniversary, Cargolux has been expanding its network, surpassing the 100th destination milestone with the addition of a route to Manaus, Brazil, in January. Other route additions include Cargolux Italia service between Milan Malpensa and Zhengzhou in June, plus four flights a week, starting in July, to Turkmenbashi Airport in Turkmenistan – two from Hong Kong and two from Luxembourg. Cargolux also signed a codeshare agreement in April with Oman Air that added a second weekly flight to Chennai, India, by way of Muscat, Oman. In October, Cargolux Italia secured another agreement with Nippon Cargo Airways, providing access between Milan and Tokyo.

To help promote the wide range of commodities it ships, Cargolux also unveiled a new product portfolio, separating its various lines of services, such as CV Hazmat, CV Pharma, CV Fresh, CV Jumbo and others. The carrier said response from customers has been “very positive” and the move served to educate its current and prospective customers about the types of cargo services being offered worldwide. For its CV Alive product, the carrier expanded its animal-handling facility to 50 stalls to accommodate the transport of more live animals, such as thoroughbred horses. “What is even more encouraging is that we can clearly see in the statistics that our products have helped Cargolux grow ahead of the market where many of our competitors in the cargo industry have declined,” the company said.

One of the most hotly anticipated developments for 2016 will be the carrier’s joint-venture airline, created through a partnership between Cargolux and the Henan Civil Aviation & Investment Co. (HCNA), which bought a 35 percent share of Cargolux for $231 million back in April 2014.

The vigor of the Chinese economy has ebbed somewhat in 2015, but Reich insists that the country is simply going through a natural maturation process. “We do not believe that China is currently in an economic slump,” he said. “The growth rate has merely reduced to a more sustainable level.” The as yet- unnamed JV airline will be under development through 2016, Reich said, adding that the “economic outlook for its startup looks promising” and that “demand by our forwarders for global network” will ensure its success.

Since Cargolux had been criticized by labor unions for transferring some of its 25 freighters for use in its Cargolux Italia operation, Reich said he seeks to acquire three to five more aircraft for the new Chinese JV carrier on a contractual basis, including either used 747-400Fs or new or used 747-8Fs. “Our current business plan for the JV airline entails three aircraft in the first year of operation, with aircraft four and five joining in year four and five, respectively,” he explained. “All aircraft foreseen to enter the JV airline are in addition to the current Cargolux group, and not at its expense.” Today, Cargloux operates twelve 747-400Fs and thirteen 747-8Fs, “all having a nose cargo door for big and heavy freight,” he added.

Reich said the carrier is “cautiously optimistic for 2016,” adding that it will continue to expand its global network, “with a strong focus on expanding the hub in Zhengzhou, China, from two to three departures a day.”

The Achilles heel at Cargolux, however, remains its labor situation. For years, the two main unions representing pilots and the majority of the ground crews for the airline – LCGB and the much larger OGBL – have battled with the carrier over its creation of subsidiary airlines, such as Cargloux Italia and the newly planned Chinese JV, claiming that Cargolux is merely outsourcing its work to countries with cheaper labor, at the expense of the workers in Luxembourg.

On Nov. 11, OGBL announced that a “principle agreement” was forged to replace the earlier collective work agreement (CWA) that was set to expire on Dec. 1, 2015. The agreement covered 750 ground staff, totaling 62 percent of all employees in Luxembourg covered by the CWA. At press time, however, LCGB, said it is holding out and threatened to go on strike. (See labor negotiations update.)

Such is life in the often melodramatic environment surrounding Cargolux – a world of controversial business moves, but also of bold joint-ventures that are beginning to pay off. Stay tuned for more in 2016.

See Jeffrey Musser profile

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