Taking advantage: More low-cost carriers add cargo

Low-cost air carriers are increasingly turning to cargo to take advantage of available capacity and increase bottom lines. Many carriers report that business is thriving during a difficult time for the industry. Several carriers recently added cargo operations and are likely to be joined by others.

“There’s no question about it,” says Barry Nassberg, group COO of Worldwide Flight Services, which provides cargo-handling services for numerous low-cost carriers around the globe. “There’s a tremendous opportunity for them, and anyone not presently doing it should be looking at it. Whether you go the outsourcing model or whether you take it in house, it’s a worthwhile investment. Any CFO of a low-cost carrier that is presently not carrying cargo is probably putting pressure on their company to do so.”

Nassberg says low-cost carriers are increasingly realizing the potential for their empty belly space and are exploring how to adjust their structure to take advantage of it.

One of the latest low-cost carriers to enter the cargo realm is Norwegian, which announced in April that it would create a new cargo company, Norwegian Cargo AS. The new company will serve the airline’s entire route network with more than 120 destinations.

“We have always carried a little bit of cargo in the Scandinavian market, and especially domestically in Norway, our biggest market,” Bjørn Erik Barman-Jenssen, director of ground operation and in-flight services, says. “We had a cooperation with JetPack, our GSSA, for short-haul operations. When entering into long-haul operations, we obviously needed to use the capacity available to boost the revenue of the flights. That’s the main reason for establishing the cargo company.”

Norwegian entered the long-haul market May 30 with a flight from Oslo to New York’s JFK Airport. The airline also plans flights to Fort Lauderdale, Fla. and Bangkok.

“We are looking for more long-haul aircraft. The plan is to operate between 15 and 20 long-haul aircraft, not necessarily from Scandinavian bases,” he says.

flydubai is another relative newcomer to the cargo side, having launched its operation Jan. 1, 2012. The airline has been expanding ever since. This includes rapid developments in underserved markets in the CIS and Eastern European regions

“So far this year, we have announced 14 new routes compared to nine in 2012,” Mohamed Hassan, head of cargo, says. “We have also received two new aircraft with four more to come in 2013 to service these additional destinations. Demand remains for both affordable travel and cargo services, enabling people and goods to reach their destination via a single flight.”

Hassan says flydubai Cargo’s first year of operations exceeded its expectations, uplifting 2,100 tonnes a month by year-end compared to its 1,500-tonne target. The airline is on track for a successful 2013, he says.

flydubai also recently launched service to Russia. Hassan says it has been well-received with customers booking the entire capacity for six months.

“By opening up previously underserved routes with direct flights to Dubai, we are creating new avenues for business,” Hassan says. “Having goods transported via Moscow meant that all items needed a long shelf life, but with our direct services to Kazan[,Russia] and Samara[,Russia], for example, a wide range of cargo, particularly perishables, can now be sent via airfreight.”

Hassan says flydubai’s advantages include its high frequencies around the Middle East and being the only operation to many airports in the CIS, Central Asia and Eastern Europe.

“Facilitating rapid and affordable shipping has encouraged new business links, particularly for perishable goods,” he says.

Southwest Airlines and JetBlue are two U.S.-based low-cost carriers that have been in the cargo business for a long time. Both say they have advantages over legacy carriers.

Wally Devereaux, Southwest Airlines’ senior director of cargo, says Southwest approaches cargo a little differently than the legacy carriers and other low-cost carriers.

“We are a bit more restrictive in what we carry,” Devereaux says. “We carry no live animals, no mail and no hazardous cargo. We transfer cargo from tail to tail, and that allows us to fully maximize our flight schedule. We transfer everything like we do baggage.”

Devereaux says the 2011 acquisition of AirTran is a boon for Southwest’s cargo operation, providing new routes and capacity. The integration process is ongoing and will eventually give Southwest access to markets in Mexico and the Caribbean.

“It allowed us access to new cities including Atlanta, Charlotte and San Juan, Puerto Rico,” he says. “It also gave us additional lift in key markets like New York at LaGuardia, Boston and Fort Lauderdale. We’ve got more than 400 new flights that cargo can utilize. That’s a tremendous amount of additional capacity.”

Southwest’s number of flights rose to 3,600 with the acquisition.

Southwest’s primary challenge, Devereaux says, is dealing with the difficult economy. Shippers are opting for less-expensive shipping options.

“We don’t expect the trend to change much until we see improvement in the global economy,” he says. “We are working on some technical initiatives toward improving our point-of-sale system and implementing a booking system.”

Devereaux says that while the U.S. airfreight market is stagnant, Southwest is seeing positive results in perishables and healthcare.

JetBlue Cargo handles freight in the 41 cities it services with a maximum weight of 230 pounds per piece. Cargo ranges from automotive parts to perishables. No hazardous materials are hauled.

“We approach cargo as a means to generate ancillary revenue,” Carl Shipsky, the airlines’ manager of system cargo sales, says.

Cargo business is good at JetBlue. The airline forecasts double-digit growth in 2013. Shipsky attributes the growth to JetBlue gaining relevance in the market and to route expansion. Cargo is performing especially well in gateway cities such as New York, Boston, Seattle, Fort Lauderdale and Anchorage.

“We still think that we will continue to expand our route network. With the impending American Airlines/US Airways merger, there is still some market share we feel we can grab. We are pretty bullish on the end of 2013 and going into 2014. Some discretionary spending is still pretty prevalent,” Shipsky says. “We see very strong demand for some of the perishable products that we move.”

Shippers often turn to JetBlue for overnight transportation for next morning deliveries, Shipsky says.

“We are in the cargo market to stay,” Shipsky says. “Our executive leadership team takes cargo very seriously, as we do on the cargo team. It will be an important part of our business going forward.”

Sathis Manoharen, regional head of cargo for AirAsia and its sister airline, AirAsia X, says business is “as good as it can be,” citing the company’s 47 percent growth in tonnage during the first quarter of 2013 compared to the same period in 2012. Both Air Asia, the company’s narrow-body operations, and AirAsia X, its wide-body operations, are achieving double-digit growth in tonnage and yield.

“Being positioned in the heart of Asia has its economic advantage,” Manoharen says. “While I can’t speak about other low-cost carriers as not many have cargo as a business unit, certainly very few are as aggressive as us. The advantages we offer from value-drive perspectives are unrivaled frequencies, competitive cost structure and innovation initiatives in the way we execute our processes metronomically. The key advantage is the competitive cost structure.”

The airline’s fleet consists of 120 A320 planes and 11 A330s with four more to be delivered by the end of the year. Single-item cargo limits for the airlines’ narrow-body A320 is 187.4 pounds and 9,656 pounds for its wide-body A330 planes.

Nassberg says low-cost carriers typically have plenty of capacity and offer advantages over legacy carriers.

“They provides shippers with a lot more flexibility and in some cases, it becomes competitive with road traffic, say in Europe,” Nassberg says. “We are doing quite a fair amount of cargo handling for low-cost carriers. Typically, they have capacity because in many cases they haven’t been exploiting that as an area of activity.”

Low-cost carriers typically carry less baggage than traditional airlines because of the restrictions and fees they charge for additional pieces, Nassberg says. These carriers generally have frequent flights to their destinations and broad networks.

Worldwide Flight Services has one station that exists strictly to serve low-cost carriers. That’s at the old Don Muang Airport in Bangkok. It recently reopened as a low-cost carrier airport. WFS was awarded the contract to service carriers.

“Any new low-cost carriers that want to serve Bangkok have to go to that airport and cargo will be handled by us,” Nassberg says. “We also do cargo handling at the main airport in Bangkok, which is one of our biggest stations.”

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