Transcript Commercial Aspects of Air Cargo Operations

Managing the Cargolux Network
February 6, 2007
Propeller Club, Basel
1
Contents
 Cargolux
 Airline & Cargo Specific Dynamics
 Cargolux Network Management
 Objectives
 Resulting Characteristics
 Conclusions
2
Ownership structure
2.5 % Others
(including Lux-Avantage)
28.9 % Luxembourg
Financial Institutions
34.9 % Luxair
(BGL Investment Partners - BCEE
SNCI)
33.7 % SAir Lines
3
Revenue
USD million
1,600
1,446.5
CAGR 18.6%
1,400
1,215.2
1,200
954.3
1,000
807.5
800
731.1
600
400
200
0
2001
1
2002
2003
2004
1
1
2005
2004 and 2005 figures in new Lux GAAP standards
4
Consolidated profit & loss account
2004
D 2005/
2004
1,446.5
1,215.2
+19%
EBITDA
% of revenue
219.1
15.1%
225.6
18.6%
-3%
EBIT
% of revenue
137.5
9.5%
128.7
10.6%
+7%
Net result
% of revenue
89.4
83.5
+7%
6.2%
6.9%
USD million
Revenue
2005
5
Cargolux destinations
Reykjavik**
Helsinki
Prestwick
Calgary
Maastricht Luxembourg
Budapest Baku
Milan
Indianapolis
Beijing
Chicago
Barcelona
Istanbul
San Francisco
New York
Seoul
Tehran*
Shanghai
Beirut Damascus
Huntsville*
Komatsu
Los Angeles
Amman
Xiamen
Houston
Dammam Kuwait Karachi
Taipei
Doha
Hong Kong
Guadalajara
Dubai Abu Dhabi Bangkok
Fort-de-France*
N’Djamena
Sharjah
Mexico City
Accra
Panama City*
Chennai
Abidjan
Lagos
Kuala Lumpur
Bogota
Nairobi
Latacunga
Singapore
Kinshasa
Petrolina Recife
Lusaka
Sao Paulo
Johannesburg
Curitiba
Melbourne
Auckland
Santiago
Seattle
* = regular charter destination
** = in cooperation with Bluebird Cargo
Additional destinations are served
via interline and trucking
6
Fleet & Investments
 14
B747-400F’s


Launch customer (1993)
2 more on order (2007, 2008)
 Launch customer of B747-8F


10 firm orders plus 10 options
First delivery in Fall of 2009
 New hangar under construction
 Operational early 2008
7
Airline Specific Dynamics
 High Fixed Costs per calendar period (aircraft depreciation/lease, salaries)

Aircraft (more than $150 million for a new B747-400F) is typically depreciated over 18 years)
 High Fixed Costs per round-trip (aircraft depreciation/lease, salaries, fuel, landing,
over-flying)
 Global business

It does not mater whether one is China based or Europe based if it wants to fly between Europe
and China
 Constraints





Curfews – i.e. Luxembourg, aircraft utilization is constrained through 6 hour night curfew and
possible penalties
Slots – parking positions, arrival and departure times are limited at many large airports (e.g.
HKG, TPE, JFK)
Traffic rights - aviation is heavily regulated, in sharp contrast to ‘freedom of the seas’
Heavy and line maintenance – regular downtime on aircraft between day and several weeks
depending on the type of check
Unforeseen delays – loading delays, strikes, breakdowns on aircraft can compromise
utilization plan.
8
It happens….
9
Time again….
10
Cargo Specific Dynamics
 Cargo goes one-way
 China-Europe is strong, whereas traffic is weak vice versa
 Strong seasonality
 In Q4, China market surges by typically 25-30%
 Strong competition: cargo is more and more seen as ‘core business’ and a
tool to develop an economy
 Until early 90’s, cargo was a by-product for most carriers
 It was dominated by Europeans (Lufthansa, KLM, Air France)
 Since mid 90’s, there is a strong push coming from Asia (Singapore, Korean, China
Airlines) ‘taking their share’
 Cargo Airlines are seen as a tool to develop local infrastructure and trade
(Emirates, Korean, Singapore)
11
Hong Kong Air Cargo Terminal export and import
160000
140000
export
120000
100000
80000
import
60000
40000
20000
0
Source: HACTL
1
2
3
4
5
6
2005
7
8
9
10
11
12
1
2
3
4
5
6
7
8
9
2006
12
Air Cargo Trade Flows in 2005
Selected Regional Markets, 2005 Export/Import Tonnage Ratio,
Airfreight Only
1.8 : 1
1 : 3.4
1.2 : 1
1 : 4.1
1 : 2.3
2.2 : 1
1:1
1.5 : 1
6.4 : 1
1 : 3.8
1:2
1.6 : 1
1 : 1.5
1 : 1.6
2.9 : 1
1 : 2.1
4:1
Europe to East Africa 1 : 3.7
Europe to North Africa 1.7 : 1
Source: YDL
Explanation: e.g. US to South America,
1 : 2.1 – for every ton exported from
USA, 2.1 tonnes are imported back via
airfreight
13
Cargolux Network Management Objectives
Main Objectives:
1. Maximize Operating Profit




Relentlessly select ‘best’ routes (revenues versus costs)
Maintain high aircraft utilization in order to spread fixed cost burden and to
achieve variable contribution
Guarantee network interconnectivity (e.g. South America to Asia flights, US to
Middle East)
Ensure flexibility [quick reaction speed to market changes and opportunities].
2. ..but keep a close eye on Reducing Risk


Ensure flexibility [through use of external leased capacity with short term
cancellation]
Focus on stability of revenues [add traffic stops even if impact on Operating Profit
is at times close to ‘zero’].
14
Schedule Reliability vs. Utilization
747-400F
(Between Oct 2004 and Sep 2005)
100
Schedule Reliability (Percent)
KAL
99.5
GUN
AAR
99
PAO
TLS
NCA
98.5
CHI
AFA
EVA
JAL
Fleet (98.70% )
CLX (98.27%)
98
SIA
97.5
97
CAT
96.5
96
10
11
12
13
14
15
16
Average Daily Utilization (Hours)
15
Resulting characteristics of Cargolux network
 Asia trade imbalance is “cured” via Middle East traffic stops
 No daily departures and no fixed departure-time schedules
 Good connectivity of North America flights to Middle East & Africa (ex
Houston, Calgary) to counter imbalance on these routes
 Maximum 5th freedom traffic focus (i.e. MEX/JFK, MEL/AKL-LAX,
SIN/MAA, HKG/HEL, HKG/BCN)
 Relatively high amount of destinations across all continents,
spreading risk both geopolitical and economical
 Tackle peak-season requirements through wet-leasing
16
Backup
Various Models
The Italian Plan
Iron defense, small ideas in midfield, passes to striker..and…Penalty
17
Backup
Various Models
The Swiss Plan
They manage to lose the game by themselves, no help needed.
18
Backup
Various Models
Multi-stop
Optimize load factor through
extra stops
Aim for 5th freedom traffic
Hub and Spoke
Fixed daily schedule
Hub is driving the system
Example: DHL, UPS, FedEx
Example: Cargolux
19
Overview Cargolux Network
Monday
400-1
Tuesday
NBO-MST-L
15:45
7721
07:05
SHJ-LUX
09:15
13:05
7781
11:35
19:10 21:30
20:10
07:05 09:45
10:15
15:20
7723
16:00 18:00
GYD-LUX
400-14
IAH-PIK-L
05:15 07:20
7322
21:15
21:25
7981
7983
7763
20:00
7921
07:25
7521
15:00
20:30
7943
7763
18:30
16:15
13:35
20:10
8924
L-GYD
10->2
21:15
11->5
LUX-GYD-HKG
12->13
7366 21:30 05:15 07:30 7527
11:05
L-DAM-AMM
7826
08:30
14:55
7746
L-(TIP)
15->15
20:10
L-GOT-JFK-GOT-L
14->9
17:55 20:15
LUX-SIN-KUL-MAA-GYD-LUX
09:50 7946
13->3
16:30 7827
LUX-LAX-SEA-LUX
12:25
06:45
18:45
L-BEY-SHJ-KHI-L
09:00
7484
9->6
7306
L-MXP-L
17:30
LUX-DMM-DXB-HKG-GYD-LUX
12:10
21:40
LUX-SIN-MEL-AKL-LAX
7745
8->7
7986
7926
LUX-KWI-PEK-XMN-BKK-GYD-LUX
21:30
20:10
LUX-KWI-HKG-SHJ-BUD-LUX
11:05
7404
7->4
7747
L-GYD
7346
07:05 08:45
LUX-HEL-(GYD)-HKG-(GYD)-HEL-LUX
16:10
09:20
LUX-GYD-PVG-(GYD)-
LUX-IND-LAX-LUX
09:20 11:00
LUX-JFK-MEX-IAH-PIK-LUX
7922
07:05
LUX-BEY-DXB-TPE-BKK-GYD-BUD-LUX
05:15 08:30 7783
20:30
LUX-LAX-
17:10 21:15
7964
6->11
7426
LUX-ICN-TPE-AUH-LUX
7725
7144
5->14
05:15 08:30 7787
07:05 09:20
10:30
4->12
18:40
LUX-GYD-KMQ-HKG-(GYD)
7145
LUX-(TIP)-JNB-NBO-MST-LUX
14:25
LUX-IST-KWI-HKG-SHJ-BCN-LUX
15:40
LUX-JFK
15:30
LUX-PIK-SEA-SFO-YYC-LUX
07:05
16:30 20:00
LUX-JFK-IAH-LUX
07:05
LUX-DMM-HKG-GYD-LUX
LUX-DOH-HKG-GYD-LUX
AAI-15
7984
3->10
18:00
LUX-JFK-MEX
07:30 7566 12:35 15:20
LUX-GYD-PVG-GYD-LUX
17:05
05:15
16:30
7786
L-MXP-L
20:15
L-AMM-SIN-KUL-MAA-GYD-L
LUX-GYD-PVG-GYD-LUX
7527 15:10
7787 16:15
7422
LUX-THR-HKG-GYD-BUD-LUX
MEX-JFK-PIK-LUX
13:00
LUX-HSV-PIK-LUX
A-CHECK
15:00
L-(TIP)-JNB-NBO-MST-L
14:45 19:55
7169 12:15 13:15
07:45
2->1
7107
L-HSV
7606
7425
05:15
LUX-DAM-GYD-PVG-GYD-LUX
L-ABJ-ACC-L
19:00
7607
200-1
12:30
09:40
07:30 7365 1235 14:35
LUX-PIK-SFO-SEA-LUX
7642
A-CHECK
400-13
05:15
7324
10:45
LUX-JFK-MEX-ORD-PIK-LUX
LUX-IST-THR-HKG-GYD-LUX
18:00
07:05
LUX-GYD-KMQ-ICN-(GYD)-LUX
L-MXP-L
05:15
LUX-GYD-KMQ-ICN-(GYD)-LUX
05:30
07:20
7604
07:20 08:35 A-CHECK
LUX-VCP-CWB-PNZ-LUX
400-11 LUX
400-12
7923
10:00
7142
7841
JNB-LUN-NBO-MST-LUX
7767 16:30
7744
15:05
LUX-LOS-FIH-NBO
LUX-(REC)-VCP-PNZ-LUX
L-VCP-CWB-LTX-BOG- (CUR)-L
18:00
LUX-GYD-SIN-KUL-MAA-(GYD)-LUX
HSV-PIK-LUX
16:30 20:15
07:05
7962
7985
LUX-(TIP)-JNB-NBO-MST-LUX
7147
400-10
19:00
21:15
1->8
10:45 7927
LUX-GYD-PVG-GYD-LUX
LUX-LAX-GDL-IAH-PIK-LUX
LUX-BEY-GYD-HKG-GYD-LUX
12:25
10:45
HKG-AUH-LUX
7927
7743
7982
LUX-THR
07:05
14:25
LUX-BEY-SHJ-TPE-BKK-GYD-LUX
TPE-BKK-GYD-BUD-LUX
400-9
13:45
Sunday
7304
22:40 05:00 7524
LUX-GYD-PVG-GYD-LUX
7481
7101
16:40
LUX-LAX-YYC-LUX
19:00 21:15
Saturday
LUX-GYD-HKG-GYD-BUD-LUX
13:10 17:40 7363
10:50
LUX-LOS-NBO-MST-LUX
7327
400-8
L-MXP-L
LUX-DXB-PEK-XMN-BKK-GYD-LUX
17:50 21:15
LUX
07:05 09:10
400-7
7641
LAX-LUX
7306
400-6
7102
LUX-ORD-MEX-IAH-LUX
LUX
400-5
09:15
15:15
Friday
LUX-GYD-SIN-MEL-AKL-HKG-AUH-BCN-LUX
7703 14:10
LUX-(BGI)-PTY-SCL-LTX-BOG-(BGI)-LUX
13:00
400-4
15:00
L-LOS-NDJ-NBO-MST-L
7987
400-3
17:25
GYD-PVG-GYD-LUX
Thursday
LUX-IND-ORD-LUX
LUX-PIK-SEA-YYC-LUX
13:45
400-2
Wednesday
20
Results after direct operating costs (R1), results after indirect
operating costs (R2) and overhead (R3)
Measuring Route Performance
fixed
Indirect
Operating Cost
variable
Direct Operating
Cost
NNR
Net/Net Revenue
-
FV
FU
Fuel Cost
-
LH
Landing/Handling Aircraft/Cargo Cost
-
DM
Direct Maintenance
-
DC
Direct Crew Cost
=
R1
Result after Direct Operating Costs
-
LD
Lease/Depreciation Costs
-
CC
Crew Costs (Aircraft)
-
IN
Insurance Costs (Aircraft)
-
IM
Indirect Maintenance
=
R2
Result after Indirect Operating Costs
-
OH
Overhead Charges
=
R3
Full Cost Results (pre tax)
Determine short term viability of a route
Determine the long term viability of a route or
network
All flights must cover direct operating costs in the short term to avoid burning
cash. If a flight cannot cover indirect operating costs and overhead, then it either
has a revenue or cost problem or both.
Source: Cargolux Sales and Marketing
21
Conclusions
 Cargolux has a clearly defined network model balancing risk/return
and will stick to it
 Critical success factors:
 Cost knowledge
 Variable contribution approach (both per kg. as well as per flight);
Network profitability sensitivity
 Quick- and disciplined decision making
 Team approach between commercial and operations (maintenance and
flight operations)
22