An uplifting experience

Airlines in the Gulf are ramping up their freighter fleets to cash in on the global boom in air cargo.

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By  Neil Denslow Published  October 17, 2004

|~|saudiacargo_m.jpg|~||~|Air cargo was once viewed as a high cost and exceptional form of transportation. However, it has now become mainstream in a number of industries, with goods flying from factories in Asia into Europe and North America. The Middle East plays an important role in this market because of its geographical position, and a number of airlines and airports, led by Emirates SkyCargo and Dubai, are investing heavily to take a share of this market. Middle East carriers are looking to cash in on a global trend, as air cargo is booming around the world. Last year, the industry racked up 156.6 billion revenue ton kilometres (RTKs), according to Boeing, which is predicting an average global growth rate of 6.2% over the next two decades. “With the challenges of the past few years, the air cargo market’s strength has been encouraging,” comments Marlin Dailey, vice president, sales, Europe & Central Asia, Boeing Commercial Airplanes. “After 4% growth last year, the market has continued to be strong this year, with worldwide traffic up a further 10.7% versus the same period in 2003,” he adds. This growth in air cargo globally is being driven by a range of factors, such as the move towards just in time inventory, the development of the global IT industry and consumer demand for perishable goods that cannot be shipped by sea or land. “Everybody now wants a fresh mango on their table for breakfast,” comments Ram Menen, senior vice president, cargo, Emirates Airline. The clothing industry is also a major user of air cargo services, connecting factories in Asia with shops in the US and Europe. These retailers have to use air services, as it allows them to quickly respond to demand on the shop floor. If a certain line is selling well, then more of that type can be manufactured, flown to Europe/US and be on the shelf within a couple of days at most. “The demand is changing,” says Robert Strodel, head of cargo & mail, Etihad Airways. “A couple of decades ago, you had a winter collection and a summer collection, now the collection changes four or five times a year, and the re-ordering must come very quickly.” Gulf carriers are in a prime position to benefit from this booming demand because of their geographical location. The region is halfway between Asia and Europe, meaning that it acts a hub for goods flowing from the Far East and India to the West. It also acts as a gateway in and out of Africa, and even offers many advantages for goods being shipped from the subcontinent into Australasia. “The power of the region’s geographical location creates volume in itself,” comments Menen. The breakdown of air cargo traffic in the region reflects the importance of transit cargo for the region’s airlines. Approximately 1.77 million tonnes of cargo was handled at Middle East airports last year, according to Boeing, which was up 10% on 2002. Of this total figure, 42% was destined for Europe, predominately goods transiting in the region en route from Asia. 23% was going the other way, into Asia, with 11% heading for North America and 8% into Africa. Goods moving within the Middle East only accounted for 286,000 tonnes, 16% of the total, and much of this was ‘positioning traffic’ for sea-air cargo; in other words, goods flown in, offloaded at a Middle East airport, and then put on a ship to continue their journey by sea.||**|||~||~||~|The key market for Gulf airlines then is this transit market, which requires global reach and good facilities at the home airport. Emirates has become the model for such an operation, as it has rapidly grown its cargo operation in line with the wider expansion of its passenger operations. These two go hand-in-hand, with significant cargo loads being carried in the belly of passenger aircraft, but Emirates is also developing a large freighter fleet. The airline received its sixth Boeing 747 freighter at the beginning of the month, and it also has outstanding orders for two A380Fs, reflecting its growing demand for cargo. “We needed more capacity on the routes we are operating and we wanted to bring in some new routes where demand is building up,” says Menen. “We are cautiously optimistic that [demand] will keep going up,” he adds. Dubai’s Department of Civil Aviation (DCA) is also investing heavily in developing the facilities needed to turn the emirate into a global air cargo hub. No less than three new cargo terminals are to be built at the airport, as the DCA expands the Dubai Cargo Village. One of the terminals, which will all have a capacity of 1.2 million tonnes per annum, will be exclusively for Emirates, while other passenger airlines flying into Dubai will use the other two. The DCA is also building a new airport at Jebel Ali to handle non-Emirates freighters (see box). The number of carriers serving Dubai is one of the airport’s key advantages in terms of developing into an air cargo hub. The UAE as a whole has an open skies policies, which allows any airline to start up operations to its airports. This has enabled a huge number of different carriers to start flying into Dubai, which has generated a wide range of connections and frequencies for air cargo transiting through the airport. “We go to more than 140 destinations… because of our ability to generate traffic through the open skies policy,” comments Ali Al Jallaf, director, Dubai Cargo Village “As we don’t have many restrictions on airlines coming in and out of Dubai — neither the amount of passenger nor cargo — this gives them flexibility, and that creates all this growth,” he explains. Sharjah Airport has similarly benefited from this open skies policy and its investment in cargo facilities, to become the second biggest cargo airport in the region and one of the top 40 worldwide. This is despite the fact that the airport does not have a cargo-carrying airline based there; low cost carrier Air Arabia operates passenger-only services. Instead, Sharjah relies on attracting international carriers to set up operations. “The airlines all like to come in here because of the liberalised policies,” says Dr. Ghanem Al Hajri, director general, Sharjah DCA & Sharjah Airport Authority. “They have no restrictions on the number of flights that can come in, the type of flights that can come in, nor on the way they can conduct business,” he adds. Spurred by these examples, other Middle East carriers and governments are now trying to develop their air cargo sector operations. Saudia, for instance, which currently operates two freighters, a 747 and an MD-11, has been heavily promoting its air cargo services globally. It also launched its first direct freighter service to the United States earlier this year, when it began flying to Houston from Dammam. The service captures some transit traffic, but it is primarily linking the Saudi and Texan oilfields. “There is a good cargo base [in Dammam], especially from companies like Aramco and others in the Eastern region,” says Abdullah Al-Jehani, vice president, advertising & marketing programmes, Saudi Arabian Airlines, “Houston is really the key to the [US oil & gas] sector because of the availability of customers in that area,” he adds. ||**|||~||~||~|Qatar Airways currently operates a single freighter at present, an A300-620. However, the airline is planning to take two more freighters by 2007, following strong cargo growth over the last few years caused by the first freighter and the wider expansion of its passenger network. “Qatar Airways Cargo is one of our success stories,” says Akbar Al Baker, CEO of Qatar Airways. “Our cargo section has seen an increase in revenue of more than 50% [annually] for the last three years. For the financial year 2003/2004 the growth figures are exceeding 77%, which no doubt categorises us as one of the fastest growing cargo operations in the world.” EgyptAir is also planning to double its freighter fleet to four aircraft by converting two of its passenger Airbus A300-600s. The carrier is also set to buy two smaller freighters as well, as it grows its cargo capacity in line with the government’s wider national cargo strategy. “This [plan] will provide for a new cargo facility [at Cairo International] within the next three years. Like Cairo’s new Terminal 3, which is becoming a hub for passengers, the new terminal will become a hub for cargo, and our aim is to reach this cargo hub status by 2007,” explains Asaad Darwesh, chairman, EgyptAir Cargo. Gulf Air and fast-growing Etihad Airways do not yet operate freighters, but both are focusing on growing their cargo operations and are considering doing so. Last month, for instance, Gulf Air appointed Ali Murtada to be its head of cargo, a newly created senior level position, reflecting the carrier’s efforts to develop its freight operations. The airline is also assessing the possibility of operating a freighter, which would give its cargo business greater capacity and flexibility. “Our cargo operation today is dictated by our passenger schedule,” comments James Hogan, president & chief executive, Gulf Air. “What we are asking now is whether there is an argument for us to look at freighters, or joint venture opportunities, to develop the cargo operation in its own right.” Meanwhile, Etihad and the Abu Dhabi DCA are striving to turn the UAE capital into an air cargo hub. The airline only began service in November of last year, and in January, its first month of offering cargo services, it carried just 17 tons. However, the carrier has quickly grown this side of its operations with the long-term aim of achieving 20% of its overall revenue from cargo. At present, it currently surpasses the figure. “From the very beginning, the management of Etihad has placed a huge importance on this part of the aviation business,” says Strodel. “We are now carrying approximately 2000 tons of cargo through Abu Dhabi, which was not previously in Abu Dhabi, so we have generated additional business not only for Etihad but also for the airport.” The airline also has the potential to become a significant cargo operator on the global scene as it recently ordered 34 long-haul Airbus aircraft followed by five Boeing 777-300ERs. As these aircraft join the airline’s fleet over the next few years, they will give the carrier significant capacity for bellyloads, as well as generating the global network needed to turn Abu Dhabi into a cargo hub. The airline is yet to order a freighter, but Strodel expects to do so in the near future. “We need freighters to support our passenger network,” he says. “There are certain routes with high demand for cargo, where our passenger division is uplifting all it can.” “We are doing route evaluations at the moment… and looking at the aircraft available on the market, their payload, ranges, and so on,” Strodel continues. “Freighters will definitely be the future of Etihad, and we are talking about one year rather than two.”||**||

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