Global outlook

Baba Devani, vice president, sales & customer services, BA World Cargo, discusses doing business in the Middle East and India.

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By  David Ingham Published  December 6, 2006

Baba Devani, vice president, sales & customer services, BA World Cargo, discusses doing business in the Middle East and India.

BA World Cargo is one of the major European airlines looking to further strengthen its presence in the Middle East and India’s air freight markets. Baba Devani, vice president, sales & customer services, BA World Cargo, explains what he likes about doing business in the region and what challenges it presents.

How much business are you doing in the Middle East?

To give you an indication of scale, we have six gateways in the Middle East and we fly double dailies to Dubai, a shared daily flight between Abu Dhabi and Muscat, and a shared daily flight between Bahrain and Doha, and a direct flight to Kuwait. For the winter schedule, we will be introducing a third daily flight, which will be a 767. The others are a combination of 777s and 747s. These are all passenger flights. We also have a freighter coming into the Middle East from the US, which then goes on to Hong Kong. For India, we’ve gone from 19 passenger flights a week in April last year to 42 a week. Those are a mixture of 747s and 777s. As part of that growth, we introduced Bangalore to the schedule.

In addition to that, we have a couple of freighters a week going into India from Frankfurt and we have eight freighters a week coming out of Hong Kong over India and we share that capacity. Those freighters touch Bombay, Delhi and Chennai. We’ve got a good spread of capacity across India and the Middle East.

Capacity has grown across India significantly in the last year. The estimate is it’s grown at 70-100% in capacity. As far as export tonnage out of India goes, in our addressable markets, volumes have grown 8-9%. The great thing about the Indian and Middle Eastern markets is that there’s a reasonably good balance between imports and exports. When you look at China or Hong Kong, the balance is uneven, It’s mostly going out.

Because there’s been a steady growth in the middle classes in India, there’s been a steady growth in raw materials for consumer goods. Whereas in China, you haven’t yet seen the incredible success of the export segment filter down into the Middle classes’ day to day consumption. They also make so much in China that they consume a lot of their own products. There’s so much capacity out of China because they are producing so much that even if you were exporting a lot, you wouldn’t fill the flights. It makes the dynamic of running an air freight operation extremely challenging.

To the consumer, cargo looks like a commodity business. In your view, what differentiates providers and what is unique about what you’re trying to do?

If you take the value chain and look at a commoditised product like rubber bands, we’re not as commoditised as that. But we’re also not in a position where we create bespoke solutions for customers. We sit in between and the way we differentiate ourselves is through service, at the hub and at origin; it’s through product and the relationship you have with the customer. In addition to that, there’s network. Being able to meet all the customer’s network needs puts you in a very strong position. We offer all of those because through our hub in London, which we opened in 1999, we are delivering high levels of service on transshipment, originating and terminating. I believe we’ve still got a way to go, but we’re up there amongst all of our competition.

For us, it’s really important that we deliver the right level of service. The relationship with our customers is built on mutual trust: their trust in us to deliver the service levels, the network and products that they except; and our trust in them to support us by giving us their business.

When you say service levels, what does that mean?

It’s on time. I don’t think the flight specificity is necessarily important. If you say it’s going to be there on Tuesday morning, it has to be there on Tuesday morning.

Linked to service is product. Essentially, in the air freight industry you’ve got two categories: normal speed and fast speed. Cutoff times are an important component of the offering in the fast rate product, along with delivery time. Then you have certain specialised products such as perishables, temperature controlled, livestock and secure deliveries.

We’ve just spent GBP 15 million developing a new premium handling facility at Heathrow. We’ve got a good offering on the general freight product, and although we had a good offering on the fast rate product we had some limitations because we were operating in a facility that wasn’t designed for that. Therefore, we couldn’t handle piece weights of more than 32 kilos and we couldn’t handle large fast shipments. What moving into a new building has enabled us to do for our customers is allow us to accept all of their fast freight; and we’ve also teamed up with Envirotainer to deliver a cool chain product; and we’re also back in the transfer air mail segment, which is a fairly specialised product but with high volumes.

We’ve got the largest single carrier network, with more than 200 destinations in over 80 countries. The bulk of that is on our passenger network where we carry our a lot of our freight, but we’ve also got three wet-lease freighters. As far as network goes, we’re pretty solid and we work with offline points by purchasing interline capacity. We have shared freighters, we lease lots of space from a partner in Europe and we’ve got trucking partnerships.

What IT systems does BA have in place?

We’ve made great strides in the last three years on our own internal IT systems. We now have a revenue management system that allows us to dynamically price internally capacity for our sales team. We’re in the process of putting in place a pricing database that will allow us to set prices centrally and monitor our sales team’s ability to adhere to those prices in the market place. That will again be done dynamically. Linking those two up will mean that we are able in the future to offer our own online booking channel, but it will be a fully automated one. Someone will make an online booking, it will go through the pricing database, it will go through the revenue management process so that the system will give a quote for the customer.

A lot of online booking channels now are not truly online; the front end is automated, but the back end is still someone on a machine. What we’re trying to do is move beyond that. You will be told if capacity is available on a route or if capacity isn’t available on that route; it will tell you how else we can get the package there. For example, you want to ship freight from Dubai to New York, but our flights to New York are full.

The system will came back to you and tell you that we can’t get you to New York, but we’ll take the package to Philadelphia instead, provide a truck out of Philadelphia and this is the price. It’s quite a sophisticated inventory management and pricing system that will give you an instant response. The inventory management system already works well and the analysis we’ve done shows that it enables us to optimise our capacity. It enables you to price internally so that people don’t undersell. We’re still running trials on our pricing database, but we aim to launch that in the early part of next year.

What do you like about the air freight business and what are the greatest challenges?

Fuel, security and the cost and complexity of security. It is massive. Because we’re a UK carrier, the Department For Transport rightly imposes very stringent security measures. That’s absolutely right; it does make it increasingly difficult to keep our service levels where we want them to be. We work closely with the DFT, we work closely with British Airports Authority and Heathrow Airport to ensure we provide the service levels our customers expect whilst maintaining the standards the DFT expects.

Also, screening in the UK an screening all over the world. All freight has to be x-rayed before it gets on the flight. Within Heathrow, there is a number of gateposts that get you from land side to air side and those have become more congested. Therefore, the time it takes to get through is much longer and that can affect our ability to get freight from the warehouse to the aircraft.

Other challenges are irrational behaviour in the marketplace. We measure ourselves very stringently on our internal measure of profitability, to the degree where we carry each piece of freight if it is profitable. There’s a number of carriers out there for market share, a number just to carry the largest number of CTKs, there’s a number of people our there that just want to have an airline because it’s the thing to do. I’m not going to name names. Competing in that environment is extremely challenging because you get irrational pricing behaviour and irrational deployment of capacity.

Things I love about the business: it’s incredibly dynamic,. you’re at the heart of trade. We get indications about global economic trends as quickly as anyone else because we see volumes of freight switch on and off. If trade comes down, passenger numbers will follow a few months later.

Where would say BA World Cargo is now versus its competitors?

I would say that if you take the network we have, customers relationships, products and services, we’re definitely in the top quartile. Being at the top doesn’t necessarily mean being the biggest. To me, it means being the most profitable, but in order to do that I’ve got to make sure I’m achieving customer delight. We have great customer relationships that are built on trust and we have a clear indication of what they expect. I want to achieve my customer’s expectations because if we’re doing that, I think we will be the best cargo airline and that’s what I want to be.

When will you the be the best?

As soon as possible, I hope.

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