Interview with Dirk Reich, Cargolux: Cargolux plans direct flights to Africa from China
In March 2014 when Dirk Reich, a former executive with forwarder Kuehne + Nagel, was appointed president and CEO of Luxembourg-based cargo carrier Cargolux International it was not the best time for the company that he was going to lead from the front and the industry that he was part of. The company and the air freight industry were going through turbulence. Two years since taking over the leadership at Europe’s largest scheduled all-cargo carrier Reich has managed to steer through tough weather conditions. He is turning Cargolux into a global brand with a unique dual hub strategy in Europe and Asia and has an already successful joint venture in Italy (Cargolux Italy) and a new joint venture in China (Cargolux China) that will be fully operational in 2017. In an exclusive interview on the sidelines of Air Cargo China last month in Shanghai, Dirk Reich, President and CEO of Cargolux Airlines International, tells Reji John, how the all-cargo carrier is working toward becoming a global carrier of choice and what it could offer in the trade lane between China and Africa.
Your rationale for a dual hub strategy and how do you think it is contributing to your positive growth numbers? If we go back to 2014, we have had no flights to Zhengzhou. Our flights to China were daily flights to Shanghai and two to Beijing and Xiamen combined. We already had 34 flights a week to Hong Kong so the main base of our activities for China was really Hong Kong. That dramatically changed when we went into the partnership with HNCA in 2014. We did increase the flights to Zhengzhou from 0 to 14 in two years or in tonnage from 0 to 66,000 tonnes. We now have direct flight and traffic rights not only to Luxembourg but also to Milan to Kuala Lumpur, Singapore and Chicago. So it really developed into a hub and it contributed to big extent to our tonnage growth but also contributed to our transformation from being a Luxembourg based carrier to a global carrier. And that is far more than just the traffics. There is more traffic between China and Europe.
How do you plan to transform Cargolux from a Luxembourg-based carrier to a global all-cargo carrier of choice? Cargolux is in a transition from a national hero of Luxembourg to a truly global cargo carrier of choice. We have increased our fleet in Italy from one aircraft to four aircraft and we have now a market share of 13 percent in Italy. With the foundation of Cargolux China, and three 747s that we plan to introduce into the hub in Zhengzhou, plus another two aircraft in two years, we will grow the market share here in Asia by another one percent. So that means, in total, our worldwide market share will go up from 4 to 5 percent. We plan to have 35 747 freighters in the year 2020. This is the first step of the development. It enables us to connect countries such as China with direct flights to Africa which is one of our programmes. We hope that we can start with Hong Kong to Kenya or maybe Mainland China via Kenya to Nigeria flights within the next 12 months. Long term, when Cargolux China is established, we will also have direct flights from Zhengzhou to South America and direct flight from Zhengzhou into Latin America. At the moment we plan to connect countries such as Egypt, Nigeria, maybe Ethiopia (subject to traffic rights) and South Africa. So exciting development, not just about aircraft wise, traffic rights wise but also people wise, our team is getting more and more global. There is an excellent cooperation on the ground level between the different nationalities. And we hope, by being costly on one side, but also the most global carrier we continue to make money in the challenging market.
What is your outlook for the current year and do you continue to maintain the growth numbers? The target is to achieve positive result. After the first 5 and half months, we have to state that the market has been slower than expected in terms of yield. It has been as per expectations in terms of volume growth. We have seen Jan to May figures Cargolux has grown 5 and half percent and again gained market share and luckily at the expense of low yields specifically on the North Atlantic East bound yields have been very depressed. Largely to the influence of the Middle East carriers who are selling at extremely low prices on the ever intensifying passenger services but also on the increased cargo services. On the top, due to the elimination of the fuel surcharge in Hong Kong that has led to a decrease of the yields in Hong Kong, it was not compensated by other measures. So Hong Kong yields and North Atlantic yields have been under pressure for the first months. We still have another two months and then the next high season starts and then we are certain it will change round again. We are still confident to reach positive numbers nevertheless on the yield side there is more pressure and more overcapacity in the market because everybody probably came out bullish 2015, everybody had the first quarter of last year somehow in their books. So now the market is normal again. But you see better figures because you then compare May, June, July, August with the same months last year and not anymore with the very bullish first quarter.
Does the slow pace of economic revival in China bother you? It does bother, but long term the growth perspectives of China are very much intact. It is the biggest airfreight market worldwide today and with a growth rate between 5 to 6 percent of China we expect it stay the biggest air freight market in the world at least for the next decade if not longer. Long term, the trend is intact, our market share between Europe and China in fact is only 10 per cent so we are still 90 percent of the market to grow even if the market would stagnate, which we don’t expect it to.
How are you positioning Cargolux China and how do you intend to differentiate it as an all cargo carrier in your global network? The transpacific flights we launched last year were warming up the market for what is to come. These are just four flights go to Chicago and two come back. They are to get a foot in the market, to get known to the global forwarders that we truly offer not only round the world services which we had been doing since a long time but also transpacific west bound. It is a warm up. I think the differentiation will be that it is not just another Chinese carrier which is based in China but really a part of a global network that Chinese forwarders will get access to global services. We are a forwarders’ airline.