Dec 12, 2013

Swiss WorldCargo keeps continuous growth with high-value-added goods

Oliver Evans, Chief Cargo Officer, Swiss WorldCargo

In the past several years, as for the air cargo industry, oversupply becomes chronic, and the carrier is taking pains over the fall of a yield. The shift in other transportation modes aiming at cost reduction also continues, and the competitive setting of the career is increasing severity. Swiss international Air Lines (SwissWorld Cargo) is concentrating on high-value-added goods, and aims at continuous growth. The company's share of the sales by special cargo is large, and while a market condition falls, it is continuing growth this year also. Providing high special service, it tows market. Daily Cargo heard analysis of change of a marketing strategy and a market from the company's top of SwissWorld Cargo, Mr. Oliver Evans.

*What are your policies on network expansion?
Evans: We have boosted our intercontinental routes these past couple of years. With the addition of Singapore, Shanghai, Beijing and other major Asian cities, this move has contributed to boosting our business results, even in terms of cargoes. Meanwhile, we are also promoting the expansion of our trade routes in North America and Africa, striving to beef up our connections in such regions. In light of this, the growth in our intercontinental routes is slowing down as we are now at that stage of adjustment toward more expansion in the future.
Of the sales from intercontinental routes, cargoes account for a relatively high share of 15% of the total. The number of passengers is also hovering in the higher levels, but the business of cargoes is steadily ballooning, so our network is now made up of cargoes and passengers based on their demands.
We added Kiev (Ukraine) to our network for the winter season, with flights operated daily with an A320 aircraft. Demand in the Commonwealth of Independent States (CIS) region, centering on Russia, has been on the rise in recent years, thereby transforming this area into an attractive service destination even for cargoes.

*How have your business results been in the January-September 2013 period?
Evans: If we look at the transport record, then the cargo sales for the January-September period grew close to 5% compared to the same period a year earlier amid the plunging trend in the industry. We are projecting that the annual growth rate for the entire world would be 2-3% this year and that the supply will increase at a rate that exceeds that, thereby making the decline in yield an issue for the industry. But our cargo division is trying to reduce costs, too, so we have thus far reached our forecasts for the current fiscal year in terms of sales and profits. I think that we can evolve at that level on a full-year basis.

*How about your company's marketing measures?
Evans: It is said that the weight of general cargoes and special cargoes account for 80% and 20% of the total volume of cargoes in the entire industry, respectively. The volume of general cargoes has been shrinking owing to such factors as the moves to downsize cargoes, but that of special cargoes is on a rise. This trend has then become a tailwind for our company. Special cargoes currently account for almost 40% of our total cargo sales.
Our cargo business is also growing thanks to the success of our strategy of focusing in high value-added commodities. We have our strength in special cargoes, such as in the transport of temperature-controlled goods, especially medical products, as well as valuable goods and postal mails, and these areas are growing markets. Our share in the market for pharmaceutical products is considerably large within the industry. The strategy we adopt is the same for the Japan routes as we take in cargoes that require special care. While our company is not a big airline when viewed from a global perspective, our revenues from cargoes are relatively huge thanks to this strategy.

*On the one hand, a lot of airline companies are focusing on the transport of special cargoes.
Evans: The number of airline companies targeting special cargoes that have advertised through pamphlets and websites has indeed risen. However, the shippers in this field could be very demanding and pamphlets and website would not be enough to address their demands. They require reliability and experience and it is important to offer them expertise that is based on track record. At present, there are a limited number of companies that are competing in this area and we think we have the edge out of all of them.
However, we cannot be complacent. We are further boosting our expertise, fostering professional staff and beefing up partnerships with our customer companies. We must also analyze the industry and advance preparations that will enable us to offer proposals to shippers that will address their needs ahead of the others.

*What are your company's innovative new services in recent years?
Evans: We have divided the 'SWISS ℃elsius' service that we offer in the transport of pharmaceutical products into the 'Active' service that utilizes temperature controlled containers and the 'Passive' service that is designed for breakbulk cargoes. With this, we have built a more detailed system that can cope with the required temperature zones in response to the demands of shippers. Now we plan to further upgrade our services in this area next year. As we continue to invest in expert staffs, we hope to constantly enhance our services into those that meet the demands of our customers.

*What do you think of the changes in the supply-demand balance in recent years?
Evans: According to our surveys, the demand is certainly rising, but the growth in supply exceeds such demand. The projection is that the supply will expand by 13% in 2013 against the 2-3% growth in demand. The increase in supply is largely attributable to the expansion in belly spaces. This has become an issue for the entire industry, generating a big blow to airline companies, especially to cargo transporters. Operations are now being halted depending on the companies and we see this trend lingering next year and beyond.
The drop in yield is reinforcing the move of airlines to review their businesses. In parallel with thoroughly slashing costs, we need to search for businesses with high profitability. So we have decided to put more attention to special cargoes and to build infrastructure that can provide customers with high-quality services. We need to be aware of the changes in what is being demanded of airline companies and then reform our businesses corresponding to such changes.

*Is the Lufthansa Group considering integrating its cargo business, similar to the amalgamation of Lufthansa Cargo and the cargo division of Austrian Airlines
Evans: The cargo business of Lufthansa Cargo intends to offer a wide range of services in order to respond to comprehensive demand. Meanwhile our company's cargo division has hammered out clear strategies on focusing in special cargoes. The Lufthansa Group has been sustaining its surplus state in the cargo business since the time it acquired our company. We have a strong organization and marketing prowess that is superior in the world. Now while we think there are chances for cooperation between us, we do not need the support of the Group when we looked out our operating profits. We will maintain our independent organization, strategies and marketing skills in the future.
Be that as it may, though, our company is still a wholly-owned subsidiary of the Lufthansa Group and we will pursue cooperation in such areas as procurement and back-office. For instance, there are moves calling for the joint selection of contractors and sharing of offices. The classic example of this was the joint selection of the ground handling company at Narita. Things such as sharing information generate good effects, too. By expanding the businesses of two companies with different policies, I think we will be able to maximize the profits of the Group.
Further, our company's cargo division has recently entered into a partnership with the cargo charter carrier Chapman Freeborn Air chartering. With this, we expect to boost our services to destinations where only a few flights are available, such as Africa. Chapman has already sealed a partnership deal with Lufthansa Cargo, so we can say that this deal is in line with the program on cooperation within the Group.

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