Dec 17, 2014

ANA Cargo to deploy 12th cargo plane to market in FY2016


Akira Okada, president, ANA Cargo Inc.

Akira Okada, president of ANA Cargo Inc. and executive director of the Cargo Marketing & Services at All Nippon Airways (ANA), was recently interviewed by Kaiji Press (KP), where he reviewed the first half (April-September 2014) of fiscal 2014 and discussed the company's future business policies. With regard to ANA Cargo's company-owned cargo airplanes (B767-300F), it has decided to officially introduce the 11th and 12th aircrafts to the market, with Okada disclosing that the 11th aircraft will be released to the market under its winter schedule for 2015, while the 12th unit will be launched to the market in fiscal 2016. As for the company's network in the future, ANA Cargo has been engaged in such steps as the enlargement of its aircrafts that fly between Japan and Southeast Asia, and the acquisition of slots at local airports. Okada claimed that, "Under our plan to expand our interests in Asia, we will not only think about the places where we will commission our aircrafts, but also the timetable for their deployment. From that perspective, one of our options would be to set the timetable to the destinations in Asia using the optimum timetables, such as for instance, flights via Bangkok."

The gist of the interview with Okada is as follows.

[Expansion in Asia and fleet]

*We deployed our 10th company-owned cargo aircraft to the market in May this year, but we have officially decided to increase our fleet in the market to as many as 12 units. We will take delivery of our 11th plane next spring and we will employ that to our service routes starting the winter schedule. The 12th aircraft will be received in the latter half of next year and we plan to deploy that to the market starting fiscal 2016. At present, we are studying the development of trade routes.

*Thus far, we have mainly thought about where to expand our cargo service network. We run services to Singapore, Jakarta and Bangkok in the long-distance cargo trade, but Bangkok will be removed from the winter schedule. Passenger demand is in excellent shape in Singapore and Bangkok, and the aircrafts deployed there have been rapidly getting larger, including those of other companies. The amount of belly space available on passenger flights is also swelling. Now there are cases when the time of such passenger flights overlaps with the time of our cargo services. When cargoes are hauled via the Okinawa cargo hub, there are times when we could not get hold of good slots at the local airport.

*Under our plan to expand in Asia in the future, we will think about such matters as the best time slot to use corresponding to the service areas. There is still a lot of business opportunity in Asia. For instance, we probably could build a good timetable in such routes at Jakarta and India if we course the flights through Bangkok. As in such case, we will think about the best way to boost our revenues/income, including the network and timetable of our flights.

*Passenger flights are also slated to rapidly grow in number next year, including at Narita. While there are talks of having cargo flights at areas where there are no passenger flights, doing that would lead to problems about costs, so we will basically consider developing cargo flights in areas where there are passenger flights. In line with this, we will shift to a daily schedule in Vietnam and Manila, as well as in the existing routes where we operate 3-4 flights per week. We will determine the optimum timetable while looking at the timetables of passengers and cargoes.

[Warehouse system at Narita]

*We lease the entire No.7 cargo building and a portion of the No.4 cargo building at the cargo terminal zone in Narita. The rental of such warehouse naturally becomes a cost for us.

*Amid our full-fledged start of operations as ANA Cargo since April this year, we have established a Warehouse Operation Center (WOC) at the site and we are now engaged in so-called SMAP (SmartAirCargoProject) project. The question is how we can effectively use the limited warehouse space. We want to study all measures from the short-term or medium/long-term perspective. For instance, with the total operation at Narita and Haneda, we will build a system that can lower costs, boost productivity and keep our service level by looking at various angles. One of the reasons behind the establishment of ANA Cargo is to get a good grasp of the costs incurred in cargoes. Now we will flexibly determine that under WOC.

Revenues exceeding Y80 billion for the first time

[Results in the first half of FY2014]

*Our ATK (Available Ton-Kilometer) rose 25% in the first half of fiscal 2014 compared to the same period last year owing to such factors as the launch of new services routes following the increase in arrival/departure slots for international flights in the daytime at Haneda starting March 30, as well as the commencement of operation of our 10th cargo plane in May. As a result, our RTK (Revenue Ton-Kilometer) also surged to almost 30%, with revenues from cargoes in international flights climbing by a little more than 20%. Revenues from international routes surpassed the Y10 billion level for the first time on a monthly basis in November last year, but this year, they have been topping Y10 billion every month, hitting a record-high level in September. Transport volume has also been exceeding 70,000 tons monthly, reaching an all-time high of about 76,000 tons in July. At the turn of the second half of fiscal 2014, however, the record was renewed in November.

*However, we have set our forecast for the first half of the year to a high level and our actual results are slightly lower than such forecast. Turnout struggled a little bit due to the fluctuations in the exchange rate market and the fuel surcharge, as well as the deployment of our 10th aircraft to the trade after a long holiday. If we look at the entirety of the first half of fiscal 2014, then we will see that the yield was a little lower than that in the same period a year earlier, but it reverted to an upward trend by the turn of the second quarter and the unit price has been rising since then.

*With regard to domestic cargoes, we had problems with the B787 last year. Business progressed above forecasts this year. The increase in slots at Haneda has also helped the volume of cargoes hauled in domestic-international connections (domestic-overseas, overseas-domestic) to expand by close to four folds. This then served as a positive factor to the domestic flights.

[Forecast for the second half of FY2014]

*Total revenues from international and domestic services in the first half of the current fiscal year exceeded Y80 billion for the first time. The volume of ex-Japan cargoes has finally grown recently, leading to a boost in yield. The ratio of offshore transport in our revenues had once been high at around 45%, but it now stands at about 40%.

*We are targeting an approximately 10% rise in revenues in the second half of fiscal 2014 from the first half of the year. Revenues were solid in October, but slightly weakened for domestic services in November. It also needs to be noted that around this time last year, there were also some last-minute demands in anticipation of the increase in consumption tax. Now as it is a bad year for harvest, we also need to look into its effects.

*We will introduce security surcharges starting December. We have already levied this for cargoes originating from overseas sites and only Japan does not get subjected to this charge, so we have decided to introduce it now. Our company is the only Japanese airline company that is known as a combination carrier that operates passenger and cargo planes. In light of our network, capacity scale and our position in the market, we have made a brochure for customers about security surcharges as we strive to gain their understanding.

[JV and partnerships with other companies]

*We are actively advancing our joint venture (JV) with Lufthansa Cargo. We also need to work on our interline services and block spaces. Our revenues in the interline segment, where other companies used our space or where we used the space of other companies, accounted for 3.5% of our total revenues in all international lanes in fiscal 2013. We want to drastically raise that percentage. An airline company is a network business. But there are limits to building networks completely on our own. Revenues from offshore transport stand at around 40%, but there is imbalance depending on the trade route, with the space in TC1 currently filled to bursting. Even if we rapidly expand our Asia trade routes, our routes in Europe and the U.S. are still limited. The utilization of space of Nippon Cargo Airlines (NCA) has been considerably growing since the first half of this fiscal year. Further, we have been boosting our interline services even prior to the start of our JV with United Airlines.

[OCS]

*We advanced various reform measures (such as early retirement and the outsourcing of debt collection) and we have now come up with an extremely slim system, leading to reduced costs. On the other hand, the contraction of our delivery network has also brought about lower sales. Our revenues are improving, but we are still at that stage when securing surplus on a full-year basis would be difficult. However, we have managed to generate an operating surplus on a monthly basis last October after a hiatus of seven years. With regard to the increase in revenues, we have also kicked off services in new business fields through such means as transferring the export of fresh produce at Tsukiji, which used to be handled by ANA Logistics Services (ALS), to OCS.

*Given the massive improvement in revenues/expenses in Japan, the three companies made up of OCS Japan, OCS China and OCS Hong Kong that are part of the consolidated results of the ANA Group successfully posted their first combined operating surplus in the first half of the current fiscal year. Their aggregated sales came to a little less than Y15 billion. Now the question is how we would raise that top line henceforth. For this end, we need to venture into new areas such as fresh produce. By using ANA flights at Haneda when exporting fresh produce, we will be able to offer an excellent service that is second to none. We are engaged not only in express services, but in a wide array of other services, too. In October this year, OCS China, for the first time, chartered an ANA cargo plane before the China's National Foundation Day and then used that to haul 45 tons of cargoes to Narita. Majority of the cargoes were express cargoes. It was a first for us, but we want to engage in this type of business henceforth while monitoring the state of the market during such events as the Chinese New Year.

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