While freight has been a losing proposition for Cathay Pacific the past three years, the carrier believes its business model positions itself well for the coming years. The airline has been profitable with its passenger business, but cargo revenue fell by 3.6 percent in 2013.
Cathay is hoping it is positioned for a turnaround. Cargo-wise, Cathay Pacific’s strongest asset is the geographic location of Hong Kong, maintains James Woodrow, the airline’s head of cargo.
“We have built on our location by having a fantastic passenger network which gives us great belly, and we have added on to that with a great cargo terminal,” Woodrow says. “There is a can-do spirit in Hong Kong of getting things done. You put it all together, and we have a good business model. But it’s a very difficult business environment. It’s tough at the moment to make money in the cargo business.”
Cathay’s new cargo terminal at Hong Kong International Airport opened in February 2013 and became fully operational in October. Woodrow says the facility gives Cathay, which previously operated out of the Hong Kong Air Cargo Terminals Limited (HACTL) terminal, greater flexibility.
“The biggest gain for us is we have control of our business,” Woodrow says. “We want to innovate and tailor-make things for our customers. Even though we were half of HACTL’s business, they weren’t prepared to have different standards for us and for their other customers.”
The new flexibility allows Cathay to combine products from multiple incoming pallets such as iPhones, iPads and other high-tech gadgets into one pallet for shipment to Los Angeles or JFK.
As the number of high-tech manufacturing centers has grown in recent years, Cathay has found itself required to chase cargo across Asia, including six weekly flights to Hanoi, Vietnam, where Samsung has major operations. The carrier also has six weekly flights to Zhengzhou, China, one of Foxconn’s iPhone manufacturing sites.
“We have to go where the cargo is,” Woodrow explains. “We have six freighters a week out of Hanoi, where we are very much the No. 3 carrier with Korean [Air] and Asiana [Airlines] being No. 1 and 2. We want to be a strong No. 3.”
Cathay has also been adding routes to new North American destinations. It launched flights to Guadalajara, Mexico, last October and to Mexico City in February. The most recent cargo route addition was to Columbus, Ohio, where a twice-weekly stopover began on March 21. The flight from Hong Kong first stops in Anchorage and then proceeds to JFK after the Columbus stop.
Woodrow says the stop at Rickenbacker International Airport is based on one customer, RCS Logistics, which handles distribution for several apparel brands, including Abercrombie & Fitch. He says the hope is that the service will grow beyond the Wednesday and Friday stops.
Long-range, Cathay hopes to gain business with other forwarders and develop an export business out of Columbus. This could include automotive parts manufactured in the region or possible business from Columbus-based L Brands (formerly Limited Brands), which owns the Victoria’s Secret and Bath & Body Works brands, among others.
Woodrow says Cathay focuses on developing and maintaining relationships with freight forwarders.
“We are always talking with them,” he says. “We also try and have a relationship with the big shippers, the high-tech guys.”
Several of the “high-tech guys,” along with pharmaceutical and perishables companies, have been brought in for tours of the new cargo terminal.
“We wanted to show them what we are capable of so they will go back to their forwarders and say, ‘Put it on Cathay,’” Woodrow says.
One of the industry leaders in adoption of the e-air waybill, Cathay achieved 100 percent saturation at its Hong Kong operations two years ago. Across its network, the figure is 40 percent and growing.
“We will get to 70 percent this year, and that’s miles ahead of other carriers,” Woodrow says.
There is also an opportunity, which Woodrow describes as “huge,” coming from the integrators. On certain routes, FedEx is moving tonnes to commercial carriers, including Cathay.
Meanwhile, Cathay has been trying to right-size its freighter fleet. It has parked five of its 21 freighters: four in the U.S. desert and one in China. But there will always be a need for a strong freighter presence in certain areas, Woodrow asserts.
“There definitely will be a requirement for freighters on trans-Pacific routes,” Woodrow says.