Not too long ago, airlines were the very symbol of nation statehood. They started out as the country’s proud flag carrier, forging tenuous links to disparate lands. Invariably though, they were cumbersome state enterprises, where profit and thereby commercial ambition were moribund. Even in the U.S., aviation pioneers Pan Am and TWA, although corporate entities, were seen as the embodiment of U.S. foreign policy — golden wings facilitating economic expansion.
Times have certainly changed, and most carriers have been pushed out into the cold real world of profit and loss, an arena in which it appears increasingly more difficult to survive, certainly as a lone player. But perish the thought, even just a decade or so ago, that the assets of a national carrier, even in part, could be sold off to a foreign buyer. The ring-fence is still up in the U.S., with foreign stakes in American carriers still pinned back to 25 percent. But elsewhere, it is becoming a virtual free market, leading to the creation of a new dimension in the airline business.
In Europe, Air France and KLM are one, and Lufthansa has been quietly acquiring its near neighbors — Swiss, Austrian Airlines and Brussels Airlines, the latter of which it holds a 45-percent stake. Europe’s cargo carriers are not immune to these cross-border raids. Last year, Cargolux gave up a 35-percent stake to Qatar Airways, and more recently, Russian heavyweight Volga-Dnepr snagged a 49-percent share of Air Cargo Germany. Not to be outmaneuvered, British Airways has stepped into the ring, through its acquisition of Spanish national carrier Iberia Airlines. The carrier appears to have raised the bar in the airline acquisition stakes by creating International Airlines Group, which it freely states has been formed with the clear intent of procuring more carriers.
It’s been a year since IAG Cargo was formed to mesh together the cargo activities of British Airways World Cargo and Iberia Cargo. The job was handed to Steve Gunning, former managing director of BAWC, who has since catapulted to managing director of IAG Cargo. The inference at the time of the launch was that IAG Cargo would stand alone as part of the parent company’s super-strategy group, not only setting out the roadmap for the two new partner airlines, but also creating the business platform for future airline acquisitions.
Things, it would appear, have transpired rapidly. “You are going to be hearing a lot more about IAG Cargo as a brand,” Gunning said. “We are now very much part of the day-to-day business of the airlines, both here in London and in Madrid.”
Indeed, instead of referring to a small head-office enclave, Gunning talks ambitiously about the 3,000-plus cargo staff under his wing, most of whom now have a corporate IAG Cargo moniker. He also talks generously about the integration of the two carriers’ cargo operations, achieved in just one short year. “We are in the position today where we can already talk about a single global sales force, a single GSA network and the rollout of a single global cargo-handling concept,” Gunning said. “We already have joint cargo-handling operations at Frankfurt and JFK.”
Curiously, it has taken IAG Cargo the best part of the year to merge the cargo-handling operations of both carriers at its home base at London Heathrow Airport, with BAWC only recently beginning to accept Iberia Cargo traffic. “That was more about letting the contract with Iberia Cargo’s third-party handler run down and waiting for Iberia to start parking its aircraft at BA’s Terminal Five at Heathrow,” he said.
With three new Boeing 747-8Fs at IAG’s disposal, it has been interesting to see how the freighters would be made to fit into the newly expanded network. Once again, little time has been lost in feeding one of the new freighters through Madrid, via a London Stansted-Cologne-Madrid-Johannesburg routing. “This, of course, allows us to feed other traffic from other key points … within the freighter network,” Gunning said. “This is particularly important in allowing us, for example, to provide a link between Hong Kong and Latin America.” For a period, a freighter service was added to a second Spanish destination of Zaragoza, but was later dropped.
The next item on the agenda, in integration terms, is merging the respective cargo reservation systems, a task slated for early next year. Ahead of the creation of the new super cargo group, Iberia Cargo had already committed itself to investing $85 million in a new cargo terminal at Madrid-Barajas Airport, with a further $60 million being invested by Aena, the Spanish airport operator. When completed in 2015, the development will include a 40,000-square-meter facility, with 15,000 square meters reserved for perishables.
The new terminal will more than double existing handling capabilities for the group at Madrid and improves handling efficiency, being 7 kilometers closer to the main passenger terminals. Just a year into IAG Cargo’s life, Gunning is already being required to get his set of spanners out and bolt on IAG’s new addition of British Midland International. The formerly Lufthansa-owned British carrier operated a modest European and more distant network, but its single greatest asset was the number of slots it held at London Heathrow, which IAG was more than eager to snatch. “The BMI cargo business was modest by global standards, but still produced sales of $30 million, which we are happy to add to our bottom line,” Gunning said.
For 2011, IAG Cargo turned in commercial revenues of $1.5 billion, an 8.6-percent, year-over-year, increase, with cargo volumes at 6.15 million CTKs, up by 4.2 percent. These numbers were matched by a similar increase in yields, which also saw cargo capacity increase by 5.6 percent for the year. “Our premium products performed well, with Prioritise, our express product, increasing revenues by 20.4 percent,” Gunning said. “Resurgence in previously sluggish markets also contributed to our success with growth in Europe and the U.S.”