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IAG finds positives among economic gloom

By Hpanchal on March 1, 2013

Steve Gunning, managing director of IAG Cargo, has told Air Cargo World he is "not particularly optimistic" about the global economy or prospects for airfreight going forward, and expects a fairly flat 2013.

Gunning was commenting in the wake of reasonably positive figures from the newly merged British Airways-Iberia entity for the three months to Dec. 31 and for full-year 2012.

IAG Cargo reported commercial revenue (flown revenue plus fuel surcharges) of €329 million ($493.78 million) in the fourth quarter compared with €310 million ($465.41 million) in the same period of 2011, an increase of 6.1 percent, despite a fall in volumes of 2.2 percent to 1.56 billion cargo tonne-kilometers (CTKs). This was thanks to a yield increase of 8.5 percent year-over-year.

For full year 2012, IAG Cargo reported commercial revenue of almost €1.22 billion ($1.83 billion), an increase of 2.3 percent on 2011. Volume was 6.08 billion CTKs, down 1.2 percent on the previous year. Cargo capacity was 3.5 percent higher during the year.

"With the market trend we've seen in the last 18 months and what we have seen in terms of capacity, this is a solid set of results," Gunning commented. "Of the top 10 or 12 carriers, those in the Middle East increased their market share, we were level and the rest were pretty much all down."

IAG Cargo does not strip out surcharges from base revenue but Rachel Izzard, finance director, said the division had achieved a 4 percent increase in yield last year, half of this resulting from currency factors and half from underlying performance. This was consistent with European rivals such as Air France-KLM, she said.

The yield improvement was due to a focus on premium products such as IAG's Prioritise service for urgent shipments, which had increased by 4 percent in Q4 and 6 percent for 2012 as a whole, Gunning explained. The number of individual consignments increased by 11 percent during the year. Reflecting the importance of this high-yielding segment, IAG Cargo expanded its express handling facility at Heathrow by 20 percent last year.

In terms of general cargo, Gunning was encouraged by signs of recovery in ex-Asia traffic in Q4 after 18 months in the doldrums. Growth had continued through to Chinese New Year and he was "cautiously optimistic" about China and India. IAG Cargo will benefit from British Airways' launch of a Chengdu service in September, marking its fourth destination China and its first in the fast-growing west of the country.

The South Korean market should also generate cargo growth following British Airways' launch a six-a-week passenger service to Seoul in December after an absence of several years.

Weakness on the North Atlantic trade lane in Q4, a result of the stuttering economy, overcapacity, and the specific impact of Hurricane Sandy, remains a concern. The market continued to perform poorly in the first two months of this year, Gunning said.

The partnership with Iberia has brought dividends into the fast-growth Latin American market. Export shipments from Asia into Heathrow are transferred to Iberia's Madrid hub and fly on Iberia metal to a range of destinations.
Izzard said Iberia was cutting back its passenger network in the region as it sought to restore profitability, with destinations such as Havana set to be withdrawn. But IAG Cargo would still have capacity to key freight markets such as Colombia, Brazil and Argentina.

The company would not comment on the specific impact of strikes and flight cancellations at Iberia, but analysts have said long-haul flights are less affected than regional and domestic services.

Back-office integration of British Airways and Iberia continues, and Gunning said IAG had just introduced a single pricing database, an important milestone on route to an integrated revenue management system. A network-wide booking and auto-rating system should be in place by September.

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