Challenging times for European carriers
Emirates’ introduction of a daily passenger B777 from Dubai to Lisbon singlehandedly more than doubled airfreight capacity from Portugal, one of the Eurozone’s weakest economies, to the Near East and Asia. Nothing could better illustrate the problems afflicting the European airfreight market and its native carriers. Demand is weak, and competition intensifying.
The growth in capacity from Middle Eastern carriers shows no signs of slowing, Chris Nielen, regional commercial manager Europe for IAG Cargo, says.
“What may prove particularly challenging is that these carriers are not just serving major hubs, but also smaller regional airports, giving them a service reach that will appeal to freight forwarders,” Nielen admits.
This will force established carriers to focus more than ever on service quality, he believes.
“Formidable competitors in the Middle East are offering huge networks and operate to high standards,” Oliver Evans, chief cargo officer at Swiss International Air Lines, says. “Maybe one or two will overreach themselves, but others will succeed. You have different ways now of flying from North America to Asia or Europe to Asia. It’s a huge challenge for European operators.”
Carsten Wirths, vice president Europe and Africa at Lufthansa Cargo, says the fast-expanding passenger networks of new-generation carriers, whose planes are cargo-friendly but whose focus “is not necessarily on earning from cargo” has meant that other carriers’ capacity reductions have proved insufficient in a declining European market.
The Eurozone crisis continues to hang heavy over those both within and outside the single currency.
“Declining inbound cargo volumes have reflected the loss in consumer confidence caused by an uncertain economic situation,” Nielen says. “The Netherlands is in the grip of a triple-dip recession. We’ve seen a particular decline in electronic goods shipments into Schiphol from the Far East as consumers hold back on those big purchases. When it comes to nice-to-have or luxury goods, people are not buying as they did a few years ago and there are scant signs of this changing in the near-term.”
Air exports from Europe are patchy and depend on the mood in the destination market.
“We have seen continued demand from China for German car parts as German cars remain popular in China, and consumers are still willing to spend,” Nielen says.
While the pharmaceutical, car parts and machinery exporters of Switzerland, Germany and Italy are likely to keep leading the way, even countries that are flat-lining at home are seeing some export success. IAG Cargo reports “steady and secure” business out of Greece and Cyprus, despite its challenging economic circumstances.
“There will always be a demand for perishables from these two countries, particularly fish, so we are less exposed to a decline in other industries. But the best we can hope for from Europe overall is modest growth,” Nielen says.
Redeployment of freighters from the Asian market to trans-Atlantic routes has helped balance capacity, he suggests. “With less capacity on these Asian routes, we hope to see more stable yields and maybe even an increase.”
Exports from Europe to the U.S. are sluggish, but certain niche trans-Atlantic markets are thriving.
“We’ve recognized increasing demand for pharmaceutical shipments to Latin America and have worked on increasing the number of Constant-Climate-enabled stations in this region,” Nielen says.
Lufthansa Cargo saw a 7.2 percent decline in cargo volume in the first quarter of 2013. Asia-Pacific business suffered the most, with an 11.2 percent decrease. LC has consciously excluded itself from competing for some business through tight capacity management. Capacity was scaled back by 7.4 percent with the aim of keeping the business profitable.
The company has predicted a significant pick-up in demand later this year, but Wirths sees the same regional variations as his competitors.
“In terms of imports from the U.S. into Europe, we have a better situation in the first months of this year than we experienced in 2011 or 2012,” he says. “The picture is different out of Asia, which is still in decline.”