Faced with lackluster growth in the established Chinese gateways, carriers have been ramping up their presence in the emerging hubs in the interior. However, even there profits are elusive.
In April, Silk Way Airlines began a weekly freighter service linking Frankfurt-Hahn Airport in Germany with Zhengzhou via its home base in Baku, Azerbaijan with B747-400F equipment. The same month saw the start of B777-200F service by China Southern Airlines from Shanghai over Zhengzhou to Chicago. Barely a month earlier, the Guangzhou-based airline had launched twice-weekly flights with B777-200 freighters from Zhengzhou over Guangzhou to Los Angeles. Also in March Cathay Pacific started twice-weekly B747-400F runs into Zhengzhou, having launched freighter flights to Chengdu, China and Chongqing, China earlier on.
Buoyed by the influx of international freighter operators, Zhengzhou has clocked up strong growth in throughput. In the first quarter of this year, the airport’s volumes were up 39.4 percent, the fastest growth rate among Chinese airports. To accommodate projected growth, the airport authority embarked on an expansion drive December 2012 after it had received the green light for its plans to develop an on-airport economic zone to build its logistics business and establish itself as a key gateway for international cargo flows. The expansion will boost its capacity to 580,000 metric tonnes per annum.
As in the emerging gateways of Chengdu and Chongqing in Sichuan province, the electronics industry, led by Foxconn churning out products for Apple, has been the chief driver of Zhengzhou’s airfreight throughput. The automotive sector has been another engine of growth, albeit less than in Sichuan. Most of Zhengzhou’s automotive traffic moves by surface transportation, says Gerhard Blumensaat, director of airfreight, Central China at logistics company DB Schenker. He adds that inbound flows of auto parts may take up more airfreight lift, but this should take a few months to gather momentum.
More capacity is poised to enter the rising hubs of Sichuan and Henan.
“We will further beef up our presence in Zhengzhou and Chongqing,” Titus Diu, COO of Air China Cargo, says.
On the other hand, the airline is going to retire its 747-400 Combi aircraft before the end of this year, which will mark the end of its main deck presence in Chengdu. In terms of belly hold lift, the airport will receive more international capacity in September, when IAG is due to start passenger flights to London, operating three days a week with B777-300ER aircraft.
Forwarders have had no difficulty finding lift out of the rising gateways in China’s interior, usually at low rates.
“The market is highly competitive, not to say like a bazaar,” Blumensaat notes.
James Woodrow, general manager of cargo sales and marketing at Cathay Pacific, says Zhengzhou, Chongqing and Chengdu have been difficult for airlines.
“All three are very challenging. Export demand is volatile, and imports are currently still very low. This makes it very tough to make money on these routes; longer-term incomes in these areas will continue to grow and with that, import volumes. In the meantime, business remains a challenge,” he says.
Somewhat ironically, there have been bottlenecks on the import side, both from North America and Europe. These were caused by ad hoc cancellations of intercontinental freighter flights by Chinese carriers in response to insufficient loads on the export side.
“The Chinese carriers tend to focus heavily on one-way traffic. They are not so strong on selling out of the U.S., so if their exports are light they are more inclined to cancel flights,” Shawn McWhorter, president for the Americas of Nippon Cargo Airlines, says.
The sluggish global economy has taken its toll on China’s airfreight growth.
“Everyone’s volumes are down. Airfreight volumes are very static,” Andrew Jillings, CEO of Hong Kong-based logistics firm Tigers, says.
But there have been signs of growth. Both HACTL and PACTL, the main handlers at Hong Kong and Shanghai, reported increases in throughput for April and their cumulative volumes for the first four months of the year are up on the same period in 2012. On the carrier side, China Southern’s FTKs rose 6.2 percent in the first quarter, while tonnage was up 6.4 percent.
“We care cautiously optimistic,” Li Yi, a spokesperson for the airline, says.
The large Chinese carriers have used the slowdown to revamp their line-ups. China Eastern has taken steps to consolidate its cargo holdings under its Shanghai Eastern Logistics subsidiary as the holding firm for China Cargo Airlines and is in the process of overhauling its freighter fleet. The MD-11 and A300 freighters have been taken out of service, reducing the all-cargo fleet from 19 to 13 units.
Air China Cargo is also whittling down its freighter fleet, having taken steps to say goodbye to the 747-400BCFs. With two already sidelined and another two units that are leased to be returned to their owners in July and October, the line-up is shrinking from 11 to seven freighters this year. The remaining 747-400BCFs will exit the fleet as the airline takes delivery of altogether eight 777-200Fs ordered earlier this year, of which the first is due to arrive by the end of this year. By late 2015, Air China Cargo will have 11 freighters again – eight 777s and three production 747-400Fs, Diu says.
Another key focus for him in the months ahead is going to be the migration to a new cargo system, which is supposed to give the carrier better capacity control and forecasting capability.
“With this, we can catch up to Cargo 2000,” Diu says.
He adds that management intends to have the system in place in the fourth quarter, just before the first 777 freighter joins the fleet.
China Southern is due to take delivery of two 777 freighters this summer, with another four due next year. This year’s additions will be used chiefly to develop traffic between Guangzhou and Frankfurt, according to Li.
Transpacific lift is not likely to see a major boost. For Air China Cargo, the emphasis in the intercontinental arena this year is on Asia-Europe; the reduction of main deck capacity plays out mostly on the carrier’s North American routes, which are more painful with the 747-400BCFs. The network remains unchanged, but frequencies are cut back while the fleet is down to seven planes.
With their nose loading capability, Air China’s 747 production freighters have been earmarked for charter work but in the main they are deployed on intra-Asian sectors, such as Shanghai-Taipei, Diu said. For China Southern Cargo, the intra-Asian arena is also a major focus. Last summer, the airline launched its first regional freighter route, fielding a 747-400F between Shanghai and Osaka.
“If the market shows an upward turn in the future, we plan to open an all-cargo route from China to Japan. We would like to take this opportunity to optimize our all-cargo airline network, combine a short China-Japan route with a long China-North American or European route,” Yi says.
Down the road, the traditional long-haul sectors will lose ground to emerging routes, some operators predict.
“Europe and North America won’t be the core markets anymore. Asia-Pacific, Middle East, Africa, Latin America will be in great demand. Air cargo carriers should keep pace with the market changes to stay alive,” Yi says.
On China Southern’s doorstep, a host of aspiring airports are pushing hard to join the likes of Zhengzhou, Chengdu and Chongqing. Nanchang Airport in Jiangxi, China extended its runway last year and added a cargo terminal designed to handle 120,000 tonnes. Hangzhou airport, which tries to position itself as an alternative or spillover airport to Shanghai Pudong 100 miles away, completed its expansion project last year, adding a second runway and boosting airfreight capacity to 805,000 tonnes. Changzhou Airport in Jiangsu province plans to establish an aviation industrial park that will be dedicated to the development of aviation-related high-end manufacturing and related services.
Blumensaat has Xian on his radar.
“That is probably the next one down the line,” he says.