A new Chinese all-cargo carrier may spread its wings over the Pacific to mount scheduled service to the U.S. Or perhaps it will serve the Asian region. Or perhaps some routes to Europe. Or perhaps it will not get off the ground at all.
Cargolux and minority shareholder Henan Civil Aviation Development and Investment Company (HNCA) have been working on a feasibility study for a freighter airline based in Zhengzhou. Such a scenario is part of the agreement signed a year ago under which HNCA took a 35 percent stake in Cargolux, with the immediate objective of establishing a direct freighter link between Zhengzhou and the Cargolux home base in Luxembourg. HNCA would be the main source of funding for the enterprise, while Cargolux would run the operation, second managers to it and act as its global GSA.
According to a recent news report from Europe, the venture is a done deal. The report quoted Cargolux CEO Dirk Reich as saying that the question was not “if,” but “when” and “how” the new carrier would be set up. Reich also indicated that several scenarios are under consideration in terms of aircraft types and markets. Management has been looking at large wide-bodies for a long-haul operation, but also at B737 freighters for a domestic feeder operation to supplement international flights.
However, in response to the report, the airline’s board of directors published a statement declaring that a decision had not been made, and that any decision would hinge on the feasibility study. “As foreseen in the cooperation agreement between Cargolux and its shareholder, HNCA, a feasibility study for the set-up of a joint-venture cargo airline, based in Zhengzhou, is currently undertaken. At this point, the airline does not exist; its set-up depends on the outcome and evaluation of the feasibility study that is expected to be finished next month. Only then will the Cargolux board and management decide on future actions.”
But the response of the Cargolux board begs the larger question of the potential for success of such a venture. Notwithstanding the recent improvement in global air cargo demand, led by traffic out of Asia, market conditions are not exactly inviting for a new entrant. Titus Diu, chief operating officer of Air China Cargo, reported that, while demand has improved in recent months, yields have remained under pressure due to ample capacity.
Other observers have also questioned a foray into China’s domestic market. Stan Wraight, executive director of Strategic Aviation Solutions International, remarked that this would face strong competition from belly-hold carriers, as well as from China Post, which has a dedicated freighter network. In addition, the large established Chinese carriers would be tough competitors, he said.
Zhengzhou, which saw a 69 percent rise in its throughput in 2013 to reach 255,000 metric tons, has registered an influx of freighter operators. Cargolux ramped up its Zhengzhou-Luxembourg frequency in October to four weekly flights, and other airlines such as AirBridge Cargo and major Chinese carriers like Air China Cargo have integrated the airport into their freighter routings to long-haul destinations.
Diu said that output from production facilities in Zhengzhou, which consists largely of the Foxconn production there, has been sporadic. In the absence of other large shippers to smooth out fluctuations in output from the electronics manufacturer, load factors have bounced up and down, forcing Air China Cargo to cancel some flights.