ven famously profitable airlines like Cathay Pacific are not impervious to the price of oil's dizzying ascent. In the first six months of this year, Cathay's earnings fell 5.7 percent to $215 million even though revenue was up 21.5 percent to $3.1 billion. All that growth on the top line was eclipsed by Cathay's fuel bill, which skyrocketed 53 percent from last year.

The airline's cargo traffic rose 8.6 percent for the period, partly due to the addition of a new 747-400 freighter to its fleet in January, but its load factor slipped 2.8 percentage points to 65.9 percent.

As on the passenger side, the rise in fuel costs is hurting Cathay's cargo business. Fuel costs and softer demand combined to cancel previously planned extra flights on the airline's routes to Brussels and Los Angeles.

"The high price of jet fuel is having a serious impact on our longer haul freighter route profitability, particularly those routes operated by our 747-200 freighter, which are older and less fuel efficient aircraft," said Ron Mathison, Cathay's director and general manager of cargo. "As a result we are not operating as many flights as we had originally planned this year."

But Mathison is not enamored with suggestions that the fuel surcharge mechanism should be modified to incorporate distance. Although this would help on the longer routes, which are currently at a disadvantage from a carrier perspective, it might affect the intended transparency and simplicity of the surcharge, he said.

Longer Concern

Cathay is adding another long haul sector to its cargo network, albeit later than originally intended.

Its new 747-400 freighter trans-Pacific service to Dallas/Fort Worth and Atlanta, which had been scheduled to start in August, was postponed to November because of aircraft and crew shortage. Mathison hopes the long-awaited peak season will finally be in full swing by then.

"There are signs of a slowdown in demand from August and market sentiment seems to have deteriorated in the last month," he said. "Most pundits are now forecasting a shorter and less pronounced peak than last year. We are increasingly concerned about the impact of continued high fuel prices and the ever increasing amount of capacity being deployed in the market."

He added that the downward pressure on westbound yields is a worry too. Flying three times a week to two new U.S. destinations is part of Mathison's strategy to cope with directional imbalances and yield pressure, as this positions the airline closer to more origin points for cargo rather than funneling everything into its existing U.S. gateways. In addition, Mathison hopes to develop some Latin American traffic through Atlanta, glimpsing promise in the Asia-Latin America sector.

Plane Growth

Cathay rival Dragonair, which entered the U.S. market in the spring with a 747 freighter to New York, also finds westbound loads weak. "We deal with the problem by increasing the revenue from the eastbound traffic (two rounds of rate increase during the peak seasons) and reducing the cost of operation," said Albert Yau, Dragonair's head of cargo. "One way to achieve this is to fly direct from the U.S. back to HKG if the westbound load of the flight is within the payload limit of the aircraft."

It helps that China Airlines is taking some space on the aircraft.

Both Hong Kong-based carriers have more freighters coming. Cathay, with 14 747 freighters, is due to take delivery of the first of six converted 747-400s in December. Dragonair will get the first two out of five 747-400SFs in the second half of next year.

Yau has his eyes on Los Angeles, Chicago and Dallas/Fort Worth for expansion of trans-Pacific activities. Whether or not the deal with China Airlines will continue once Dragonair fields its own freighters will depend on the market and the strategies of both carriers. "We see no reason why we need to pull out the existing services if the market can sustain the added capacity," Yau said.

Meanwhile, Cathay is moving ahead with its alignment with Air China, in which the Hong Kong carrier took an equity position a year ago. "We recently signed a special prorate agreement with them, and talks around further opportunities for cooperation are progressing well," said Mathison.

EVA Converting

Taiwan's EVA Airways signed a deal with Israel Aircraft Industries to convert up to six 747-400 combi aircraft into freighters. The conversion work is slated to begin in the second half of 2007.

The contract calls for four conversions, with options for two more. If six conversions are done, the value of the deal could reach $100 million, according to IAI.

IAI's Bedek Aviation Group previously signed deals to convert 747-400s for Air China Cargo and Asiana Airlines. "Asia's rapid economic growth is resulting in an increased demand for cargo aircraft," says Bedek Aviation General Manager David Arzi.

He adds that IAI's Bedek will soon open its first conversion site in Asia and is producing kits to convert 767s as well.

… Briefly

Forwarder U-Freight says its warehouse in Hong Kong and two sites in Singapore were certified under TAPA security guidelines. … Qantas freight revenue soared 46 percent in the year ending June 30, to US$571.2 on the addition of freighter capacity and rising fuel surcharges. ... Schenker Logistics was named the freight forwarder and customs clearance provider for the 2006 Melbourne Commonwealth Games, the latest endorsement for the German forwarder's division focused on global sports events. … Macau International Airport and Germany's Frankfurt-Hahn Airport signed a letter of intent to become "sister airports." … Mondiale Freight Systems, the largest forwarder in New Zealand, signed a reciprocal representation agreement with Los Angeles-based Corrigan's Express. … BDP International opened an office in the coastal city of Ningbo, its seventh BDP office in China. … French forwarder Geodis launched a special Web site aimed at Asia business, www.asia.geodis.com. … The Federation of Asia-Pacific Air Cargo Associations named Hong Kong International Airport the "Most Friendly Airport for Cargo" in the region. … Emirates SkyCargo and Korean Air Cargo will codeshare cargo capacity on routes from India and Mumbai in India. … Thai Airways started three-times-weekly MD-11 passenger flights between Bangkok and Moscow.