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Freight: friend or foe?

There are numerous ways for short-haul passenger carriers to boost revenues. But with a weak market and heavy competition, is cargo worth it – and what is the best way to manage it? Alexandra Lennane reports
 

Since the birth of the low-cost carrier (LCC), there has been the question of whether or not to carry cargo. The cons are well known: it can add complexity, cost and slow down turnaround times. You need sales agents, handlers, road feeder services and ULDs. Security and the regulations that go with it can be a headache – and possibly a risk.

 

This list can be enough to turn off even the most ancillary-revenue focused low-fare airline. EasyJet rejected the idea after a six-month trial. Ryanair has always spurned freight.

 

But as more LCCs become partners to, or are owned by, legacy carriers, it seems likely that the larger airlines will look to sell cargo capacity on the LCCs to boost revenues further. It will be interesting to watch whether Vueling – now part of IAG, a significant combination cargo carrier – will take notes from its parent, or whether Germanwings will add to Lufthansa Cargo’s network. Etihad’s partner, Airberlin, already carries cargo, while capacity on Scoot Freight is fully managed by Singapore Airlines Cargo.

 

But other independent carriers, such as AirAsia and Southwest, have successfully – and profitably – carried cargo. In June, AirAsia won a cargo industry customer care award for the third year in a row. Last year, it announced it would double its cargo sector’s contribution to revenues to 8% of the total. Southwest, which has a strong domestic cargo arm, aided by the former head of Continental Airlines Cargo, reported freight revenues of $39 million in the first quarter of 2013. It is certainly possible for an LCC to profit from cargo.

 

In the past two months, two more carriers have entered the cargo sphere, both with different methods. In May, Royal Brunei Airlines signed a ground-breaking agreement with the general sales and service agent Air Logistics Group to create a joint venture, ALSB, which will manage the cargo sales, marketing and handling of the airline. The deal gives the carrier access to Air Logistics Group’s global network of 71 offices, and the airline hopes it will promote Brunei Darussalam as a transhipment and distribution centre in south-east Asia.

 

While it is rare that an LCC signs a global deal such as this, outsourcing to general sales agents (GSAs) is one of the more attractive methods for dealing with freight. GSAs will offer carriers additional revenues and take on cargo sales – as well as the complexities that go with it. Leisure Cargo, a German company, works with airlines such as Airberlin, Condor, nasair, Jet4you, Thomson and Thomas Cook. It provides 100% cargo management services including sales, handling and road feeder services, using its own air waybill and single reservation system. It allows carriers to enjoy a cargo revenue stream, managed by someone else.

 

But Norwegian, the ambitious carrier which has just started long-haul routes with two Boeing 787s, has gone for a different option.

 

“In the beginning, the plan was to create a joint venture with one of Europe’s largest GSAs,” reveals Bjørn Erik Barman-Jenssen, director ground operations and in-flight services. Instead, the airline set up a cargo company, Norwegian Cargo, that will, to begin with, use GSAs in international markets and manage the Nordic market itself.

 

Norwegian has been trialling cargo carrying in Scandinavia, but the idea is to focus now on its new long-haul routes.

 

“We have been carrying cargo on the short-haul network, mainly in domestic Norway, where we have a contract for cargo,” explains Barman-Jenssen. “But we have short ground stops in Norway, and we don’t want to extend them. Now the priority is to use our capacity on the long-haul routes and build a bigger cargo network in Europe. >>


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