All cargo carrier Cargolux and combination carrier Emirates SkyCargo have entered into a strategic partnership, which will see the two carriers making space for each other on their services. A memorandum of understanding (MoU) was signed at this year’s Air Cargo Europe event in Munich. Richard Forson, Cargolux president and chief executive speaks to Reji John about circumstances that led to this partnership and what is in store for Cargolux.
What led to the strategic partnership with Emirates SkyCargo?
We started talking about this towards the end of last year. I think we both realised that there would be good synergies in getting together for operational partnerships. From then on, we had a series of talks which led up to the signing of the MoU. Also in this kind of a situation we do need to make sure that we remain within the rules of the anti-trust and compliance issues. So we were very careful to ensure that we followed everything that our legal counsel advised us to do. Finally we got into an arrangement where we believe that it is going to be a benefit to both parties. To Emirates, they have access to capacity of the whole of Cargolux fleet. Whether they want to take dedicated aircraft or block space, it is going to be up to them depending on how they want to service their customers. Likewise, from our side, we have access to their network not only on their 777 freighters but on the belly side as well. That allows us to offer our customers a much broader range of destinations. The whole approach is for a win-win situation. No one party benefits at the expense of the other. From a customer’s perspective not only are they going to get a much broader offering of different kinds of logistics solution but also the service excellence. Emirates will continue to sell to their customers and we will continue to sell to our customers.
When does this partnership become operational?
This becomes operational immediately. We have come to agreement on certain aspects and those will now be implemented. They will be putting a flight into Luxembourg in June and I will be increasing my rotations through Dubai from three to about five by July. There are ongoing talks about block space and interline arrangements and from our side sales teams will take advantage of the much broader network that we can offer to our customers. I am sure at Emirates they must be going through the same process as well.
Is there a commitment on capacity?
There is no commitment on capacity. We are able to give them a flexible solution that is in accordance with their needs.
How do you intend to optimise capacity?
We are going to be restricted by the anti-trust and compliance regulations. That is why in terms of capacity we are not going to sit down and say we are just going to reduce capacity. That is not the intention. The intention on the capacity side is they might fly to a destination on certain days of the week and I might decide to fly other days of the week therefore customers get a much flexible offering at the end of the day. In terms of capacity, it is not reducing capacity, but optimising it for our customers so they have lot more flexibility when and where they want to ship their goods.
What are the other factors that brought this partnership together?
There are other areas where we will cooperate. For example, handling. Emirates will handle us in Dubai. We will handle them in Luxembourg. And all over the world where dnata operates and does the handling for Emirates, we will get that service as well. We will look at optimisation of all of those kinds of operational procedures to get the best results. I get a better level of service and also cost optimisation.
How do you intend to bring operational and cost efficiencies?
It is not something that I would like to make it public. But we do have a programme running in the organsiation, not just related to this agreement, but overall. How we intend to optimize our cost going forward in to the future. One thing about our fleet is that we do have a certain amount of flexibility where we can put our aircraft on ground at minimal cost that gives us an ability to at least try and match the demand in the industry. And that is going to be one of our key strategies as we move forward. And how we bring more flexibility into the fleet. So when the times are good, like it was at the end of last year, we were able to deploy immediately additional capacity into the market and when you go into the low season you can take the capacity out. That, to us, is going to be one of the major challenges that we are working on.
Are there opportunities to create common products and services?
At this stage there might be opportunities to create common products. Obviously, it will always have to be signed off by the compliance team. All of these are issue to be developed over time. Once the agreement is stabilised and is working to our satisfaction then you start developing into the next phase.
What is the nature of this partnership?
It is meant to be long term. That is why selecting a partner is not an overnight things. You give a lot of thought into it and you look at various options and we know that we have the right partner.
Is there an investment or stake sale in this partnership?
No equity stake at all. This is purely an operating arrangement between Emirates and Cargolux.
What is the update on the development of Zhengzhou (CGO) hub in China and this partnership’s impact on the China hub?
From our side we have been very successful in the development of the CGO hub in China for Henan Civil Aviation Development and Investment (HNCA). It is not an airline but an investment company which aims to develop aviation in the Henan Province of China. We had undertaken to develop the hub for them and we have been pretty successful in terms of developing CGO as a cargo hub in China. That also enabled us to operate a lot of charter flights.
What is your assessment of the performance of Cargolux China joint venture?
The relationship is doing well. The actual airline itself is still in process. My objective is to get the first revenue flight going by fourth quarter of 2018. There has been a delay in getting it up and running. I have a dedicated project team working on this and they are providing regular progress report and they are working with the Chinese colleagues.
Has the investment promised by HNCA fulfilled?
Investment by HNCA has been fulfilled and in future, when the JV airline is up and going, there will also be investment requirement. I have no reason to doubt that they are not going to do what they said they are going to do. When we entered into the joint venture with HNCA whatever was promised to us has been delivered and I have no reason to doubt that they are going to do otherwise.