Cathay Cargo leaps back in growth mode

Post the pandemic, the world has gone through a myriad of transformations. Many believe that these changes are irreversible and perhaps for the better. Businesses worldwide had to redefine their operations, functionalities, personality and approach. Strategies had to be revised and re-built to access the ‘new normal’ with a fresh perspective. Such is the story of Cathay Cargo too.

Cathay Cargo is the cargo arm of Cathay Pacific, a Hong-Kong based combination carrier that recently repositioned itself as “We know how”. The forty-year old carrier stems from one of the most affected regions of the pandemic but despite the repercussions, the optimism in their leadership stands secure and performance driven.

In an exclusive interview to The STAT Trade Times, Tom Owen, Director Cargo, Cathay Pacific, explains in detail Cathay’s recovery, take on India, future of supply chains and more. Excerpts from the interview:

Let's begin with the rebranding of Cathay Pacific Cargo to Cathay Cargo and the tagline, ‘we know how’. Why was the rebranding important?

We did this because we felt that we had a very strong story to tell our customers. And Cathay Cargo never really had a sort of above the line brand that we would talk b2b with customers on. So we came up with the “We Know How” campaign, rebranded as Cathay Cargo.

We Know How, because we believe our people in Cathay Cargo are the differentiators. We've got a huge strength to compete with others based on our expertise, quality and innovation around our people. So we produced a brand campaign, filmed with all our own cathay people. Hence, everyone in the campaign are Cathay employees, and we intend to use that now as a brand platform going forward, to have further communications about our brand with our customers.

Hong Kong was very early on affected by the Covid lockdown in early 2020. It was also quite late to come out of the rigid protocols of the pandemic. How do you see the cargo market shaping up for Cathay Pacific especially in the Hong Kong and Mainland China regions?

Covid indeed had a big impact on us. In Hong Kong, we suffered from the quarantine regulations on our pilots. Although we could fly our freighters most of the time, on the passenger side, it was a real devastation in terms of the ability to operate normally as half our freight goes through wide body bellies. Therefore our capacity was constrained.

However, coming out of Covid, we are adding back our passenger wide body as quickly as possible. The anticipated capacity for cargo by the end of this year is around 85% of pre-Covid levels. And then by the end of next year, we'll be approaching 90%. And on the passenger side, that's now over 60%. So we are back in growth mode again!

What's your assessment of the current air freight market in terms of demand, falling yields and rapidly declining freight rates?

Cargo is a cyclical and a long term business for investment. We've seen record highs during Covid. And now we're going through a period of what people call “normalisation”. But, even though the market is weak at the moment, our yields remain elevated from 2019 levels. We've got wide body aircraft returning with big bellies and quite a large number of freighters still operating in a weak global environment for demand. So that should work itself out as it always does and we are relatively optimistic from a medium to long term perspective.

The e-commerce segment, particularly cross border ecommerce from China to the rest of the network and then interestingly enough, perishable and fresh cargo shipments to different markets are some segments which are doing quite well. So, there are still some bright spots out there.

I also think our yields are probably going to remain broadly in the range they are at the moment with a seasonal uptick towards the end of this year. But obviously the yields that one has seen historically won't be repeated. Yields therefore will be a challenge.

Do you see the decline in the cargo revenue being largely because of falling yields?

Yes, the falling yields are a reflection of a weaker market but we shouldn't really compare the situation to Covid because it was unprecedented in terms of supply chain disruptions. And I think within Asia, particularly around China and Hong Kong, despite the challenges with e-commerce and other shipments, the yields are stronger than how much they were during Covid. So we haven't seen the calamitous decline that the shipping business might have seen.

Where do you see India and other foreign countries such as Vietnam, Indonesia, Philippines from the perspective of market potential for cargo carriers?

While there will still be a huge and deep manufacturing base within the southern part of China, we've seen significant growth in parts of Vietnam and India. India, for instance, has announced many foreign investments from major players, which is also a reflection of supply chain de-risking.

For us, whether the cargo comes out of the southern part of China, or from Vietnam, or India or other places that are expanding, we just need to make sure that we have the capacity, the traffic rights and the opportunities to launch services where we need to.

You currently operate a fleet of 20 freighters, all four-engine Boeing 747s. As Boeing discontinued the production of what is popularly called ‘queen of skies’, what is Cathay’s vision on modernizing the fleet?

Yes, you're right, we've got a fleet of 20, 747Fs at the moment, and they're relatively young. Therefore, we're not in a particular hurry to change anything. But we are very cognizant of why we need to continue to look at today's technology.

One is around sustainability, fuel burn, and making sure that we're able to operate as efficiently and as sustainably as possible. We have a commitment to get 10% sustainable aviation fuel by 2030.

We also need to maintain a relevant size, being in the busiest international cargo hub in the world, especially in order to command the tonnage we want to see coming in the future. Moreover, with the opening of the third runway system, the three runway system that we have at the moment, clearly there's more opportunity to grow into new markets. And we want to make sure our cargo airline has got the right scale to be able to do that.

Where do you see Cathay Cargo really pushing boundaries in terms of digital transformation for your customers?

Cathay Cargo has been close to 100% electronic airway bill for a number of years and we sort of lead the industry on that one. Our focus now is on using the IATA’s ONE Record messaging framework to link our freight forwarding community with our interline partners, and to really provide common messaging standards for end to end supply chain of cargo.

We've also built our own integrated data hub over Covid-19, which, for the first time, has brought a plethora of really interesting data to our fingertips. We've created many dashboards within the organization, which different teams use for different purposes, around operations, revenue, efficiency, and other aspects.

We further have our own website and booking engine, and other innovations around things like measuring dimensions and captured dimensions for arriving in the warehouse to allow better build up and revenue optimization.