Demand will continue to be strong
The Covid-19 pandemic is rapidly choking off the life of the world economy. As the deadly virus that first surfaced in Wuhan in China continues its rampage across the globe, claiming lives of thousands of people and crippling businesses along its path, aviation has been one of the worst-hit sectors.
Today cargo is the life line of all major airlines world over. The current crisis has made aviation and air cargo players to innovate and be creative at a pace that we have never seen before. In an exclusive interview to The STAT Trade Times Nabil Sultan, Emirates Divisional Senior Vice President, Cargo, speaks to Reji John about how Emirates SkyCargo, the cargo division of one of world’s largest airline, has quickly reorganised itself to deal with the current crisis and offered significant cargo capacity at a time when belly capacity was almost wiped out because of the grounding of its passenger fleet.
This interview was recorded before Emirates Group announced the financial result for the year 2019-20. Emirates SkyCargo reported a revenue of $3.1 billion, a decrease of 14 percent over the previous financial year. The tonnage carried for the year decreased by 10 percent to reach 2.4 million tonnes due to the capacity reduction with the retirement of one Boeing 777 freighter and reduced available belly hold capacity in the first and last quarters of the year. Emirates SkyCargo contributed 13 percent of the airline’s total transport revenue. Edited excerpts.
What are your thoughts on air cargo and its critical role in dealing with the Covid-19 pandemic?
The Covid-19 epidemic really changed the way we do business across the globe. I think the airline sector and tourism have been badly impacted. Most of the airlines virtually suspended all their operations. For us, as cargo, we have to literally come up with a plan to be able to maintain the supply lines for food and medicine throughout the globe. We have a huge responsibility to ensure that our customers have adequate capacity to be able to move their goods and products in and out of their country.
We embarked very quickly on a plan. Almost within two weeks we had to create a network of cargo and that is precisely what did. We established a network of 60 destinations across the world using almost 60 passenger aircraft of B777 300ER type to be able to maintain this 60-destination network. This is, of course, in addition to our 12 freighters that we currently use. That has given us the capability to ensure that we are able to sustain our network from a cargo point of view and maintain the supply and logistics throughout the globe.
It has been an enormous task for us to be able to put that network literally within two weeks and deploy the capacity after taking all necessary permissions from various governments. So far it has proven to be quite solid. I think we have managed to achieve our objective at least in terms of maintaining the consistency and security of essential commodities into most countries.
As this crisis began to unfold in early March and it was certain that we are in for a potentially dangerous new normal. How quickly you began to plan your operations with multiple options to deal with new challenges coming up on a daily basis?
If I recall correctly, on 1 March we embarked on the preparation for this whole network that we have now launched. Obviously the airline had suspended its operations with a very few destinations just to repatriate people back and send other nationals to their countries. By 14 March we launched the cargo network using the B777-300ERs and from that we expanded on that network very rapidly.
I must say that the government has an understanding of what cargo needs and they were quick to provide us the permissions required to deploy the capacity. It is almost like working on the plan as the implementation is already taking place. This is extra ordinary and it requires extra ordinary measures to get things going. It’s been very successful.
Today the 60 destinations are to Middle East, Indian subcontinent, Europe, Africa and even to the US. It has been incredible. Movement of PPEs across the world have been literally stories of lifesaving for lot of nations. There are a lot of countries with serious shortage of PPEs and the question of getting some of these essential commodities into these countries means life saving for them. So it was a huge responsibility on us to launch these charters immediately and get the medicines into the final destinations in days and sometimes within hours. Every hour that passes people are losing lives. It was that serious.
Give us a sense of your cargo operations currently.
Just to give you a sense of the capacity that we had in pre-Covid-19; we were operating to 150 destinations with more than 270 aircraft — all wide body, across the globe, operating multiple frequencies into some of the main and secondary cities. So the reach that Emirates had is probably second to none across six continents. That gave us huge reach and consistent supply of capacity across the globe whether be it a big or a small city.
With the whole network disappearing on account of Covid-19, obviously it was a huge task for us to very quickly identify the essential production markets and deploy substantial capacity on some of those market like Hong King, China, Vietnam, India, Bangladesh. These are places where lot of the production happens for food, pharmaceutical and PPEs. It was essential to ramp up the capacity to some of these production markets very quickly.
So, for instance, in a market like Hong Kong, today we operate almost 42 flights per week. These are all freighters — wide-body, 100-tonne flights. Pre Covid-19 we operated about 20. So you can see we have more than doubled capacity into Hong Kong. We have more than doubled capacity into PVG (Shanghai) and Guangzhou. So we had to take quick measures to ramp up capacity to these production markets.
Dubai being our hub we had to launch a massive amount of destinations to the Middle East region, Europe and Africa to ensure that what came in from these key production markets very quickly connected and then deployed to the rest of the world. The whole scale had to be done very quickly. I must say it’s been very successful with the fact that we are able to sustain at least the supply chain into a lot of these countries.
How flexible and agile are you in the current situation to turn on or turn off capacity?
One of the biggest advantages that we have at Emirates is that we have a very flat organisation. It’s been there from the beginning. So for us to be able to respond to the market needs really does not require the hierarchy of approvals that most of the other organisations have to go through. Lot of the decisions are pushed down to the individuals and specialised people to take and go along with those decisions. That kind of structure really helps us especially when you face a pandemic of this scale that requires almost immediate action and that has helped us tremendously. Being able to look at the plan, decide on it and implement it the next day. So that is the kind of flexibility and agility that the organisation has to manoeuvre its way in difficult and challenging times.
In the current scheme of things, is it economically viable for to operate the cargo-only passenger flights — particularly when oil prices are at the rock bottom?
Clearly oil prices are helping to improve the economics using the passenger aircraft as cargo. Of course, it is economical. When you are able to load almost 50 tonnes per cargo-only passenger flights that is just about the right capacity required in some of the smaller markets. If you take India for instance, today we operate to eight destinations there. Take destinations in the south of India, these are destinations where, if you deploy a smaller capacity like 50 tonnes, you are really able to fulfil the market requirements. We are able to work very closely with the market there for perishable and pharma exporters and we know that this is the sort of the production volume that they can deal with on a more regular basis. It works out very nicely. Therefore we are able to deploy a daily 50-tonne capacity just to help farmers to take care of their produce on a daily basis.
This is what makes this very unique and interesting. From an economical point of view, the aircraft (B777-300ER) is extremely economical. It gives you just about the right capacity; it is a two-engine aircraft that gives you substantial fuel consumption saving. Most of our aircraft are brand new and they are in the average age of 6 to 7 years.
How have you restructured your cargo operations for some of your key customers?
That was the first thing that we had to look at. It was absolutely important for us to ensure that we don’t let down on our customers during this difficult times. If you are a farmer and producing vegetables and fruits, I am afraid, that vegetables and fruits are not going to wait until you are able to sort capacity out and have a plan. Capacity needs to be continuous on a daily basis with a high amount of accuracy in terms of arriving and departing times. So all of that is part and parcel of what we have to think about and be able to connect with our customer very quickly.
Today, with the 300ERs we are really able to plug into these smaller markets with just about the right capacity on a daily basis that again helps the farmer to ensure that their daily production is taken care of. If you miss for two or three days, you have huge amount of food that goes waste. For us it was absolutely critical to ensure that we are there with the right capacity to some of these key markets like Brazil in South America, India, South Africa, Kenya and Australia. We were there with the right sort of capacity to be able to make sure that food supply to UAE or beyond is maintained and sustained throughout this crisis.
It is interesting that there is a huge dependency on Emirates in deploying food and medicine to a lot of countries around us. If that does not happen, you could literally have crisis of food and medicine in these countries. So sustaining our capacity provides huge food security and medicine for lot of our countries. And that is a huge responsibility on our shoulders and we have to make sure that, regardless of the cost and economics of how these flights will operate, food and medicine get there on time. That, to be honest, was our top priority at that time.
Among your different product verticals where do you notice significant drop in business?
During the Covid-19, the entire vertical equation has just gone to toss quite frankly. The massive change and the mix that we have had on our flights are completely different. Talk about the PPE that we are moving from China, Honk Kong and from some of the Asian countries. A lot of different manufacturers and countries began to produce that equipment. Because it is essential, it is needed and it is life saving. Of course, a lot of that is absolute volumetric cargo. The weight is hardly an equation there. It is all light weight cargo, but of course takes a lot of space in the aircraft. The whole economics have changed therefore.
I think, it is interesting to see how the verticals have vanished completely. Now you are talking about moving essential goods versus the normal traditional movements. So Kenya is the biggest producer of flower; but we don’t see flower because flower is not in demand anymore. People want different types of commodities. Therefore, we see more fruits vegetables and other things that are essential for public consumption. So we have seen a huge shift in most of the verticals, to be honest.
Emirates Delivers was launched in October 2019 and it had registered double digit growth in shipments month-on-month, has the Covid-19 pandemic affected the shipment volume in either direction?
Emirates Delivers has absolutely been amazing. At the moment we have only activated movements from USA to Dubai, UAE. Just last week we hit another record of daily deliveries – almost 600 deliveries a day. It just shows the demand for ecommerce has also increased, obviously because people are at home with lockdown across the world. That just gives you an indication of the strong demand for ecommerce at times like this. During Covid-19, the product was ramped up even more. The essential part of all these is to ensure that the safety and security of our people who are dealing with this is our top priority. So we have made sure that the safety and security of our staff working in these difficult times is absolutely air tight.
What according to you is the biggest challenge for air cargo industry now and in the months ahead?
It is so difficult to predict the future and how things are going to be looking like. I think for the short term, the demand for PPE, pharma and food supply is going to be quite high. While most of the passenger airlines continue to be on a suspension mode, there is definitely a massive capacity off the market. The cargo will take a front row in terms of managing the supply chain and logistics throughout the world. Therefore, that will probably continue until such time they find a vaccine for this virus. It all depends how long that will take. But I suspect that between now and probably until August or September the situation is going to be critical. What happens after that is anyone’s guess.
Clearly the economy across the globe is going through turmoil with all of this going on. There is going to be a huge impact on the economy beyond September which could really drive a lot of countries into recession. What does that do to consumer confidence and the purchasing power for people? This could then definitely have an impact on production and therefore even have an impact on air freight and transportation in general. One thing is for sure, the impact is going to be there for quite a bit of time.
What kind of changes will you see in the air cargo industry? Do you expect to see the return of combi aircraft?
Well, I tell you, nowadays everything is possible. I have seen the impossible; already happened, to be honest. I wouldn’t be surprised to see a lot of different innovative ideas and initiatives to ensure that the supply chain of the world continues while the passenger demand gradually picks up. For at least a quarter or two you are going to see a very soft pick up of passenger demand simply because you know even after everything is taken care of, there is a psychological impact, and that is going to be there for some time. It is the biggest deterrent for lot of people to travel. While the passenger demand picks up you will see different solutions combining both cargo and passenger for lot of airlines to maximise their return and revenue.
This interview was originally published in May 2020 issue of The STAT Trade Times.