Cargolux, based in Luxembourg, is Europe’s leading all-cargo airline with modern and efficient fleet composed of a total of 30 Boeing 747 freighters. The company celebrated its 50th anniversary last year. It currently has a strong presence in the Asia-Pacific region. The airline connects its European hubs in Luxembourg and Milan with many destinations in Asia, among others, Zhengzhou in central China, Hong Kong, Singapore, Vietnam, Malaysia and Thailand.
We took the opportunity to talk to Maxim Straus, Executive Vice President & Chief Financial Officer at Cargolux about the company’s business operations in Thailand, opportunities and challenges brought about by Covid-19, and the integration of climate change and circular economy as a part of its corporate strategy.
Thailand: an important market with steady growth prospects
According to Straus, Thailand’s market is becoming more and more important for Cargolux and the company has enjoyed steady growth, thanks to a balanced flow of inbound and outbound cargo (hence no capacity loss on either trip). Cargolux has been doing business in Bangkok for 43 years. It started its operations in 1978 and has been locally represented by Ms. Chalinee Nankhonon who is a Thai national from the very beginning.
There are now up to 11 cargo flights per week connecting Luxembourg with Thailand. The enabling policies to support the airline industry, coupled with quality infrastructure, and well-trained and helpful personnel, make Thailand an attractive commercial destination. “Cargolux is pleased that the government has been looking at the long-term needs of the airline industry that helps the company increase its flight frequency and enhance our presence in the region.” As an industry leader, Cargolux strives to offer flexible and reliable service, tailored to market demand. The company mainly transports perishables, auto & spare parts, electronics, textiles, pharmaceuticals, high value/fragile items, live animals such as horses as well as oversized cargo like heavy industrial equipment and machinery.
Cargolux praised the proactive role of the Thai Government in supporting the business sector during the Covid-19 pandemic by putting in place a number of measures designed to help airport operators and airlines. These include, for example, accommodating last minute slot changes as well as reducing the aircraft parking fees and providing accommodations for pilots while applying necessary sanitary measures. “It is important that the Thai authorities show the willingness to understand and keep the channels of communication open with the industry, particularly in these times of economic uncertainty as most countries tightened travel restrictions over their borders in response to the pandemic. This enables the company to gain visibility which could have been overlooked and help us navigate through change.”
The company also welcomed Thailand’s ratification of the Regional Comprehensive Economic Partnership Agreement (RCEP). “Tariff is often the main challenge that we face in Asia today which can be an impediment to the free flow of goods across national borders.” Hence, the economic connectivity spurred by ties between Thailand and RCEP partner countries within Asia-Pacific, is benefiting the company and the economies. As the air cargo industry is operating under speed and time constraints, the RCEP Agreement, when ratified, will not only bring the operating cost down by eliminating import tariffs in these markets, but also expedite intra-logistics and cross-border trade movement by simplifying Customs clearance documents and procedures across the board.
Air cargo: a transportation lifeline to health and trade during Covid-19 crisis
2020 was a record year for Cargolux. A significant drop in passenger flights, which hold cargo under the passenger deck, as well as supply chain disruptions and long shipping delays due to the extraordinary impact of Covid-19 have increased the demand for air cargo transportation, which is seen to be quicker, to recover time lost during the production process.
“The company experienced unprecedented demand for the urgent shipment of PPE (Personal Protective Equipment), and other essential medical supplies as well as other products which came to rely on air transport to keep the global supply chains flowing”. In addition, other factors like the recent disruption as a result of a cargo ship blocking the Suez canal and, in 2010, a volcanic eruption near Iceland’s capital which had affected air traffic across the area also created a unique window of opportunity for air cargo service.
The future of global supply chains and air cargo industry
Although the operating conditions remain supportive for air cargo, there are many uncertainties ahead. Cargolux expects air cargo demand to sustain since long haul passenger aircraft were and are still grounded. “For the moment, there is still great uncertainty as the pandemic continues to evolve and the world’s vaccination pace may not be fast enough to reach the target.” Recent data from the International Air Transport Association (IATA) shows that global air travel will not recover from the Covid-19 crisis before 2025, especially with regard to tourism demand.
According to Straus, Covid-19 prompted Cargolux to adapt quickly to change and try to see the opportunities that lie ahead. The Company has expanded to offer chartered flights and time-sensitive freight services to cope with a surge in cargo demand and increased competition from the passenger aircraft which have to adjust to the situation by occasionally carrying cargo in passenger compartments. To provide long-term business resilience, the company is also exploring business diversification in related industries such as sustainable fuel.
On the prospect of global supply chains in general, Straus commented that as the Covid-19 pandemic has exposed some critical vulnerabilities in the production and supply chains, companies may want to diversify their supply chains to mitigate these risks by working with several suppliers, for example, one in Asia and another one closer to home. Nevertheless, he believes that closed economies may not be the most efficient solution, and in some cases, history has shown that it could even harm development. Also, in the long run, technologies such as 3D printing can significantly change the way products are designed and manufactured which has the potential to revolutionize the aviation industry and its supply chain dynamics.
Build a more sustainable and resilient industry in the longer term
Cargolux is committed to CSR and is a frontrunner in the industry in terms of sustainable operation. With a fleet of 30 747 freighters, 14 of which are 747-8, the airline operates an efficient fleet in terms of CO2 emissions. In 2007, the company signed the UN Global Compact for mitigating the effects of its operation on the environment. In line with these engagements, the company has adopted several CSR initiatives such as noise control measures and fuel saving schemes.
While the company supports the moves to green the aviation industry and aims at reducing its net emissions by 55% by 2030 set by the European Green Deal, Straus cautioned that the efforts to decarbonise the sector requires cost-effective energy transition and huge efforts in research and innovation to create climate neutral aircraft and fuels such as hydrogen at competitive prices. This will take some time and will probably not be ready before 2035. “This is likely to create extra cost and the big question is who will pay for it as at some point the industry would be forced to pass these extra costs onto the customers otherwise they risk losing profits and potentially harming the business.”