DHL is continuing to expand its air express capacity to and from Asia, in spite of the globaleconomic uncertainty, unlike other global express operators, which have been trimming back their
capacity from Asia in response to weakening demand.Ken Allen, CEO of DHL Express, said that by being “aggressive and entrepreneurial”, andintroducing capacity on certain promising lanes, supported with strong marketing and salescampaigns, it was possible to generate profitable business to fill these aircraft, even if therehad been a slowdown in the overall growth rate on these markets.
But some of DHL’s international counterparts have been less bullish in recent weeks and months.TNT Express recently leased out a Boeing 777 freighter − an aircraft that had only been deliveredto TNT during the summer − to another airline, due to “a rapid decline in demand” from Asia, andunexpectedly high volatility in demand levels.
CFO Bernard Bot said that one year ago everyone was looking for capacity. “At that time theassessment was that we would need more capacity than five planes, but there has been a very fastchange since then,” he said. “The cyclicality in demand from Asia has been unexpectedly high.”
A spokesman told CEP-Research that TNT Express had been flying three B747s between Asia andEurope, and had just taken delivery of a second B777 freighter in October, meaning that it will beflying four freighters − three B747s and one B777 − between Asia and Europe during the fourthquarter.
“We are looking to reduce this number to two or three in 2012, as part of an effort to ‘flexibilise’ costs,” he added. “Demand on Asia-Europe routes is volatile and cyclical – this makesit difficult for the industry to plan capacity perfectly.”
UPS also recently reported lower Asia-US volumes in its third quarter, which led it to reduceits airlift capacity out of the region by 10%, although it said its Asia-Europe volumes hadremained positive, and it had seen international growth on shorter, intra-regional trade routes,primarily within Europe and within Asia, during the quarter. In the fourth quarter, UPS expects arecovery in Asia volumes, driven in particular by new product launches, which, combined with lowercapacity, it expected would also improve freighter utilisation factors.
FedEx reported a similar picture, and said an overall lack of consumer confidence had negativelyimpacted exports out of China and Asia in general. It expected some improvement in year-on-yeargrowth comparisons in the final quarter of 2011, but said it did not need much improvement to hitits profit targets, because it had adjusted its capacity to fit the current levels of demand.
But DHL recently committed to three additional B777 freighters, the first arriving in Augustand being placed on a round-the-world routing via Hong Kong, Bahrain, Leipzig and Cincinnati.Although leased from Southern Air, rather than directly owned by DHL itself, and replacing capacityoperated by commercial carriers, the move reflects a confidence in its ability to fill its owndedicated capacity.
A spokeswoman told CEP-Research: “The introduction of additional freighters was to meet demandin markets previously served by commercial carriers so as to ensure consistency of capacity andrates.” She said DHL continued to experience growth between Europe and Asia in both directions.
The move comes not long after DHL committed to investing €100 million in buying three additionalB747 freighters for its Asia Air Network, in response to rapidly growing demand for air expresscapacity between China, Japan, and Singapore. The three B747-400 Boeing converted freighters areoperated by Air Hong Kong, DHL’s joint venture with Cathay Pacific.
DHL said its strategy was to continue to add capacity where the opportunity comes online. CEOKen Allen said DHL had invested a lot this year in additional aviation capacity, such as thefreighter that links Bangalore to Europe, and the round-the-world freighter from Hong Kong throughto Cincinnati, because that gives people in Asia next-day delivery into the US.
“I think we are bit more entrepreneurial and aggressive in putting that capacity on,” he said. “Sometimes if you look at it from a purely financial perspective, it’s hard to make the figuresbalance, but what we have found is that if you put the capacity on and you market it well, then youcan pretty quickly put flights to a positive contribution from the profit and loss point of view,”he told Indian business news service Mint.
Allen believes one of the opportunities in Asia at the moment, particularly in China and India,is the growing number of small entrepreneurs who are now looking to go international. “Obviously wedeal with all the big companies, but there is a whole mass of companies now that have built a gooddomestic position, and are looking for export markets to grow their business, and that for us isgenerating more and more export business,” he said.
He acknowledged that there was uncertainty in some global markets, but while nobody knows whatthe future holds, businesses can help create opportunities for themselves by creating newopportunities for others. “We are looking at opportunities and we are looking at making sure thatwe don’t do anything that detracts from the service, so we are not taking out any capacity out ofthe network,” he said.
Allen said DHL had put on two extra B777s this year, and three extra B747s, and has not cut backon any of its capital expenditure plans to date. He hoped to add an even higher level of capacityin 2012 and to continue investing in capacity, at the rate of market growth.
“What you don’t want to do is wake up tomorrow morning and find your competition where you arenot going and where they are opening a hub where you are not,” he said. “We are the leaders [ininternational express] and we have to take the leadership position, and we have to make sure we areahead of the curve, just like in the US where FedEx and UPS are investing ahead of the curve allthe time.”
Allen said he does not expect as strong a fourth-quarter peak season as in 2010, but this ispartly because there was a big bounce back at the end of last year, making it a tough comparisonfigure. “But there is still a peak happening,” he said.
He said despite all the talk of doom and gloom in the US and the last global gross domesticproduct rowth figures of just 2.5%, he says a lot of customers he speaks with are cautiouslyoptimistic about next year.
“I think what we have to make certain is that we don’t talk ourselves into a recession,” heconcludes.
