Air France KLM Cargo focuses on tight capacity and higher yields

Capacity discipline and yield optimisation are the new post-recession watchwords and the days ofchasing market share are over, according to the head of Air France KLM Cargo, the world’s largest

Michael Wisbrun, chairman of Air France KLM Cargo (AF-KL Cargo), said yesterday that the days of“vanity” air freight, in which airlines focused on winning market share, were over – at least forhis organisation – and the emphasis now was on building and maintaining sustainable pricing andprofitability.

“I would say the crisis brought our feet back on the ground,” Wisbrun told CEP-Researchyesterday at a media briefing in Paris. “There was no sustainability in our model, and so we had tochange.” Freighters, from now on, would only be deployed where they could be profitable, and mustnot upset the balance of supply and demand. “We want to focus on quality revenue, and we have anagenda to achieve that,” he added.

The group, which includes Martinair, has now capped the size of its combined freighter fleet at14 aircraft for the foreseeable future – a reduction of more than 40% – and its primary focus isnow on maximising the revenue of the passenger bellyhold and combi aircraft that make up two-thirdsof its capacity.

The freighter capacity cuts, and the focus on bellyhold and combi capacity, meant the group’sload factors had improved from 63.2% in the second quarter of 2009 to 69.6% in the April-June 2010quarter. That had driven up revenue per available tonne km by a record 54%, to more than €0.18, andenabled the cargo group to achieve a €208 million improvement from a €197m loss in the fiscal firstquarter of last year to a €11m operating profit in the three months to June 2010.

“But the margins are still too thin,” said Wisbrun. The airline, which is an important capacitysupplier for express and parcel companies, has been in talks with customers about increasing pricesduring the fourth-quarter peak season, he confirmed.

Jean-Charles Foucault, senior VP for sales, said: “We have had a very close communication withcustomers about keeping the right balance between load factors and yield, and we have increasedsome prices, although that varies according to the level of demand on particular routes and on therelationship with the customer.”

Foucault said attracting more niche or premium cargo, for example for its express productEquation, was “another way of bringing our yield up”, and claimed the group’s Equation productfigures indicated that it had been making progress in that area. The group said it was alsoincreasing its focus on smaller customers, which, in general, generated higher-yielding cargo.

Addressing market trends, Wisbrun expected bellyhold cargo capacity growth and air freightdemand to increase by similar amounts next year, for the market as a whole and for AF-KLMCargo.

“The production lines for Boeing and Airbus are quite full at the moment, and our assumption isthat there will be a 4%-5% increase in widebody belly capacity – roughly in line with our estimatesfor demand growth next year,” he said. That would vary from market to market, and Wisbrun said hewas working closely with his passenger colleagues on network design to ensure that decisions on thedeployment of passenger aircraft took into account the needs of cargo on routes.

Freighter capacity growth was more difficult to forecast, he said, but he expected furtherdelays in freighter deliveries to also limit this. “Capacity discipline and network optimisationwill be the name of the game for us,” he said. “Our basis will be the bellies from Paris, and thebellies and combis from Schiphol, with the freighters complementing capacity, all the timemaintaining the balance of supply and demand.”