Asia-Europe cargo alliances appearing around every corner

Carrier alliances are rapidly becoming the way for forwarders in Asia to move their airfreight to overseas destinations. Following All Nippon Airways’ (ANA) alignment with Lufthansa, the Japanese carrier is about to embark on a second joint venture, this one across the Pacific with United Airlines. Germany- based Lufthansa, meanwhile, has set the wheels in motion for another Asian alliance, which is due to kick off next year.

Eighteen months after they first announced their partnership, ANA and United kicked off the first phase this week, with joint sales and aligned operations for cargo flowing from Japan to the U.S. and Canada. Down the road, this will be extended to cargo flows in the opposite direction, as well. Their combined network includes 175 nonstop flights a week to 12 destinations.

Lufthansa, which got the ball rolling through its tie-up with ANA in 2014, will launch a partnership next year with Hong Kong’s Cathay Pacific. Like ANA’s alliances, this will also begin with flights out of Asia and later tackle flows from Europe to Hong Kong in a second stage.

The Cathay-Lufthansa cooperation will cover more than 140 weekly flights between Hong Kong and 13 European destinations. In addition to the joint marketing of their combined capacity on the sectors in question, their partnership will include an alignment of IT systems, network planning and joint handling activities – initially at their respective hubs in Hong Kong and Frankfurt.

Unlike the ANA alliances, however, the Cathay-Lufthansa agreement does not have antitrust immunity at this stage. According to Simon Large, director of cargo at Cathay, steering clear of antitrust issues has been the biggest challenge in the development of this partnership.

The fact that the two airlines were able to proceed at all with this says a lot about their position in the market and the motivation for this alliance. “Between us we only have a small market share. We wouldn’t be in a dominant position,” says Large. “The reality is our business to Europe from Hong Kong has come down quite a bit in the last ten years. Both our market share and our volumes have been reduced significantly.”

According to some observers, these alliances are in part driven by the rise of the Middle Eastern carriers, which have been building up their capacity between Asia and Europe. By running freighters from Asia to their hubs and transferring cargo to passenger widebodies headed to Europe, they can undercut Asian and European carriers operating freighters all the way.

Peter Gerber, CEO of Lufthansa Cargo, has signaled that freighters are included in the joint approach with Cathay. However, Large stresses that this does not herald a reduction of Cathay’s freighter footprint in other European stations.

For the carriers, the alliances promise capacity optimization and cost reduction without reducing their networks. But what about their clientele? The airlines have stated that their alignments give forwarders more choice of routings, potentially shorter transit times and the possibility to access their combined networks through the booking site of either carrier. On the other hand, forwarders will likely have fewer carriers to pick, especially if more alliances spring up in the foreseeable future.

For the most part, forwarders seem unfazed. Large says he has not had any negative feedback from Cathay’s clientele.

Li Wenjun, head and senior vice president of airfreight at DHL Global Forwarding Asia Pacific, said he sees more pros than cons. “If the alliances re-strategize their current routing flow, there should be opportunities for optimization. With enhanced services being offered, there will be also more efficiency, flexibility and speed. Although we may see some adjustment with the rates in the market, this move should be welcoming to most forwarders due to the ability to offer more dynamic services in the industry,” he added.

“For us it is positive. The networks of our strategic partners are growing,” said Thomas Reuter, COO Air and Sea Logistics of Dachser Group. For one thing, the Lufthansa-Cathay axis opens the possibility for his company to use one air waybill to Australia for a transit through Hong Kong.

It remains to be seen how the alliances will affect available capacity, he added. There is a widespread expectation that more alliances will take shape in the near future.

“With the current market sentiment, we believe more airlines will need to review their aircraft utilization, network route justification and optimization of their aircraft capacities to better position themselves in the global market,” Li predicted.

“I think there will be more alliances as carriers look to secure volume in this difficult market,” agreed Andrew Jillings, CEO of Hong Kong-based logistics firm Tigers Inc. However, he added, “I don’t see alliances changing existing forwarder relationships.”

For his part, Large said he has no other alliances on the horizon, explaining that developing one takes a lot of work and time. The dialog with Lufthansa was started years ago by his predecessor, he said.

Some pundits have speculated about the possible ramifications of OneWorld passenger alliance member Cathay teaming up with a carrier from the rival Star Alliance camp, but Large also dismissed this. “Cargo is not part of the OneWorld Alliance, which is just a passenger alliance,” he said. “Cargo has always been separate.”