Cargolux’s dual-hub strategy pays off

If Cargolux’s 2015 full-year results are a reliable indicator, the carrier’s much-debated dual hub strategy has paid off handsomely. In a year in which the cargo arms of many airlines struggled, Cargolux posted record volume and sharply increased profit, and continued to add freighters to its fleet.

Cargolux is not publicly traded and does not publish the detailed financial and operational data required of listed companies, but the Luxembourg-based all-cargo carrier did release enough information yesterday to show a very strong performance in 2015.

As might be expected in a year that saw fuel surcharges plummet due to falling oil prices, Cargolux’s revenue decreased – down almost 14% to US$1.86 billion. However, as we have long said, a loss of surcharge revenue does not automatically fall through to the bottom line, and Cargolux’s operating profit (EBITDAR) and net profit both increased substantially. Operating profit was up 33.6% to $334 million, and net profit increased thirteen-fold to $49 million.

On the operational side, Cargolux carried 890,000 tonnes in 2015, up 7.4% over 2014, and a new record. The carrier said cargo traffic (in FTKs) was up 8.7%, but did not provide the number. Given that IATA reported worldwide cargo traffic up just 2.2% in 2015, Cargolux’s performance is all the more remarkable. Also worth noting, is that despite increasing its freighter fleet to a total of 25 747-400Fs and 747-8Fs, Cargolux was able to achieve a load factor of 65.9%, down just 1.0% from 2014. If there is any downside to the increases in volume and profit, it is that the one-time boost provided by the US West Coast ocean port slowdown in the first quarter of 2015 will not be repeated.

As regular readers of Cargo Facts will know, the last two years have been anything but easy for Cargolux. The sale of a 35% share to China’s Henan Civil Aviation & Investment Co (HNCA, a financial vehicle of the Henan provincial government) caused serious internal dissention. Several senior executives jumped ship, and many in the air freight industry publicly voiced the opinion that adding Zhengzhou as a second hub – as the stake sale required – would have dire financial consequences. And as if that were not enough, the company’s relationship with the unions representing its labor force has been difficult (to say the least).

At the end of 2015, however, the dual-hub strategy appears to have paid off. Cargolux is now operating thirteen weekly frequencies from the new hub, and has also launched trans-Pacific service between Zhengzhou and Chicago. Regarding the unions, with a new collective work agreement in place, it appears that Cargolux can look forward to three years of labor peace.

Further, Cargolux and its Chinese partners have now committed to launch a joint-venture cargo airline based in Zhengzhou. Cargolux China, as it will be called, is expected to begin service next year, and grow to a fleet of five freighters within its first three years of operation.

All in all, a good year for Cargolux.

 If you are interested in learning more about the air freight industry in Asia, in Zhengzhou and beyond, register now to join us at Cargo Facts Asia 2016, where industry leaders will gather to examine trends in the Asia-Pacific cargo market. The event will be held 19 – 20 April, at the Langham Hotel in Hong Kong. To register, or for more information, go to www.cargofactsasia.com.