Joint sales with Lufthansa kicks off as Cathay shifts gears

The Year of the Rooster was barely under way, and most Chinese workers were out celebrating the biggest festival in their calendar, when the fledgling partnership of Cathay Pacific with Lufthansa Cargo shifted into a higher gear with joint sales activity.

Feb. 1 was the day the combined westbound sales activity out of Cathay’s home base started, with a cross-sell of a Lufthansa air waybill placed on a Cathay flight to Frankfurt. According to Mark Sutch, general manager of cargo marketing and sales at Cathay, the shipment came from “a long-time supporter of both LH and CX, who sees clear value in our proposition.”

Following the pattern shown by Lufthansa in its cargo sales venture with All Nippon Airways, the sales alignment is being tackled in two stages, beginning on the Asia-to-Europe leg. Joint sales in the eastbound direction out of Frankfurt will commence in 2018.

In terms of physical movement, combining the pair’s sales should generate little challenge. The German carrier has already moved into Cathay’s cargo terminal in Hong Kong in October, and Cathay reciprocated with the migration of its operations in Frankfurt under Lufthansa’s roof in January.

According to Sutch, in this early stage, the focus of the partnership is on general cargo, but the partners intend to look at their product portfolios later. “SOPs have to be developed before we move to that stage,” he said. Until then, Sutch said he was upbeat about the continued cargo collaboration, and predicted that it will be as successful as the earlier tie-up on the passenger side. “Forward-looking customers have already seen the advantages of the agreement, and are working well with Cathay and Lufthansa on Europe-Hong Kong business,” he continued.

Cathay also said it sees further room for growth between China and the United States and points south. Over the past couple of years, Cathay has built up main-deck service to Mexico as an extension of freighter flights to Los Angeles. Departures from Mexico have carried some interline flows from South America, but the available capacity is largely taken up by Mexican exports. Hence, Cathay is looking to boost interline flows over Miami and Los Angeles. “We work closely with LAN on Latin American shipments and have some good cooperation with Atlas,” Sutch said. “We have no plans for a deep partnership, as with Lufthansa, but will look for opportunities.”

On the hardware side, after adding fourteen 747-8 freighters to its fleet in the last few years, Cathay is not going to add more main-deck capacity to its lineup in the foreseeable future. If anything, Cathay’s freighter fleet may shrink. Sutch said that, going forward, growth will come chiefly from better utilization of its 21 remaining freighters and from the expansion of belly-hold capacity in their widebody passenger fleet – namely forty A350s that are due for delivery over the coming two years. “The A350 is proving to be a very strong cargo aircraft – as we had predicted,” he said.

Nonetheless, Cathay is facing headwinds. Simon Large, the carrier’s director of cargo, said that, while volumes may have increased, yields have suffered.

The challenges are not limited to Cathay’s cargo business. After years of strong growth, its passenger business is feeling the effects of a slowdown in China, and of the rising competition from low-cost airlines in Asia, and also from Middle Eastern carriers on routes west. In January, top brass signaled job cuts later this year, commenting that the current headwinds are not temporary, but a long-term challenge that requires strategic changes.

Under these circumstances, it helps that Cathay’s new IT platform is already in place. The operational side of the new Cargospot suite was completed late last year, and work is now in progress on the replacement of Cathay’s old revenue accounting system. The new air mail solution will follow this year.

The new platform should help Cathay with the development of new services, but the carrier has not waited for Cargospot to refresh SOPs on its products, beginning with its pharma offering. Another move to strengthen its position in this market is a push for CEIV-Pharma certification at Hong Kong, which is currently under way. Clearly the focus is on boosting yields.