Cargo unscathed from BA’s T5 debacle

Despite the disastrous opening of Terminal Five, its new Heathrow passenger base, British Airways and its cargo division both managed to turn in excellent financial performances for the year to March 2007.

The carrier as a whole saw pre-tax profits rise to 44.5 per cent and achieved the 10 per cent profit margin that has been the key goal of its chief executive Willie Walsh ever since he was appointed. Th at makes BA one of the world’s most profitable airlines.

British Airways World Cargo (BAWC), meanwhile, achieved revenue growth of 3 per cent, or 4.7 per cent once currency effects are stripped out – a stark contrast to a fall of revenue in the first half (the six months to September) of 8.8 per cent, or 5.3 per cent after currency effects.

Steve Gunning, managing director BAWC, says that far from being a dramatic second half recovery, this reflects steady progress that BAWC has made throughout the year. “We started the year with a very poor position, and so the numbers in the first two quarters looked disappointing. But we have in fact been improving since the beginning of the financial year,” he says.

Cargo traffic rises
Cargo traffic, measured in cargo tonne kilometres, also rose respectably during the year, rising 4.2 per cent in the year despite a 3 per cent fall in capacity. Gunning says that in the second half, the traffic rise was as high as 9 per cent.

Asia played a definite part in the growth with Sean Doyle, financial controller of BAWC saying that the carrier had a better Asian peak season than in recent years.

However, better outbound traffic out of America, BAWC’s core market, was also an important factor, as the lower dollar stimulated US exports. In addition, BAWC has been focusing on increasing its share of UK air exports, which now stands at 14 per cent.

Doyle says that the increase in freighter services by Asian carriers to Manchester – with Great Wall being the most recent operator to start flights to the airport – had relatively little impact on this latter effort. “Competition into Manchester has been going for some time, and we also have had a big increase in belly capacity by Middle Eastern carriers into the UK,” he says. “But despite that, we have been able to build our market share.”

The decline of the UK pound against the euro – it has tended to keep pace with the dollar rather than the European currency – has also helped ameliorate a continuing tough market in exports from the UK to Asia. Doyle says there was even some growth in this traffic, though at “significantly lower rates” than previously due to increased capacity competition.

BAWC also taps into Europe to Asia export market both by operating shorthaul feeder freighters into London using A300s and B757s leased from DHL, and by stopping its three B747-400 freighters in Frankfurt and Munich en route to India, Hong Kong and Shanghai. This, says Doyle, has enabled it to tap into exports from such places as Eastern Europe to Asia, which he says remain relatively buoyant.

One other success story for BAWC in the past year has been premium traffic, which helped peg its fall in yields per CTK to just 1.2 per cent, or 0.6 per cent excluding currency effects. Gunning says premium traffic was up 13 per cent in the year and is now 17 per cent of revenue. Express shipments out of Hong Kong and the Middle East and, pharmaceutical traffic from India to the US all played their part in this success.

The T5 saga
As for the disrupted opening of Terminal Five at the end of March, Gunning says this in fact had minimal impact on cargo. Though BA cancelled 500 flights over 10 days and misplaced 23,000 bags, the routes concerned were narrow-body, short-haul European routes with little cargo traffic.

The two Asian long-haul services so far transferred to Terminal Five – Hong Kong and Tokyo – operated without problems, Gunning says. “From a cargo point of view, the transition went well, and in my conversations with customers I have not found that the Terminal Five move has caused them major problems,” he says.

A bigger test for cargo will come in early June, however, when 25 per cent of BAWC’s long-haul flights will be transferred to the new terminal, including flights to Beijing and Bangalore. This is the first part of a move originally slated for 30 April, but delayed due to the T5 opening debacle.

Gunning is unable to say when the remaining long-haul services will be transferred to Terminal Five (or in the case of the Australasia and Singapore flights, to nearby Terminal Three).

Fallout from the Terminal Five opening included the sacking of Gareth Kirkwood, Gunning’s predecessor as managing director of BAWC, who was BA operations director at the time of the T5 move. Mark Bullock, managing director of Heathrow Airport, also resigned on 13 May. In all, the debacle is estimated to have cost BA around US$30 million in lost revenue.