A new era for Qantas Freight

A stable recovery in the air cargo industry, a new freighter added to its fleet, the addition of Qantas subsidiary Jetstar Asia's belly capacity across its 26 destination network and a continued focus on the booming Asian market has instilled Qantas Freight with some well-earned optimism. Donald Urquhart reports.

For a change, being on the cargo side of an airline business is a good thing. One key lesson from the global financial crisis (GFC) for airline chief executives the world over, was quite simply that cargo counts. Those working in the cargo end of the aviation business of course knew this well, but it appears to have been something of a revelation to many of their pax colleagues. And while Qantas group CEO Alan Joyce sounded the alarm recently over the position of Qantas’ international business, Qantas Freight does not face the same challenges and in fact, appears to be on the cusp of a of a new era, backed by some solid growth potential. Joyce recently made the point that while Qantas’ twin-brand domestic business – Qantas and Jetstar Australia – was very strong and profitable with significant opportunity for the Jetstar brand in Asia, Qantas’ international passenger business was not sustainable in the long term without a change in strategic direction. At its core, these challenges stem from operating from a far-flung continent with a limited domestic market, along with competing capacity flooding in from China, the Middle East and elsewhere. “As an ‘end-of-the-line’ carrier serving a market of 22 million people, in a market flooded with so much capacity that our competitors aren’t even using their full quota, we face severe limits to growth,” said Joyce. For Qantas’ cargo division on the other hand, although subject to the same hub limitations, does have a solid growth model in place, according to Qantas Freight executive manager Stephen Cleary. And judging from the Qantas Group’s half year results released recently, Qantas Freight is on the right track, with an underlying EBIT of A$41 million, up 141 per cent yearon- year. Crucially, yield was up a full 12 per cent (excluding foreign exchange adjustments). But it too has challenges to its Australia-based operations. Australia outbound cargo, even before the Australian dollar rose to its current highs against the US dollar, wasn’t particularly strong for air cargo, as most exports are sea-based, Cleary notes. While there is a significant perishables business, the country competes with a number of other agricultural countries for imports into Asia and with many of these being lower cost countries in Africa or South America, the high Australian dollar has an immediate impact on this trade, he notes. While the passenger side faces significant competition from the Middle Eastern carriers in particular, these are less of a threat for the freight side, Cleary says. While the Middle Eastern carriers bring additional belly space as a result of operating A330 or B777 equipment, “from an Australian export perspective there’s additional capacity in the market, but the load factors out of Australia aren’t particularly high in general anyways. We haven’t seen a significant competitive effect from increased capacity from those carriers, because it’s the European markets they primarily operate into, compared to our business which is Australia up into Asia and across to the US and back down again. So we’re not really playing in the same market,” he adds.