Cologne Bonn: Where anything is possible
At first glance Cologne-Bonn Airport may seem an unlikely airport for general cargo. After all, it is Europe's third largest airport for low cost carriers, a major hub for express integrators and quite frankly has never appeared to have had much interest in promoting the general cargo business. But this has all changed in the last three years with an innovative new business strategy to build a third business pillar premised on attracting maindeck carriers to the airport.
June 1, 2011
By Donald Urquhart
“Cologne is not a small airport, but people tend to think of it as a small airport and therefore an airport that doesn’t get a lot of attention. That’s not entirely true – Cologne is a very big European low cost carrier airport in Europe,” notes Cologne Bonn Airport’s director cargo & sales, Franz J Heuckeroth van Hessen. The problem with this from a cargo perspective is two-fold however. First the flights are almost entirely European with no intercontinental flights and secondly, being predominantly narrow body aircraft there’s precious little cargo capacity in the bellies. “With multiple turn-arounds per day and smaller aircraft, it’s a kind of specialised business,” van Hessen notes. Another crucial platform for Cologne Bonn is its integrator business. “We are the biggest airport for express operators – we’ve got UPS and FedEx Express with major sorting facilities, so it’s not some sub-hub operation it’s a major full-size sorting hub and gateway for the two integrators.” Overall the airport handled a total cargo volume in 2010 of 656,111 tonnes. In the first four months of this year it has seen cargo tonnage rise by 22 per cent to 233,640, over the same period last year. Strategic shifts Van Hessen says the airport’s focus changed three years ago as the growth of low cost airlines began flattening out. Already in talks with FedEx at the time, the decision by DHL Express to leave Cologne for Leipzig-Halle, while a “big blow,” was not the serious body blow it would have been without the prospect of FedEx shifting to Cologne Bonn. But this impact, like that of German reunification in 1990 which saw the seat of government move from Bonn back to Berlin, were serious developments that sparked the impetus to reinvent its business. “We built those business units – LCC and integrators – and every euro we invested we invested in those businesses and we’ve been very successful,” he says citing the fact that in a 10 year period Cologne Bonn managed to grow around 100 per cent in both fields. It’s a truism, van Hessen notes, that every airport is forced, by the very nature of its business, to ever-expand. “You can’t optimise because you are constantly making investments in airport infrastructure. You can’t get away from a volume-driven strategy, so this was one of the reasons Cologne Bonn said, ‘ok, we need a new business strategy – which business area is interesting?’,” he says. With the general cargo market already expressing interest in the airport even without any serious promotional activities, the decision to develop this as a third pillar was a logical one. With most of the effort previously focused on the twin pillars of the LCC and integrator businesses, there was little time, money nor enthusiasm for promoting general cargo and so naturally it lagged behind. But now the airport, since 2008 when van Hessen was brought on board to build a team in order to fulfil the airport’s new cargo ambitions, is moving with serious intent into the general cargo field. It is a clear departure from the airport’s other two niche business pillars, for the very simple reason that it is anything, but niche. But it is, however, a logical step considering Cologne Bonn’s location in the centre of Europe’s economic activity and straddling the country’s powerful manufacturing belt. Most of the cargo-generating companies are located within 250 km around Cologne Bonn and if you look at the strength of the European market and the strength of the German market, most of that business is centred around Cologne. On the import side, the situation is similar he says, noting that the airport is very near the border with Holland and Belgium which are the major import markets together with Germany. “We’ve always promoted these aspects, but obviously you need more. So once we decided to develop this third pillar in our business model, the big question was ‘how are we going to do it?’.” Cologne Bonn’s USP A unique aspect of the Cologne Bonn airport is the fact that, contrary to most big airports in Europe, it still does its own ground handling. This is the case for a number of reasons, but largely this is due to the ownership structure of the airport, whose three largest owners include the German federal government, the State of North Rhine Westphalia and the city of Cologne. “So you can imagine that with those shareholders, employability is a big factor,” van Hessen notes. This is where the airport’s unique selling point comes into play. “We’ve always been doing our own handling, we’re doing our own ground handling, our own passenger handling, our own cargo handling. And this makes us the only airport which can actually produce a product rather than merely being the infrastructure provider,” says van Hessen adding, “I want to be the airport where anything is possible.” “We actually make a product,” he emphasises. In essence what van Hessen and his team did, was to take the airport’s handling services and reshape it into what he says is a “very strong professional logistics service provider,” which has as its target market, airlines and forwarding agents. “Those are the two customers we’re looking for and, oh by the way, we also happen to own the airport infrastructure! And that gives me huge advantages.” For his customers this translates to a flexible, tailored service that involves one partner and not the multitude it would for a carrier at another airport for instance. “The bottom line is that I can go to any customer in the world and say: ‘If you come to Cologne Bonn you just come to me and I will organise it all for you’.” Van Hessen argues that to organise the same services over a lot of subcontractors “it’s not the same service and it doesn’t have the same pricing structure.” “If I do it I really do it. I do the trucking, I do the sales, I do the handling, I do the value added logistics, I do the whole thing.” This is made possible because van Hessen and his team have the infrastructure to support the services – “we built it and that makes us pretty successful.” But while airport-run handling services are typically seen in the negative light of ‘monopoly’ service providers, he argues that is absolutely not the case at Cologne Bonn. For one thing it’s not a major hub like Amsterdam, London or Frankfurt where a sole service provider would most certainly be taken as anticompetitive. “If the price fits the expectations of quality, you have a product to sell. If it doesn’t they won’t buy your product. That’s why we targeted airlines and forwarding agents – these are our customers – these customers I render a service to so I don’t want to be in competition with them. I stop my services at the level they say, ‘I don’t want you to move in,’ so I don’t do customs clearance, I could, but I don’t. I do sales support for airlines but I don’t go to the final forwarding agent.” “I can do a lot more but it’s where you lay your boundaries – the final decision is who you want to be your customers – I want the airlines because I’m an airport. If you look at all the other airports they say, ‘my customers are the airlines and forwarding agents’. And maybe the bigger ones say ‘the handling agents are also my customers’.” In these airports, he notes that the airline takes a part service of the airport because it uses only part of the infrastructure and pays landing fees. The forwarding agent for most airports is a tenant that leases sheds that the airport builds and for handling agents it’s the same thing – “and that’s not a product the airport is selling”. “If you come to Cologne Bonn as an airline, you use my infrastructure, I do your handling for you, I organise your trucking for you, I can even set up your GSAs,” he says noting this is a kind of partnership that he is working on developing. “If you’re a forwarder I can do your whole shed, value adding, labelling, logistics, cross docking – the whole thing. “If the flight is out of Cologne Bonn then obviously it has great advantages for both the airline and the forwarding agent because it all fits together. And nobody else is doing this and it provides a huge advantage,” he enthuses, adding that the big advantage for an airline is that they have one centre point of contact. “The reason why we can do it is we already had the people doing the service, we just reshaped the service, but it’s my people in my company doing it – I’m not buying it in from a third party. We reshaped it, made it sharper, better and more tailored to the needs of the customers.” The proof of the pudding The new strategy is obviously paying off, based on the fact Turkish cargo carrier MNG has substantially expanded its services through the airport, as has Turkish Airlines Cargo and last year EgyptAir Cargo moved from Frankfurt- Hahn to Cologne Bonn. Other cargo carriers include, aside from the integrators UPS and FedEx, Turkish Airlines Cargo, EgyptAir Cargo, Blue Bird Airways, Top Air, BA World Cargo, Coyne Airways, MNG Airlines and Farnair, as well as regular charter flights with ACT Airlines and ULS Airlines. Van Hessen and his team are increasingly targeting the cargo charter business which has attracted more and more operators including “all the usual suspects”, he says. “It’s an ideal charter base – just drop your aircraft and let Cologne Bonn take care of everything.” “In the past most charter operators bypassed Cologne Bonn because we weren’t giving any signals we were interested and maybe we weren’t that interested at that time. But now we are and have organised a product for it and they are responding to it.” The airport is also expanding offline and starting in June the airport will be the offline centre in Northern Westphalia for the Air France KLM group. Indeed the success in targeting the maindeck market has meant that the Ã¢â€šÂ¬25 million, 12,000 sq metre Cologne Bonn Cargo Centre that was opened in March 2009 is nearing capacity. With an annual capacity of 120,000 tonnes a year, van Hessen estimates there is still 30,000 tonnes of spare capacity which he anticipates will fill up with contracts during this year. “We are already planning expansion,” he says which will include additional warehouses etc. and a short term solution likely involving temporary sheds. “I estimate that the market within our primary catchment area is anywhere between 2.5 to 3 million tonnes of cargo a year and we are targeting at least 10 per cent market share,” he says. The problem as he highlights, is that when you start from almost zero, it’s a very difficult proposition predicting growth, “because it almost always comes in waves. We knew the wave was coming, we just didn’t know how big it was going to be and how soon the next wave would come after it.” But while his strategy is clearly novel, Cologne Bonn is not without its competition for maindeck carriers by other European airports with capacity to spare and a hunger for cargo. Nearby Frankfurt-Hahn and Belgium’s Liege airports are two in particular that he identifies, “because they are after the same customers, but with a different product.” External factors Van Hessen doesn’t see the almost complete absence of belly cargo at Cologne Bonn as a negative factor. “Our cargo is all freighter flown, but I don’t see that as a problem. If you look at the statistics and the market development there is a year-over-year-over-year expansion of the freighter-flown cargo market.” This of course declined substantially during the economic crisis and the widespread use of aircraft like the B777 with its ability to carry up to 20 tonnes of cargo in the belly also have an impact. But he insists that the current figure of 40-45 per cent of global cargo volumes currently moving on maindeck capacity will sometime within the near future hit the 50 per cent mark, “because there’s simply no other way to transport it.” “The long term passenger development stands at about two per cent and the long term cargo development stands at around 5-6 per cent. Somewhere along the line there is going to be more cargo on freighters,” he says. “The reality is almost half of the worlds cargo is flown on freighters and that makes it very interesting for airports like Cologne Bonn.” The next milestone for Cologne Bonn will be to attract an Asian carrier which means big cargo flows. And he adds, “the interesting part is that the whole big thing for Asian carriers has always been that it’s one thing to fill an aircraft from Asia to Europe, but filling it going back is another thing.” This has clearly changed with Asian currencies gaining strength as the euro continues to flag which has meant fuller freighters on the east-bound leg. “And if you want to fill it, where do you go – Germany. The next question is where in Germany do you go?” But for the moment at least, van Hessen has no Asian carriers. “We’re talking to a few and I’m very confident,” he says. But as he notes, the decision by a carrier to move to a new airport is a careful process. “Airlines by their very nature are risk-avoiding businesses – you have to provide a stable basis for them.” To aid in this process van Hessen says the airport is talking to various airlines and actually building business cases for them, “not just broad calculations of what it might look like, but who stands behind it, etc – very specific business cases which is one of the things I do different.” One example of this approach involves building a business case around perishables. While Cologne Bonn has the basic requirements for cool chain activities, it does not have a dedicated perishables centre. Van Hessen says he is in discussions with several major perishables importing companies about developing this sector in Cologne, but it’s not something he is eager for the airport to just go out and build on its own. “I don’t want to be making investments for which I won’t get any return. So we’re talking to people, consortiums, who are seriously interested in making that kind of investment. We would actively participate, but what I would need is a return on my investment,” he says of a sector that he describes as high demand with very low margins – “you don’t get fat eating vegetables,” he laughs. It is at this point that the limits to which van Hessen wishes to take his “anything is possible” strategy. One problem with Cologne Bonn’s early success in attracting maindeck cargo has been that expansion has raised the issue of just how big a handling unit it wants. “I don’t foresee a 500,000 tonnes-ayear handling unit, so the door is open for a third party handling unit. I’m very happy to share part of the business,” he says. “What I want is to develop the hub and the gateway but that doesn’t mean I have to do everything myself. I’m using that as a product to make it interesting. “I want to reduce the threshold for getting into the market – I would never want to be a threshold, that would not be smart. I’m very open to competition in that respect – we’re not closing the market. That’s why the strategic steps are limited steps, I would never want to be the market threshold, I want to create a USP and we have created a USP and the proof is in the figures, but I don’t want the USP to become a disadvantage.”