ANA Cargo stays lean and focused
In lean times such as these, the absence of large freighters in a carrier’s fleet is not only healthy from a profitability point of view; it’s quite simply a blessing. For All Nippon Airways (ANA), a very focused approach to cargo both in terms of markets and capacity alongside a recent regional office move to Singapore in order to focus on Southeast Asia and India and even cross-border trucking, all reveals a healthy strategy for tapping the vast potential of Asian markets. Donald Urquhart reports.
October 2, 2013
By PLA Editor
While its profile is certainly much lower than many international cargo players, one suspects that ANA Cargo prefers its ‘under-the-radar’ style as it quietly and persistently solidifies its position in the Asian marketplace. This position took a further positive turn in early August when it shifted its Asian regional headquarters (excluding China which is run out of Shanghai) from Hong Kong to Singapore, which marks the start of a new focus on expansion in Southeast Asia and India, but more on that later.
The cargo carrier has a number of highly unique features that clearly differentiates it from the masses of the industry. It only operates mid-sized, regional freighters – all converted B767s from its passenger fleet; it primarily focuses on the Asian region with a solid network backbone based around Japan-China routes; it operates a unique ‘integrator-like’ hub on Japan’s southern island of Okinawa; and it has an express division courtesy of its acquisition of a majority shareholding position in express ground-delivery specialist OCS (Overseas Courier Service) in 2012.
Certainly these are some of the factors that can be attributed to not just helping the carrier ride out the air cargo market turmoil of the last few years, but continue to prosper and grow its business. Although not immune from the global turmoil, ANA Cargo’s results paint a rosier picture than much of the industry, with financial year 2012 ending March 2013 showing a drop in domestic cargo revenue of 3.1 per cent to ¥32.2 billion and international cargo revenue down only 1.6 per cent to ¥86.5 billion despite an 8.9 per cent rise in freight carried, reflecting the downward pressure on pricing.
The most formative development for ANA Cargo was the decision to establish a freighter hub on the southern island of Okinawa. “ANA places a lot of strategic importance on cargo, particularly after establishing the Okinawa freighter hub in 2009,” said ANA’s director for Asia Cargo, Toshiya Tamada. Utilising the 24-hour hub is the carrier’s fleet of nine B767 freighters which connect Japan’s Haneda, Narita, Kansai and Nagoya airports with Bangkok, Seoul, Taipei, Hong Kong and Shanghai. ANA Cargo’s freighter fleet also serves four other key China cargo destinations (Tianjin, Dalian, Xiamen and Qingdao), but without calling at Okinawa.
The basic idea, Tamada says, is a double daily freighter service in which one freighter goes to the Okinawa cargo hub while another freighter flies directly into Japan proper. In the case of Bangkok, three daily passenger services with belly capacity and two daily (except Sunday) freighters fly between Bangkok and Tokyo Narita on the passenger side and Okinawa/Narita on the freighter side. “It’s quite a lot of capacity,” Tamada acknowledges, but cargo volumes are healthy out of the Thai capital supported by substantial Japanese manufacturing activities in hard drive manufacturing and automotive sectors, as well as perishable cargo.
The choice of Okinawa (OKA), which Tamada notes has virtually no cargo demand, becomes clear if one draws a circle of four hours flight time around Okinawa on a map. “If you draw a circle of four hours around OKA it covers many, very key, cities in Asia. What we are doing is very small version of what DHL is doing in Hong Kong. That is why we acquired OCS as a new business partner and our intention, eventually, we want to be something like an integrator,” he says, quickly adding that the cargo division has no intention to compete with DHL or any of the other integrator giants.
Using the example of Taipei, he notes that the aircraft departs at almost midnight gets into OKA around 1.30-2 AM and in two or three hours cargo is transferred to an Osaka-bound freighter for instance, with delivery by noon the next day. “So it’s the latest acceptance and the earliest delivery – that’s the whole concept of OKA.”
“We can do this because we very much focus on the regional market, but the big players cannot do that. We are using very limited capacity and very limited target area and this is something that differentiates ourselves,” he says.
Of course, implicit in the model is the eventual tie-up with wide-body belly cargo operations to Europe and North America, as well as other destinations in Asia. This cargo is uplifted on the substantial passenger fleet of ANA, currently sitting at nearly 190 aircraft, all-Boeing save a handful of A320s. With all B767s, B747s and B777-200s being phased out, ANA has some 66 new aircraft on order, including 30 B787-9s and 14 B787-8s which will join the 22 B787-8s already in ANA’s fleet as the launch customer for the Dreamliner. These supplement a not insubstantial fleet of 54 B777 family aircraft which one would assume to provide amble belly lift capability.
“It’s not sufficient capacity,” Tamada clarifies, “but we use the B777-300 and the B787 which gives us less than a 777 but still a reasonable capacity at 17-18 tonnes or more. But actually the demand is much more than the capacity so we want to have more capacity, but maybe bringing a freighter into the long haul sector is very risky under the current market situation and buying interline capacity is also not cheap.”
Tamada says there are a number of reasons why the airline is focusing on utilisation of B767F, including primarily the huge cargo demand between Japan and China and also between Japan and the rest of Asia – all of which the B767 is perfectly suited. There is of course substantial demand on the Asia to Europe and particularly the transpacific he notes, “and maybe you want to have a B747F, but the question is can we expect a sufficient volume on the return flight to Japan.
“So our rationale is to try to maximise the profitability – we don’t want to lose money and the long haul freighter service always has a huge risk and imbalance in demand,” he says, conceding that the intra-Asia is not immune to this problem, but its degree of imbalance is less and the B767 is still a “pretty efficient aircraft,” he says. “So we just try to concentrate and maximise business in China and Asia and supplement our business by selling some of the cargo to US and Europe without paying so much money on this.”
ANA is always interested in any new state of the art technology, Tamada says, but reckons ANA Cargo will stay with the B767F strategy, which also has the benefit of being fed conversion feedstock from its passenger side which is currently still operating 49 aircraft of the B767 family. “That is another cost advantage that our airline can enjoy,” he adds.
Enhancing the business model
The establishment of the Okinawa hub was a key development for ANA Cargo and one that very quickly improved profitability and continues to help sustain it, even in these tough times. “We simply want to continue this path by enhancing our Okinawa business model,” Tamada says noting that this is intertwined with two key priorities: Ensuring volumes and diversifying the cargo mix.
“Of course ensuring sufficient volume is our first priority, but to maintain business we need to ensure the profitability and to do this the main thing we can do is to have a broader product mix, not only the consolidation part, but also try to have more express cargo, more specialised cargo.” This could include more medical and pharmaceutical cargo, as well as other perishables, he adds. “So we want to have a broader cargo mix and from this angle I will start listing up the things we want to do from our new Singapore office.”
The impetus to move the Asia office from Hong Kong to Singapore has three key facets, according to Tamada. “First, when you say Asia that is a very big word, for example, South Korea, Taiwan and Hong Kong maybe we can define as East Asia and our airline has already established certain capacity there – double daily freighters and triple daily passenger services. So we think for East Asia we don’t need to allocate more capacity, but if we look into Southeast Asia and South Asia including India, our airline’s presence is not as large as the major global players.
“This is the second reason, to uncover white-spot or undeveloped markets in Southeast Asia including India. For us there is huge potential in front of us and Singapore is very conveniently located when focusing on Southeast Asia and India,” Tamada says.
And the third facet revolves around the fact in Singapore there are many regional functions of major freight forwarders – Japanese forwarders and global forwarders and also some regional logistics functions of major manufacturers, he notes.
“So being located in Singapore I think the distance from our airline – the distance between myself and major customers is much, much closer than if we are in Hong Kong. Our intention here is to create more opportunities to listen to our customers and more opportunities providing our suggestions and recommendations for the business – for all those reasons we are here.”
With the Singapore office only up and running for a couple of weeks at the time of this interview in early August, Tamada said he and his team are still developing specific targets and devising a strategy, “but definitely a much broader product mix is crucial for our business.”
In terms of market focus, India and Vietnam are top of Tamada’s list. “At this moment India is of interest because we only have limited business in India and the whole subcontinent is an area we want to work,” he says, citing the example of Bangladesh with its large volume of garments.
ANA currently serves two cities in India – New Delhi with a daily B767 passenger service from Narita and also a Mumbai which is currently only served by a B737, “so basically we only do cargo business at Delhi.” But he foresees this changing, through a step-by-step approach. “First we will use interline capacity feeding cargo out of India to our gateway such as Bangkok or Singapore and if we feel comfortable that our business is stable, it could be the time for us to start thinking about putting a freighter service in.
“But first I want to ensure there is sufficient volume, at sufficient reasonable profitability, then I will add our own capacity. Most probably our company will upgrade the aircraft on Mumbai service to B767 or B787, so in that occasion we will focus more on the southern parts of India to grow our business.”
Does he foresee an eventual expansion further westward from India’s shores to the Middle East? “Quite frankly at this moment I don’t think we have the capacity to look that far. And the Middle East carriers are very aggressive, they are already in Singapore and many parts of Asia, so I don’t really want to directly compete with them and penetrate into those parts of the market. And we have several parts of Asia that we haven’t done any business, so I just want to ensure we grab that part of the business first and then gradually expand,” Tamada explains.
And so aside from India, Vietnam is the other key focus area. “I think Vietnam is an area where we can really generate more business,” he says. While Ho Chi Minh City is an online station for ANA Cargo, Hanoi is not.
“The southern part there is already a lot of competition there and of course there is competition because the volume is also big – high tech products including smart phones. But in the northern part like Hanoi there are several big Japanese manufacturers already stationed there and also smart phone players like Nokia and Samsung.
“But the northern part to me is not really well furnished in terms of the infrastructure, like airport and cargo facilities. Of course some airlines are already in there and also freighters are already in there, but what I’m seeing is there’s still huge demand, particularly from Japanese manufacturers. They want to have a stable capacity and stable services, that’s why I think the northern part of Vietnam has huge potential.”
Indonesia is another market that has the attention of Tamada and his Singapore team. Although ANA operates daily passenger service between Narita and Jakarta, the B767 is always fully loaded out of Jakarta. With both clear passenger and cargo potential the airline has plans to increase the service to double daily but is still in the process of attaining the additional slots.
“We even plan to introduce freighter service in the very near future – maybe Tokyo to Jakarta. But demand to Jakarta is very much bigger so maybe we might want to connect Okinawa to Jakarta and Jakarta back to Narita – maybe that kind of network,” Tamada says.
Taking to the road
Elsewhere in the region Cambodia, currently an offline station, is coming up as a new service offering from ANA Cargo, but with a twist – the carrier has just started a cross-border trucking service from Phnom Penh to Bangkok. As the service is still in its testing phase, shipment volumes are small, but Tamada is confident they will grow based on Cambodia’s burgeoning garment and electronics manufacturing. And he adds this development – like that of the integrators who are increasingly spreading their road networks throughout the region – is a harbinger of things to come.
“What I see, is doing air cargo logistics business in Asia has some constraints, some limitations. If you look at airlines’ networks in Asia, now that low cost carriers are expanding their presence which means frequency increases, but aircraft size decreases which means you cannot do cargo business with that kind of aircraft, it means you have no choice but to utilise something else like a trucking service.
“What I foresee is even airlines and freight forwarders and every logistics player needs to have a business capability in cross border trucking service in the near future. That’s why we’ve just started cross border trucking and we will at some point have to expand that network and I think everybody will have to get into it,” he says.
One other area of growth that ANA Cargo will be leveraging down the road, in concert with its OCS express affiliate, is the rapidly growing e-commerce trend. “We believe that’s also one of the growth areas which has huge business implications and in fact we have just started working with some e-commerce vendors and have some collaboration with a company called Yamato who are now utilising our Okinawa cargo hub.”
Yamato is a Japanese courier company that although primarily domestic, has ambitions to go international with some international door-to-door delivery service already in its early stages. “They have a strong intention to expand their international service and one of targets is the e-commerce business – carrying live fish and very nice foods originating from Japan, overnight quick delivery service to key cities in Asia – it’s the kind of business we want to tap,” Tamada says.