Although these are clearly troubling times for the air cargo industry, if there is a positive element to it, the crisis has forced every carrier to closely examine its operations and strategic direction. For some, like Thai Cargo, the downturn has provided a useful opportunity to refocus and revitalise the division’s strategic direction.
Thai’s new managing director Cargo & Mail Commercial Department, Pruet Boobphakam, is clearly determined to not simply restore the cargo division to its former glory, but to take it much further as a key player in the air cargo market by carrying a much greater proportion of Thai exports and contributing a more signifiant portion of the group’s overall revenue.
The cargo division is pinning its hopes on a new business plan, which comes into effect next year, to help boost the company’s cargo revenue to Bt24 billion per annum from the current Bt20 billion (US$675.5 million).
Rebuilding cargo capacity
The cargo division saw its slow decline culminate last year when it was forced to retire its last remaining freighter – a B747-200 due to the impact of the record high fuel prices on the relatively inefficient747 Classic.
But the absence of any widebody, long range freighter capacity left Thai Cargo with only the belly capacity of Thai Airways’ fleet of 88 passenger aircraft putting it at severe disadvantage in terms of moving Thailand’s substantial exports.
“The cargo business in the country has a size of 1 million tonnes, but Thai Airways has a market share of only 100,000 tonnes because we have to load the goods in our passenger aircraft, instead of using cargo carriers,†said Boobphakam .
In an interview in Bangkok recently, Boobphakam told Payload Asia that Thai Cargo is currently in discussions with “strategic partners,†Boeing and Airbus. “Boeing and Airbus are helping us for calculation in terms of profit and loss costing in terms of leasing aircraft and in terms of what kind of aircraft we use in future.
“After we have that kind of information from both sides, we will know what we should have for the freighter aircraft and what timing,†he said adding that the decision will likely be made within the next couple of months.
He added that various options are being examined, including both passenger to freighter conversions from Thai’s existing fleet, new aircraft purchase as well as, leasing and block booking options.
As to what type of aircraft, Boobphakam has taken a shine to Boeing’s 777 freighter, which with 90 tonnes of capacity and long range capabilities and good economics, is an attractive proposition for Thai Cargo with its focus on the Asia to Europe trade. “Long ago the B747 was the king, but not anymore – the 777 freighter carries 90 tonnes with two engines, compared to 110 tonnes with four engines for the B747,†he observed.
What is clear, is that Thai requires widebody, long-range freighters. Speaking of the handicap of only having bellyhold capacity, Boobphakam said: “we can only carry one third of the Thai export volumes where all the other guys enjoy the other two-thirds – all those other big birds enjoy it.
“That’s why if we are looking at all options, if we had the freighters I think we would not lose again because of what happened due to the fuel cost, we would not repeat the same story (of losing market share because of lack of cargo capacity).â€Â
But these are tough times and spending on a new aircraft in the range of US$150 million each will probably be a hard sell for Boobphakam, particularly considering Thai has an existing fleet of 20 B747-400s ripe for conversion at around US$20 million each.
“During this time, before the market is ready for the new 777F, we may block space or charter a B747 for the time being until we’ve got our freighters.†Leasing with an option to purchase at a later stage is yet another possibility for the 777F, he added.
Of Th ai’s fleet of B747s, two are 22- years-old and hence not economically viable to convert because of the increasing maintenance costs, Boeing advised Thai.
It appears most likely that Thai will opt for the B747 conversion route with Boobphakam eyeing “at least three,†combined with a lease or newbuild purchase, possibly B777 Freighters.
In the meantime Thai Cargo is busy laying the ground work. “First we’ve got to pre-sell the idea, secondly we need to sell the space of the freighter and that’s why we are looking at next year when everything should be better than this year and therefore the freighter should be in the market. So we pre-sell eight to ten months in advance,†he said.
Boobphakam added that it was not so difficult to pre-sell, despite the current dismal state of the market, because “people still want to work with us and they think we have a future,†adding that the market recognises Thai Cargo’s limitations in the past were a result of lack of dedicated freighter capacity.
New markets and products
Aside from the renewed cargo fleet, Thai Cargo is also looking at new routes and new cargo markets with a likely move into the African market.
Boobphakam relates an interesting annecdote that stemmed from a conversation with cargo industry people in China. They told him they could easily fill on a regular basis a freighter from China to Africa carrying household and other Chinese manufactured goods, which were widely imported into Africa.
He later made a trip to Western Africa, travelling to Timbuktu in Mali. “I was probably the only person who had ever set foot in this place from Thailand and there in the middle of the dessert I saw a lot of products from Thailand. Fish sauce, chilli sauce, drinking water, all from Thailand and I thought to myself, how did it get here, why not by Thai Cargo!â€Â
“I think everyone is doing same thing now, everyone is looking around for opportunities. What we are doing now is looking at what we haven’t done in the past, this could be new business for us, let’s say maybe another kind of cargo, probably dangerous goods, valuable goods like gold jewellery as well as gold and diamonds from Africa to Europe, and probably live animals,†he said.
As for new routes it will likely initially be Bangkok, Africa and Europe. “Maybe we don’t fly to Africa directly, but we look for a partner for Europe to Africa and we stop our freighters in Europe.
“So in future I see three parts – the first part is Scandanavia, the second part is continental Europe and third part is southern Europe. From the continent we connect to central Africa or even South Africa and south Europe we connect to north Africa, so therefore we have the connectivity.â€Â
He added that IT was also a key area being looked at, like IATA’s efreight initiative Cargo2000, security, etc., as well as upgrading their perishables capability at Suvarnabhumi International Airport.
“We are asking ourselves if we are up to international standard in all areas, if not it is about time to do it and improve,†he said.
“When the market comes back we have to be ready for that otherwise we will be left behind. More and more we are looking to off er top quality products and reliabilty. If we don’t have that I think we are going to see less and less customers, we can see that so we want to upgrade ourselves.â€Â