It’s been a little more than two years since the formation of International Airlines Group — a full merger of British Airways World Cargo and Iberia Cargo under a single umbrella — and Steve Gunning, head of the cargo side of the business, predicts that most of the big tasks will be accomplished by 2014.
“It’s gone really well,” he told American Shipper
during a break at the CNS Partnership 2013 conference in Phoenix. “Our approach was not to announce this with a great big fanfare, but to get on with it and integrate the business. And I think, two years in, we’ve made good progress.”
Unlike the passenger side, which will continue to be operated by the two master brands, IAG Cargo will combine as a single entity. Gunning said IAG Cargo finished aligning its products between Iberia and BA two months ago and just recently announced booking capabilities on IAG Cargo’s Website. By the end of the year, he expects operations to be fully transferred into the IAG Cargo entity.
The other major job ahead is creating the revenue management system, a task that is already well underway. Instead of using the entire system from one carrier or the other, Gunning and his team highlighted about 10 components they needed to have in the new revenue tool and “cherry picked” options from each carrier. All of the hurdles to this new combined outlook should be completed by next year, Gunning said. After that, IAG cargo will feel pretty much complete.
“I’m not sure if you can ever say you’re fully, fully integrated, but I think we’ll have pretty much broken the back of it by then,” he said.
On that note, expansion by acquisition will be one of the driving forces of IAG. The cargo side has already integrated bmi into its system, and Gunning said while there’s no shopping list for future purchases, additional companies will be brought into the IAG fold.
“Our overall proposition is more airlines will come into IAG, and as they do, we would look to put that cargo capacity across this single commercial platform we’ve created,” he said.
Earlier this month, the carrier announced an order of 18 Airbus A350-1000 aircraft due to start coming online in 2018. IAG also has a firm order for 24 Boeing 787s, which options for an additional 18 planes, that are to start delivering this year. Finally, 12 Airbus A380s will come into the fleet this year.
Gunning said the new equipment will serve primarily as a fleet replacement. Driven by the passenger side of the business, these new planes will modernize the fleet and allow the company to offer more services. At the same time, though, adding the expanded capacity offered by these new, larger passenger planes into a soft market could lead to some challenges for IAG Cargo.
At IAG, passenger volumes have continued to increase over the past two years, but cargo numbers have fallen steadily over that same period.
“The passenger business is putting more capacity in,” he said, “and from an air cargo perspective, that makes life more challenging because you get overcapacity on lanes, and that exerts pricing pressure.”
He pointed out, however, that the new passenger planes are excellent cargo aircraft that will expand IAG Cargo’s capabilities and ability to serve its customers.
“This is very much a replacement of aircraft, such as the 747-400, which has been a great workhorse for the network, but there’s a time when you have to go to the new generation of aircraft,” he said.
IAG will release its first-quarter numbers Thursday, but Gunning said traffic results so far this quarter have been a bit soft. The U.S.-Europe trade lane is one of the most difficult routes currently because even as cargo demand has dwindled, passenger demand stays high. Shippers are benefiting from low prices in the market currently, but he is hopeful that the two economies will ramp up soon.
Asia, he said, has been a mixed bag cargo wise, but he’d like to see IAG Cargo increase its focus on the region. He’s also looking to create a bigger presence in Africa. Latin America and India have been the standouts so far this year in terms of activity, he said.
While he is hopeful for an air cargo turnaround, Gunning conceded air freight might be facing a bit of a new normal in terms of activity. There is a chance that any upcoming recovery will not come close to bringing the industry back to pre-recession days, but he's hopeful that the majority of the soft demand can be remedied by a steep uptick in the global economy.
“We’re in a cyclical dip at the moment; that said, when we come out of it, I don’t think it will fully recover that position,” Gunning said. “There is some structural change, partly driven by modal shift to sea freight, but I also think there’s a bit of a cyclical dynamic to this as well.” - Jon Ross