feature

T R A N S P O R T & LO G I S T I C S

Al Khobar

Cargo

The new Silk Road

The Gulf region has turned into a bridging point
for goods as much as it has for travellers, with even
greater volumes likely to come

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by Martin Rivers
thegulf@tradearabia.net

ith so many column

inches about the Gulf
carriers devoted to
their fast-expanding
passenger
operations, it is easy to forget that Qatar
Airways, Emirates Airline and Etihad
Airways carry more than just human
cargo. Beneath the main decks of their
passenger aircraft, the regions big three
airlines are also driving rapid growth
in freight traffic over Doha, Dubai and
Abu Dhabi - turning the Gulf into a
bridging point for goods as much as
travellers.
The numbers are staggering, even for
a sector long associated with breakneck
expansion. Middle Eastern carriers
nearly tripled their share of global air
cargo traffic from four per cent to 11 per
cent between 2003 and 2013, according to US aircraft manufacturer Boeing.

While Asia-domiciled airlines still have

a much larger 36 per cent share, their
counterparts in the Gulf are steadily
sucking up cargo from the East and
redistributing it to North America and
Europe.
This mirrors the shifting sands of global
air passenger flows, whereby geographical advantage and deep-pocketed
investment have turned the Gulf hubs
into favoured stopovers for intercontinental journeys. Their success has
largely come at the expense of historic aviation centres in Europe, which
pioneered air transport during the first
half of the 20th century but now find
themselves weighed down by legacy
cost-bases and dated infrastructure.
Last year was no exception for the
Gulfs rising stars, with the International
Air Transport Association (IATA)
estimating that Middle Eastern carriers
once again grew air cargo throughput
faster than any other regions operators.
Traffic, as measured by freight tonne

Its pretty
much the same
picture for
cargo as for
passengers.
Whats happening in the
Gulf is that state-owned
carriers are being built
up by their governments
with incredible
amounts of money
Michael Gntgens, Lufthansa Cargo

kilometres (FTK), rose 11 per cent

during the course of the year, compared
with just 2.3 per cent in Europe. The
frenetic pace of Gulf growth has barely
slowed in 2015, maintaining impressive
year-on-year expansion of 9.2 per cent
in January.

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T R A N S P O R T & LO G I S T I C S

The Qatari flag-carrier

has vowed to become
one of the worlds
five largest cargo
operators by 2018 by
investing heavily in
infrastructure on the
ground, in the sky, and
in human capital

Our problem
is that we dont
have enough
capacity at the
moment. We
are not dumping capacity
anywhere on the globe.
Were following the needs
of our customers - they
tell us where they want
us to operate, and we go
according to their needs
Ulrich Ogiermann, chief cargo
officer of Qatar Airways

8 But with cargo capacity, as measured

by available freight tonne kilometres
(AFTK), rising nearly twice as fast in
the same month (18.1 per cent), there
are signs that the regions big players
could be struggling to fill their cargo
holds. European legacy airlines such as
Lufthansa, Germanys flag-carrier, have
long maintained that the Gulf superconnectors are dumping capacity in
order to price their competitors out of
the market. Allegations of anti-competitive behaviour gained traction in March,
when three US carriers published
evidence of up to $42 billion of state
subsidies for Qatar Airways, Emirates
and Etihad.
Its pretty much the same picture
for cargo as for passengers, explains
Michael Gntgens, communications
director of Lufthansa Cargo. Whats
happening in the Gulf is that stateowned carriers are being built up by
their governments with incredible
amounts of money.
These airlines are putting extremely
high capacities into the region, and
they do everything possible to fill these
capacities. But this, paired with no real
necessity to earn money directly out of
it, does of course change the [competitive] situation - especially for routings
[from Europe] to Asia, to India, South
Asia, South-east Asia. There you see a
complete changing of the game over
the past ten years or so. Its not a level
playing field.

Qatar Airways Cargo is now looking to replicate the success of the carriers passenger business

Ulrich Ogiermann, chief cargo officer

of Qatar Airways, agrees that global
cargo markets have changed profoundly over recent years, but his explanation
of this trend bears little resemblance to
the timeworn complaints of Europes
legacy carriers.
Our problem is that we dont have
enough capacity at the moment, he
insists. We are not dumping capacity
anywhere on the globe. Were following
the needs of our customers - they tell us
where they want us to operate, and we
go according to their needs.
Reconciling these two opposing
narratives is made difficult by the fact
that Qatar Airways does not publish
detailed performance statistics for its

cargo business. Whereas Lufthansa,

a publicly traded company, discloses
both its FTK traffic data and its AFTK
capacity data - thereby revealing the
load factor, a measure of how full
its cargo holds are (69.9 per cent for
2014) - Qatar Airways only releases FTK
figures. Based on this limited data, it is
clear that the Doha-based carrier has
grown cargo traffic eleven-fold over the
past decade. But whether that growth
has been rational, or whether its cargo
holds have been flying half empty, is
anyones guess.
Even if Qatar Airways did disclose its
load factor, further financial data would
be needed in order to establish cargo
yields and determine if the space is

being marketed at commercially viable

prices. Flying with fully loaded planes
is no achievement unless you charge
customers enough to cover your costs.
But while Lufthansa Cargo last year
posted an operating profit of 100
million ($106 million), Qatar Airways
has never publicly revealed its financial
performance. Covertly obtained annual
reports - used by the US lobbyists
to substantiate their allegations of
subsidies - show that the 22-year-old
airline is still dependent on equity
infusions and loan guarantees from its
government, without which it might
not qualify as a going concern under
international accounting standards.
No matter how much this vexes
its rivals, the Qatari flag-carrier has

vowed to become one of the worlds

five largest cargo operators by 2018.
It aims to achieve this by investing
heavily in infrastructure on the ground,
in the sky, and in terms of human
capital. Ogiermann himself is widely
regarded as a leading voice in the air
cargo industry, having formerly headed
up Cargolux, Europes largest cargo
carrier, and served as chairman of the
International Air Cargo Association
(TIACA), an industry trade group.
Alongside the fleet of 138 passenger aircraft, Qatar Airways also
deploys 14 main-deck freighters: eight
Boeing 777-200LRFs and six Airbus
A330-200Fs. An order for another four
777Fs was finalised in January, while
the airline has outstanding commit-

ments for two more A330Fs plus a

further eight options.
By acquiring dedicated freighters,
Qatar Airways can prioritise the needs
of major freight forwarding customers whose preferred routings and
timings might not overlap naturally with passenger flows. It can also
exercise flexible capacity management for individual markets. Our big
advantage is that we have a combination of the belly capacity on the passenger aircraft - which in certain cases is
sufficient - and in other cases, where
the payload would be restrictive, then
we would consider operating freighters, Ogiermann explains. It's really
about network optimisation.
A total of 47 global destinations are
currently served by freighters, with Los
Angeles becoming the fourth US point
in April. Last year alone saw 11 destinations added, including cities as diverse
as Zaragoza in Spain, Hyderabad in
India, Shanghai in China, and Mexico
City. The cargo chief says opportunities for new freighter destinations are
evaluated on a rolling basis, especially
in Asia and Africa.
You always have to be ahead of the
game and be quick, he says. "But
its not that we aim for an impressive
number of stations. We go where the
business wants us to go.
Turning to America, another key
growth market, Ogiermann insists that
efforts by anti-Gulf lobbyists to amend
the US-Qatar bilateral air services
agreement - effectively slamming the
brakes on US expansion - are wholly
misguided. Qatar Airways has invest-

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Lufthansa Cargo claims that Gulf carriers dump cargo capacities across the globe

8 ed $1 billion in its cargo terminal at

Hamad International Airport, so any
move towards overseas protectionism
will be fiercely opposed. Wherever we
can, we try to promote the benefits of
open trade, he argues. Trade always
drives growth. It drives the creation
of jobs. So we are always interested in
very liberal aero-political agreements,
because they are to the benefit of the
economies.
His counterparts at Emirates and
Etihad are equally committed to, and
dependent on, Open Skies. Emirates
Skycargo currently serves five cargoonly destinations in America, and vice
president Henrik Ambak has hinted
at more US route launches for its
14-strong, all-Boeing freighter fleet.
Etihad Cargo serves three US freighter
destinations, partly in conjunction with
Atlas Air, an American charter airline.
If push comes to shove, the governments of Qatar, Dubai and Abu Dhabi
may seek to leverage their geopolitical and economic clout to preserve
44

But whether Qatar

Airways growth has
been rational, or
whether its cargo
holds have been
flying half empty, is
anyones guess.
the existing bilateral agreements that
America has signed with Qatar and
the United Arab Emirates (UAE). Their
airlines have outstanding orders for
hundreds of Boeing aircraft, indirectly
supporting thousands of jobs in the US
aerospace sector.
However, dangling these orders as
a bargaining chip will not be entirely
convincing. European aircraft manufacturer Airbus produces the only viable
alternatives to US-built widebody
aircraft, and most European countries

already impose their own traffic restrictions on the Gulf carriers.

Diplomatic antagonism may therefore
be resorted to. The UAE set a worrying
precedent for this in November 2010,
when it closed Camp Mirage, a Canadian
Forces base near Dubai, during a heated
row with Ottawa over landing rights for
Emirates and Etihad. The camp was
used as a staging post for the war in
Afghanistan. Washington can ill-afford
a similar falling out as it seeks Gulf
support to suppress insurgencies in
Iraq, Syria, Yemen and Libya.
In ancient times, transporting
goods from East to West necessitated
months-long, perilous journeys over
a network of trade routes collectively
dubbed the Silk Road. Today, goods
are despatched to far-flung markets
in a matter of hours. The Gulf carriers
have placed themselves firmly at the
nexus of this new, airborne Silk Road,
and their governments are unlikely
to relinquish that privileged position
without a fight. <
May 2015 | the gulf