Japanese freight carrier Nippon Cargo Airlines (NCA) will freeze its fleet expansion plans and develop new strategies to increase revenues in response to an "unprecedented economic slowdown".
The airline, Japan's only dedicated air freight company and the second largest air cargo carrier after Japan Airlines (JAL), had planned to triple its fleet of Boeing 747-400Fs to 24 from eight by end-March 2013. However, it says in a statement that it will keep its current fleet size until at least end-March 2012.
"While the cargo industry has seen economic slowdowns in the past, what we are experiencing since the latter half of 2008 is proving to be unprecedented," says Nippon Cargo. "Lack of consumer confidence worldwide has led to drastically decreased spending, resulting in lower demand for production. And without manufacturing production, airfreight will continue to suffer."
The airline projects that it could take up to five years for the cargo market to return to the volumes it saw in 2007. This prognosis does not support aggressive growth plans, and adding new routes and expanding its fleet when the market face over-capacity "would be unwise and very unprofitable", says the airline.
Keeping the fleet size to eight 747-400Fs also makes sense as the new freighters that are being parked now can be quickly reinstated into service if demand picks up, says Nippon Cargo. The emergence of new passenger aircraft like the Boeing 787 that are more "cargo-friendly" also creates more competition within the air freight business, it adds.
Costs are a major issue for Nippon Cargo's scheduled services and it plans to reduce them by eliminating fixed costs, lowering overhead costs, and restructuring contracts so that it can be more flexible in the way it responds to changing market conditions. It also hopes to reduce its dependence on the scheduled business by increasing its exposure to charter flight services and building up its aircraft leasing capabilities.
"We will increase the charter business that is relatively profitable compared to our regular scheduled network," says Nippon Cargo. "By focusing our resources to develop long-term partnerships or aircraft least activities with customers that are resistant to recession, we will try to change our earnings structure."
The airline made an ordinary loss of 18.8 billion yen in 2008, but it plans to break even in 2011 with this new strategy and return to profitability subsequently.
"For NCA to survive, it means that we must be able to compete profitably under the current poor market conditions, and we must position ourselves to take advantage of the market recovery once it finally happens," says Nippon Cargo.
Source: Air Transport Intelligence news
