Will Waters interviews Carl Luo, Director Of Cargo Handling for Jade Cargo International, about the airline’s airport and ground handling choices, priorities, and experiences in China and around the world
Jade Cargo International is one of several Chinese-international joint-venture cargo airlines that were conceived towards the middle of the last decade. Although it had its fair share of challenges during its first few years of life, it has emerged to become, arguably, the most successful of this breed.
Under Chinese law, ownership of the country’s airlines has to be majority Chinese, with individual foreign companies restricted to owning just one quarter. As a result, Jade was founded in October 2004 as a joint venture between Chinese domestic carrier Shenzhen Airlines (51%), Lufthansa Cargo (25%) and the German development finance institute DEG (24%).
Jade started flight operations on August 5, 2006, although some unexpected issues – particularly concerning the nationalities, recruitment and registration of pilots – meant that it wasn’t until 2008 that it was able to operate its full fleet of six 747-400 extended-range freighters (B747-400ERFs).
Although Jade may have been conceived to be a vehicle for Lufthansa Cargo to expand its share of China’s booming air cargo market, taking advantage of the kind of traffic rights and operating advantages that only a China-registered airline could, Lufthansa Cargo has since loosened the reins on its younger sibling, largely to allow Jade to maximise its profitability. Jade has thus evolved into an airline with its own identity and decision-making capabilities, while still keeping strong operational and strategic ties with its part-owner. Indeed, Jade’s incoming Chief Executive Officer, Frank Naeve, has been with Lufthansa’s cargo division since 1989, and he succeeds Kay Kratky, also a long-term Lufthansa executive, and who returns this month to a role within Lufthansa.
The two airlines also still work extremely closely on route development, for example, and Jade also operates some flights on behalf of Lufthansa Cargo. But Lufthansa Cargo’s control of the sales activities of Jade have been phased out, with most of the sales and service activities for Jade in Europe, the Middle East and India now outsourced to the independent general sales agent (GSA) Air Logistics.
Decisions on handling suppliers are also taken independently, says Jade’s Director for Cargo Handling, Carl Luo, although he is happy to make use of the expertise of the airline’s partners. “We normally make our own decision,” he says. “Of course, our GSAs always give us very useful input, and we value this very much because they normally know the local market very well and they know our customers’ feelings on different ground handling agents’ service.”
Luo says Jade is also not obliged to use the same ground handling agent (GHA) as Lufthansa Cargo or Shenzhen Airlines if it is operating into an airport where its owner airlines are also present, although it may still choose to.
“As mentioned, we normally make our own decision. However we do have a preference for using the same GHA that Lufthansa Cargo or Shenzhen Airlines has chosen to use, because they both have a reputation for quality. But it goes without saying that the commercial terms have to be competitive too.”
Luo says decisions on the choice of GHA are based on the airline’s “internal station opening process”, adding: “There are a lot of criteria like capacity, quality, equipment, cost, staff, experience, financial background, etc. However cost, capacity and quality are our main criteria.” He declines to say where price comes within that top three.
Luo says Jade’s contracts with GHAs include service level agreements (SLAs), with the main elements being the cut-off time for the various handling processes, security, communication, training and message standards. However, generally the airline does not incentivise or penalise handlers for exceeding or missing SLA targets.
“For the majority of the handlers, we don’t have these because many handlers don’t like this. Sometimes it’s very difficult to measure performance, as well,” adds Luo.
He says the length of contracts with GHAs depends on the market and specific situation at each airport. “However, under normal circumstances, our preferred contract term is three years,” Luo adds. “I think this can not only give us stability on handling, but also give certain flexibility.” Although cargo airlines tend to have a greater need for route flexibility than passenger airlines, Luo says Jade does not insist on being able to terminate agreements with GHAs at short notice.
“We have a good internal process to select the handling agents, so once the decision has been made, we normally look forward to a long partnership instead of changing frequently,” he says. “However, airlines keep certain flexibility to terminate the contract if the GHA does not or cannot fulfil their responsibilities on the contract. In such cases, airlines shall have rights to terminate the agreement at short notice without penalties. We think a notice period from 45-60 days is quite fair to both sides.”
That length of notice period would also apply if the airline needed to stop flying to a certain airport or market for some reason. “We normally apply the notice period or even give earlier notice if possible, as we consider this as fairness in a business partnership,” says Luo.
He says that, over all, the international handling market satisfies the airline’s service level requirements. “In the big, developed airports, the handling market generally can offer what we need. But at some airports in developing countries, there is a lot of space for improvement.”
Handling standards have also come on significantly in recent years in the airline’s home country, China, although, similarly, at second-tier airports, this may still require training from the airline in order to get things up to international standards.
Not so at Jade’s home base of Shenzhen Boan International Airport, where sister company Lufthansa Cargo is also a 50% investor in one of the airport’s cargo handling facilities, International Cargo Centre Shenzhen (ICCS), also 50% owned by Shenzhen Airport Company. Unsurprisingly, ICCS does Jade’s handling, although Luo says this is for commercial reasons rather than any obligation to use them. Other ICCS customers include Air Asia; Air China; Asiana Cargo; China Airlines; China Southern; Eva Air; Donghai Airlines; FedEx Express; Jade Cargo; Korean Airlines; Lufthansa Cargo; Shenzhen Airlines; Silk Air; Thai Air Asia; UPS; Uni Air; Uni-top Airlines; Yangtze River Express; Tiger Airways.
When ICCS opened in 2004, Shenzhen was still something of an international air cargo backwater, and one of the reasons for its development was to ensure that there were international-standard handling facilities for Jade and Lufthansa Cargo. Although ICCS is still a popular handler, with traffic up around 20% in 2010 to more than 72,000 tonnes, it has been dwarfed in size by subsequent cargo terminal developments at the airport. The airport has grown at an average of more than 20% a year for the last 10 years to become China’s fourth busiest air freight hub, with volumes last year exceeding 808,000 tonnes, growth of more than 33% on the previous year.
“The handling quality in Shenzhen is excellent,” says Luo. “ICCS is very professional and has experienced management and operational staff. However, there is still room for improvement in handling quality if we compare Shenzhen with Hong Kong.”
Luo says it is only a two-hour drive between Shenzhen and Hong Kong airports, and there are very good connections between the rapidly growing Shenzhen and its bigger cousin airport. “We provide an excellent cargo transfer service to our clients every day for both import and export cargo between these two airports,” says Luo. “However, the majority of our clients prefer to manage the transfer by themselves, because it can be arranged according to their specific demands, and because the transfer process is easy and well developed.”
The handling arrangements at Jade’s base for western China, Chengdu, took some fine-tuning when the airline chose to begin operating there in December 2009. However, like so many things within China’s rapid development, things have moved forward in leaps and bounds since then. Besides, Chengdu has also become one of the most promising and rapidly-growing cargo airports in the world, thanks to large-scale domestic and international investments there, particularly from companies in the hi-tech sector. For example, Foxconn, the world’s largest producer of electronic components, started production at its new Chengdu plant in December, while leading semi-conductor company MediaTek also recently set up a factory locally.
“Chengdu is one of the economic centres in western China,” says Luo. “The economy is growing very fast, and some of the big manufacturers have moved there or to the area around the city. Therefore, we expect the air freight market to develop very fast there.”
When Jade started to operate there around 16 months ago, it was the first carrier to operate international freighter services between Chengdu and Europe, operating three times a week on a Chengdu, Vienna, Amsterdam, Dubai, Chengdu routeing. Naturally, there was initially a steep learning curve for the airport, but Luo says a very good cooperative relationship with the airport authority has enabled the arrangement to work out.
“We received great support from them and are working closely together in many areas to develop the Chengdu air freight market,” he says. “We are using the Chengdu Airport Ground Handling Company as our ground handling agent in Chengdu, a subsidiary of the airport authority, and I can say we are quite satisfied with the current performance.”
He points out that the airport has only few years’ history in terms of international cargo.
“The airport itself has a vast amount of experience in domestic cargo handling, but only limited international cargo handling experience, due to the relatively low number of international flights. Therefore the facility and IT system was not built for international freighter operations, and the training of the staff was a challenge, to enable them to handle big freighters like the B747-ERF,” he adds.
“These were the main challenges we had to deal at the beginning of the operation, and we had to put a lot of additional efforts to elevate the service level in Chengdu to international standards – and develop the cargo spirit in the minds of the local service providers. With lots of efforts from both sides, we have seen a tremendous improvement in a very short time.” He says the operations there have now moved to a new cargo terminal, with new equipment, and that most of the local staff have received the necessary training.
“We are eagerly chasing every opportunity to improve the quality and I am very optimistic that Chengdu will catch up with the standards of the high fliers in the air cargo industry in the very near future.”
Indeed, the airport’s evolution has been extraordinary, particularly in terms its cargo capability. Back in 2003, the cargo capacity was just 22,000 tonnes, while last year it handled almost 20 times that, achieving volumes of 432,000 tonnes, making Chengdu the sixth largest air freight hub in China.
Luo says: “We chose Chengdu because of their commitment for development. They know
their weaknesses and are willing to learn and grow. Furthermore, they give Jade Cargo strong support as a partner in many areas and show their flexibility every time when we come up with new ideas or requests.”
Chengdu is one of an impressive list of airports now served by Jade, which reads like a who’s who of the world’s most interesting established and emerging international cargo airports: Amsterdam; Anchorage; Barcelona; Mumbai; Brescia; Calcutta; Chengdu; Chicago; Delhi; Dubai; Frankfurt; Geneva; Hanoi; Hong Kong; Istanbul; Lahore; Luxembourg; Chennai; Seoul-Incheon; Shanghai-Pudong; Tianjin; Vienna; Yantai.
Luo is unable to reveal any new additions for the near future, but the formula on where to go next is a simple one that is shared by global cargo airlines: “This depends on the development of the economy. We will operate the flights to where the market dictates.”