Etihad Crystal Cargo, the Cargo arm of Abu Dhabi-based Etihad Airways, is anticipating a drop in its revenues this year on the back of escalating fuel prices and a decline in global demand for commodities, a senior official at the company has revealed.
While the company continues to win market shares within the region, it is concerned it might not be able to sustain the market if airfreight rates continue to soar.
"It is very difficult for us and the entire airfreight industry at the moment. The rising price of fuel has inevitably raised our operating costs to an all-time high and we don't see this changing soon," Des Vertannes, Etihad Crystal Cargo's Executive Vice-President for cargo, told Emirates Business.
"Due to the tight market conditions, we might not attain the same level of revenue performance as last year."
Last year, Etihad Crystal Cargo's revenues were $300 million (Dh1.1 billion), contributing 20 per cent to the total revenues of Etihad Airways. But the cargo division anticipates its contribution to the overall revenues of the airline will drop to between 17 per cent and 18 per cent this year.
Etihad Airways was a $1.5bn company last year and due to anticipated high returns from the passenger side, the airline's revenues are expected to hit $2bn this year.
"The difficulties we are experiencing are a reflection of the global trend within the air freight industry," said Vertannes.
As a result of increasing fuel costs, airfreight companies globally have had to increase their fuel surcharges almost every three weeks to be able to survive in the market. Since the beginning of 2008, fuel surcharges for airfreight have gone up by over 30 per cent, causing a sharp decline in air cargo, as shippers seek cheaper modes of transport.
Vertannes said besides the escalating cost of fuel, the sub-prime crisis in the US and the subsequent economic slowdown in Europe had greatly compromised demand for commodities in those markets. Inflationary pressures in most Asian countries also continue to undermine purchasing power there.
"While there is enough tonnage in the Middle East region due to the infrastructural development boom going on, tonnage in the bigger and mature markets, such as the US and Europe, has dropped sharply. Current world demand is in the negative," said Vertannes.
While Etihad Crystal Cargo's tonnage grew by 30 per cent last year compared to 2006, the growth is expected to fall to around 18 per cent this year, according to Vertannes.
Projections from the International Air Transport Association (Iata) say global airfreight tonnage growth will drop from the 4.5 per cent recorded last year to around three per cent this year. About five years ago, Iata's projections of global airfreight growth stood at between six and seven per cent, but they have been declining in the past few years.
Vertannes said despite being owned by a cash-rich government, Etihad Crystal Cargo was feeling the pinch just like any other airline around the world.
"There have been misconceptions that since we originate from an oil-producing country, we are immune to the current fuel crisis. That is far from the reality since we gain no favours and we pay commercial rates for our jet fuel," said Vertannes.
"It is a huge dilemma we are facing, but as a company we have to take measures to minimise costs to show our shareholders we are good custodians of the business."
Vertannes said he is currently taking an initiative to minimise overhead costs in order to ensure profitability. One of the new innovations the company is considering is to introduce an automation system that will significantly reduce the number of salaried staff.
The new programme, which Vertannes is currently championing and which is likely to be introduced soon, will put in place a mechanism for proper and faster communication and document processing between shippers, forwarders and airliners with a reduced number of staff required.
The company has also temporarily put brakes on any new acquisitions as it monitors the market trends in global airfreight.
"A number of airlines are reducing their fleet amidst a capacity crunch. We do not want to make acquisitions blindly. Every step we are taking has to be dictated by market trends," said Vertannes.
Last year, the company's board approved the lease of an MD11, a multi-tonne plane with the capacity of two A300-600s. The new plane supplements two existing A300-600 freighters.
Vertannes is optimistic the extension work at the current cargo terminal at Abu Dhabi International Airport will help in accommodating any extra tonnage by Etihad Crystal Cargo.
The extension work, to be completed in November, will increase capacity from the current 300,000 tonnes to 450,000 tonnes.
Etihad Airways is expected to contribute a total of $18.1bn to the Abu Dhabi economy in 2011 compared to $12bn in 2007.
PROFILE: Des Vertannes, Etihad Crystal Cargo's Executive Vice-President for cargo
Vertannes joined Etihad's Crystal Cargo division in May 2007 from Gulf Air where he was head of cargo. He has more than 20 years of aviation industry experience.
Prior to joining Gulf Air, Vertannes held the position of chief executive at the UK-based Air Menzies International, and was also the managing director of Menzies Cargo World. He began his career with British Airways in 1970 where he was cargo manager for the Gulf and Saudi Arabia and cargo sales manager for the UK.