Europe View: Air-cargo battle on ground

Europe View: Air-cargo battle on ground

LONDON - Their airline customers are being sucked into a SARS-driven crisis even as they lick their wounds from the September 11 fallout, but Europe's top airports are bullishly plowing billions into ambitious expansion programs to stay ahead in an increasingly competitive battle for market share.

While British Airways slashes costs to keep pace with tumbling traffic, BAA has just unveiled plans to spend $13.5 billion over the next 11 years to expand and modernize its three London airports at Heathrow, Gatwick and Stansted. And as KLM mulls whether to tie the knot with Air France or British Airways to survive the looming consolidation of Europe's airline business, Amsterdam Schiphol airport and private firms are preparing to invest around $1.5 billion a year until 2020 on new facilities.

The bumper investments reflect confidence that the airline market will rebound from the latest crisis and traffic growth will return to an upward trend. On the passenger side of the business market share remains relatively stable, though London Heathrow, the world's busiest international airport, is in danger of being overhauled by the top two continental players, Paris Charles de Gaulle, and Frankfurt.

Cargo less of a competition

It's a different story in cargo as the top four - Frankfurt, Paris, London and Amsterdam - pull further away from the pack and prepare for an all-out battle for market share that could see a significant change in the rankings.

Cargo, long a Cinderella to passengers, has become a bigger priority because of its multiplier effect in attracting industries and creating jobs. Amsterdam plans to boost annual capacity from around 1.2 million metric tons to 3 million tons by 2020 , with 24 additional aircraft stands and a new freight terminal with a capacity of 300,000 cubic meters. "The government sees more spin-off from cargo" according to Joop Krol, Schiphol's development executive, because it will consolidate the country's position as the leading European distribution hub for U.S. and Japanese firms.

Cargo may be getting more play in airport planning but it still faces higher hurdles than the more glamorous passenger business, bearing the brunt of capacity restraints at many of Europe's congested airports and the ire of environmental activists campaigning against aircraft noise and night flights.

But cargo executives have the benefit of competing on a level playing field thanks to cheap and efficient trucking across Europe that allows airports to treat a large part of the continent as their hinterland.

Moves to restrict night flights

However, competition is being distorted by moves to reduce, even ban, night flights at key cargo hubs.

Night time bans are a real threat to the operations of Europe's all-cargo carriers because they will mostly affect freighters.

Lufthansa Cargo's Executive Board Chairman, Jean-Peter Jansen, warns that a proposed night ban at Frankfurt, its main hub, in 2006 would be a "severe blow", endangering the carrier's very existence at Europe's leading cargo airport. Lufthansa currently operates eight freighter flights per night through Frankfurt, carrying cargo that must reach its destination by the next morning. The airport has promised extra daytime slots for freighters but Lufthansa says that on some routes night departures and arrivals are essential." We live in a global world with different time zones in which at different times freight and goods must be imported and exported." But Fraport, the airport operator, has to walk a political tightrope and its offer to ban night flights was aimed at getting the go-ahead for a controversial fourth runway.

Lufthansa Cargo's only consolation is that its top rivals are suffering too. The French government last year announced tighter restrictions on night flights at Paris Charles de Gaulle that will force Air France Cargo and La Poste, the mail operator, to reduce frequencies. No new night slots will be created, unused ones are being withdrawn and a levy slapped on remaining night flights. The airport is nervous, not least because integrators, led by FedEx Corp., account for 25 percent of Paris Charles de Gualle's cargo traffic. The airport authority jointly invested with FedEx around $250 million to build the U.S. carrier's European hub in the face of fierce competition from rivals, including Amsterdam. Paris offers freighters a 50 percent discount on landing fees which should help blunt the impact of the "night tax" but many cargo people fear this is the thin end of the wedge that will lead eventually to a blanket ban on night flights.

Airlines taking wing

Tightening curbs on noise levels and night flights at Brussels prompted two freighter operators, Israel's El Al and Singapore Airlines, to pull out. It took DHL Worldwide's threat to move its business elsewhere for the Belgian government to drop even more draconian curbs.

Schiphol's marketing men smugly point out that it doesn't face any nighttime curbs and its development plan would double the current 12,000-15,000 yearly night flights. The Netherlands has a powerful environmental body, but warnings by Japanese shippers a decade ago that their just-in-time schedules required night landings in Europe counted for more in Europe's most transport-oriented country.

This pragmatic Dutch stance is paying dividends with Schiphol boosting cargo traffic by 4.8 percent last year to 1.24 million tons, outpacing its major European rivals. Frankfurt, by contrast, grew by just 1.1 percent.

For its rivals the outlook isn't promising. Lufthansa Cargo says that switching its eight nightly freighter flights from Frankfurt to neighboring Hahn, a former NATO fighter base, would require 20,000 truck movements per year to get the cargo back to Frankfurt for handling or connection to other flights." And then maybe the people who live there would want a ban on night driving," says the airline's chairman, Jean-Peter Jensen.

The clampdown on night flights, coupled with growing capacity restraints, is prompting shippers to consider second-rung hubs like Munich and smaller regional airports such as Liege, TNT's main European hub; Vatry in France's champagne region some 100 miles east of Paris, and Vitoria in Spain's Basque country.

Right now, these cargo airports are niche players, more irritants than rivals to the big hubs. But all it takes is for a major cargo operator to take the plunge and quit its current base for a secondary airport to tilt the balance toward the pretenders.

Bruce Barnard is the European correspondent for The Journal of Commerce Online.