CHARTER MARKET FOCUS: The aviation consultants

posted on 4th April 2018

The facilities and capabilities of airports and handlers can be a major factor in air cargo charter routing decisions, Air Charter Service group commercial director Justin Lancaster tells Will Waters

A year or two ago, every charter broker you would speak to would say that oil and gas, mining, and commodities were at the top of the list of the industries that were doing well. But how quickly things can change in a business that, often by definition, has to respond rapidly to new situations.

Following the collapse in oil and commodities prices over the last 18 months, anyone relying only on those sectors would be finding it tough now, although there is still some business coming from those sectors − for example, “if there is a problem and they need to move tools to fix it”, notes Justin Lancaster, group commercial director at Air Charter Service. “But it is definitely down. At $30 a barrel, people are probably thinking it is cheaper just to shut down for a bit, whereas in the past they would want to keep production going.”

For charter brokers like ACS, with a wide portfolio of industries and geographically covering the whole world, while some markets are down, other markets are up. “And on the flip side, while oil prices are down, you can definitely see a reduction in the charter prices – with fuel being such a big part of that.”

That said, Lancaster does not believe that lowering of the fuel price component of charters has had much effect in terms of making them more affordable to new industries, perhaps in part because it has also lowered the costs of scheduled air freight too. “It has probably brought some charters, but not a hugely significant amount.”

Where there is still oil and gas exploration-related charter activity, these were often on projects commissioned or contracted some time ago. “If you are a year or two into a four-year project and you have spent the money, you are going to continue with that,” he notes. “We saw this in 2008, the year the recession started; the lag came two years later. New projects were maybe shelved and put on the backburner.”

Overall fall in charter demand

That drop in demand from the energy and commodity sector has had an adverse effect on the number of charters and a number of decisions as a whole, Lancaster says. “But it is cyclical. I think the whole air charter or air freight market is the same; they might be at a low point now, but I have no doubt that it will come back up,” he adds. “And in that meantime, luckily, we have got a portfolio of offices and industries where if one is down, another will do better.

“The automotive sector, where there are more cars being made and sold than ever, can also be a good industry for charters, with its just-in-time model. So that compensates,” he notes. And there was a good amount of activity in the Far East leading up to Christmas – for example, there were a lot of B747 charters just carrying hover boards.

The overall decline in charter activity has not significantly driven down prices for charters or seriously impacted charter carriers – a lot of which are also scheduled carriers – except in certain niche sectors. “For those purely operating ad hoc charters, and aircraft used mainly going into remote places in Africa, then they are going to suffer,” Lancaster notes. “But I haven’t heard people really saying they are in trouble over it.”

Neither has there been any significant legislative changes affecting the charter market. “People talk about security, but on the cargo charters side that doesn’t really affect us too much,” Lancaster notes. “On freighters, all of the cargo was being screened already. ACC3 came in, but that hasn’t had a dramatic effect. The airlines have done what they had to do.”

Factors affecting airport choice

In many cases the choice of airports for charters may be simply about which is closest to the pick-up or delivery location, but the facilities and capabilities of airports and handlers can also be a major factor in the choice of routing. In most situations, the decision will be driven by the customer – which is generally a freight forwarder, and which should, therefore, have some understanding of airports and the logistics of the various regions in question. “So they will come with a request, and give us a suggested airport,” says Lancaster. “Obviously we will speak to them, and try to find out more about the enquiry, and discuss the needs, where it is coming from. Then the broker can look at alternatives for the customer and say: ‘Have you thought about this? This airport doesn’t have a high loader, or it is an absolute nightmare, or it is a slow process to get through the warehouse.”

ACS encourages its staff to be “aviation consultants”, rather than just a booking agent. “I want my people to get more into the enquiry, and find out more about the needs of the customer, and the deadlines, and why they have made these choices: ‘Why does this need to move at this time on this day? Have you considered that we can truck it 500 miles, and save X amount flying from here?’

“Some customers don’t want that; they just want to fly from here to here on this day,” Lancaster notes. “But I think that if you offer innovative solutions and try to help, most customers will appreciate that.

“And airport facilities have a big bearing on that. If the booking is tomorrow and you know from experience that there is no way that they can build 30 ‘maindecks’ in 10 hours; they will build them badly, or they might not get them done – that is valuable information that even the freight forwarder might not know.

“If you can offer an alternative and you can say: ‘I know this airport; I trust them – they have done a good job; they can handle this’ – that is really valuable, and that can save the customer time and money.”

He says these examples are quite basic. “But if you turn up with an MD-11 somewhere in Africa and they don’t have a high loader, or the high loader is broken, and if this is going to a mine, and they are losing $200,000 a day… The implications of getting it wrong can be massive – both financial and reputational. So, it is a huge thing that we take very seriously; we try to get as much value out to the customers we can. All we can do is advise them of our experience and our thoughts on that, in conjunction with the airline, obviously.”

He continues: “If you are going somewhere where the equipment is not great, but the customer is adamant that they want to go there, you can say: ‘There is only one high loader; it is 20 years old; it was working last week; we think it is working now. But your safer bet might be to spend a little bit more and go in an Ilyushin. If the high loader doesn’t work, you can offload it with the cranes of the aircraft’. Then the customer might say: ‘I will send someone from my local office to check at the airport’, which is fine – at least we have given the customer options, and a decision is theirs. But they know that there is a potential risk.

“There’s not a lot we can do if there is only one high loader and it breaks down. But at least if you have warned the customer, then they are involved with a decision on what to do going forward. If you don’t warn them about that, you haven’t done your job properly.”

Traffic rights

While ground infrastructure may influence the choice of airport or handler, in many countries, traffic rights are still a major issue and can determine whether a charter goes ahead at all. “Charters are so expensive that there is usually a really good reason why someone needs a charter, and urgency is usually on top of that list, and scheduled air freight might not do that fast enough. And the thing that can stop us winning business can potentially be traffic rights. So, if it is going to India or China or somewhere else in the Far East where it is going to take potentially five days to get a permit, they might want to move it tomorrow and I may have a plane, but I just can’t move it tomorrow. And if a scheduled service is going in four days, then they will go with the scheduled airline because it will actually get there quicker. That’s frustrating.”

He contrasts this with the model in Europe or the US, “where there are so many smaller aircraft dashing all over the place at 90-minutes notice, maybe servicing the automotive industry; it is open skies that allows that market to thrive. If I want to fly from Kuala Lumpur to Singapore, which is a really short hop, it is going to take me some days to get the permit, when it would take just a matter of hours to move it by boat!”

In the meantime, a lot of the charter business in Asia is planned charters using wide-body freighters. “You don’t see the smaller planes. I think the industry is there, but what’s the point of having those planes that can’t fly internationally between quite local places?”

That is a problem at the moment, not just for air freight charter operators, brokers, and the wider logistics sector, but also for various industries.

“But as that part of the world develops and aviation catches up, you will actually start to see certain kinds of business models of certain businesses change,” Lancaster suggests. “If China is going to have a model like Europe or the US, with factories in the East and factories in the West using a just-in-time model, that couldn’t work at the moment.”

Chinese and global express operators are attempting to build next-day networks across China and there are more B737 freighters coming onto the market, but if you compare that with Europe and America, there is still a long way to go. “But in the future, the Far East is very, very exciting,” enthuses Lancaster.

“Moving forward I would like to see in 10 years time more open skies agreements, certainly in that part of the world; that would speed up and allow more charters to happen.”

Africa is easier for traffic rights and there are planes flying around. “But if it is stable and the macro economics work, there is huge potential down the line – and I’m not talking about two or three years,” notes Lancaster. “If you look at the oil and gas model down there, we have done a lot of charters because there are a lot of small airports that are undeveloped, and so for charter airlines there are big opportunities down there. Obviously, once it becomes diverse, the scheduled carriers come in and take some of that business. But Africa and the Far East have huge potential in the long term.”

Proactive airports

Proactive airports are also sometimes able to help facilitate traffic rights applications in order to attract charter business. “Normally you are dealing with the CAA; but if there is an airport there that has got a good airport manager or be really wants the business, they will help,” Lancaster notes. “There are other airports where they are so busy that sometimes they don’t even want a charter aircraft coming.”

Knowledge of these kinds factors is also part of the extra value that a good charter broker can bring. “You might not be dealing with the CAA; you might have to go through an agent, and we might know a really good agent who has got a really good relationship with the CAA and can get the permits for you,” says Lancaster. “Each country is really stand-alone. We have got a traffic rights file, including agents who are good in each country, and people to speak to in each country, as sometimes even finding the right person in the department could be difficult.”

Slot congestion was apparently a factor in some major Chinese airports late last year, where the authorities were refusing to grant landing slots to charter flights. But it is not an issue currently getting slots, Lancaster says.

Outlook for 2016

Lancaster says a lot of the work charter brokers do is driven by macroeconomics. “We can’t control that. What we can do is keep doing what we are doing, and events – big, political events – happen around us, and we have to react to that.”

He doesn’t foresee any big change in 2016, expecting it to be similar to 2015.

“But things can change quickly, and if they do, charter brokers are very good at reacting quickly to that.”

Although some of the economic and markets news in the first weeks of 2016 has been “diabolical”, it doesn’t feel that it has affected air cargo or charter demand, yet. “I don’t know whether there will be a lag in what that holds for the rest of the year,” he says. But it is very hard to forecast the cargo charter business anyway, with most bookings made a matter of weeks ahead rather than months ahead of the charter.

“We never know what is around the corner. If you look back to the (US west coast) port strike, you can’t factor that in.”

Nevertheless, he is quietly confident that this year will be a good year. “And I’m looking forward in our five-year plan; the top of the cycle will be very exciting for us, because we’ve grown the number of offices that we have got. So, we are really well positioned when there is a big growth in the market.”