AirBridgeCargo’s Sergey Lazarev talks to Will Waters about on the airline’s evolution in its first 15 years, its growth expectations and ambitions, the potential of e-commerce, and its big plans at Liege Airport
Just 15 years after its relatively humble launch in 2004, AirBridgeCargo (ABC) Airlines’ fleet has grown to 18 Boeing 747 freighters, including 12 of the latest-generation Boeing 747-8Fs, together carrying total annual volumes exceeding 700,000 tonnes. And since the beginning of scheduled operations in 2004 with two Boeing 747-200Fs, it has evolved from being a low-cost provider of point-to-point services linking a handful of cargo gateways in Asia with Europe, via Russia, to a respected, leading network carrier – operating through modern handling facilities at the airline’s main global hub at Moscow’s Sheremetyevo airport (SVO).
As well as becoming a member of air freight quality initiative Cargo iQ, ABC now offers a range of specialist products and has been investing in various technology-driven initiatives to improve quality and ease of doing business – from ULD tracking through its partnership with Unilode, to a pioneering Internet of Things project with SITA subsidiary SITAONAIR.
Alongside the various digital initiatives, the carrier has ambitious plans to further expand its fleet, and recently announced a long-term commitment to build a substantial business around a new European hub at Liege Airport, already emerging as a European hub for Cainiao – with which ABC parent company Volga-Dnepr Group signed an MoU to co-operate – and other Chinese e-commerce logistics specialists.
Top 10 status
Asked whether ABC has now been accepted as a top-tier air cargo carrier, ABC’s general director Sergey Lazarev focuses on its global status in volume terms, noting: “According to our results for 2018, AirBridgeCargo is ranked among the Top 10 cargo carriers of the world, and we are proud to have stepped into our 15th anniversary year with such an achievement, which reflects support from our customers worldwide.”
Among the key milestones in achieving the company’s acceptance as a major player, Lazarev says there has been an enormous amount of work behind this achievement, starting from the first day of operations back in 2004, noting: “It embraces all the areas of our business: expansion of our network in alignment with fleet enlargement, strengthening of our positions in the regions by building of our own sales and customer service structure, rather than relying on GSAs’ support, and the development of dedicated services for special cargo with a primary focus on quality performance.”
He stresses that the quality and safety of its services are “the two pillars which form the basis of our business portfolio”. He acknowledges that along the way, the company has “of course had our ups and downs, facing many problems and challenges”, but it had overcome these, with the support and “endorsement” of its customers, thanking “our customers and partners for supporting us in good and hard times. They have bolstered our growth and development though the solid and reliable partnerships we have managed to build throughout these years.”
Launch decision
He highlights a number of milestones going all the way back to 2002 – when “the management of Volga-Dnepr Group took the decision to launch the project to establish a new scheduled cargo airline and started to attract the best minds within the group, as well as from the industry, to make it happen”.
Following the launch of scheduled operations in 2004 with two Boeing 747-200Fs, ABC obtained its own AOC (aircraft operator certificate) in 2006 – thus becoming the second independent airline within Volga-Dnepr Group. “This milestone has served as the right step for further growth, fleet enhancement, and ambitious future planning, with the purchase of new long-range Boeing 747-400F aircraft,” Lazarev adds.
The following three years saw “tremendous renovation of the ABC all-cargo fleet”, with the delivery of newer Boeing 747-400F aircraft to supplement and subsequently replace the ageing B747-200Fs, “which opened up new opportunities for further network expansion”, culminating in 2009 – ABS’s five-year anniversary – with its first industry acknowledgements, via several award wins including Fraport Cargo Services’ award for Best Cargo Performer 2010 after ABC increased its freight volume through Frankfurt Airport by nearly 50%.
ABC’s entry into the US market in 2011, “becoming the first Russian air carrier to operate scheduled flights between Russia and the USA”, was another key milestone. “Starting with Chicago, we have gradually been enlarging the number of our online stations and currently serve six US stations with around 40 weekly frequencies,” he points out.
And the following year, ABC deployed its first brand new Boeing 747-8F. A key milestone in its own right, Lazarev says the new aircraft type’s operational characteristics fostered ABC’s “plans for the development of dedicated services for the transport of special cargoes”.
Winning the ‘All-Cargo Airline of the Year Award’ in 2015 marked the beginning of the current era, which Lazarev says is characterized by ABC “bringing quality to the forefront of its operations, being in constant dialogue with its customers worldwide and strengthening its speciality services”, which now include products such as abc pharma, abc XL, and abc DG.
“Our special products resonated with market demand and our customers’ expectations,” he says. “This commitment was also demonstrated through our Cargo iQ certification, IATA CEIV, Envirotainer QEP certification, alignment of internal procedures, and reinforcement of the ABC team – which significantly enhanced our abc pharma performance and made it possible for us to become one of the leading carriers of pharmaceutical and medical products.”
Customer-led
But he says there is much more still to achieve. “The sky is the limit,” he says, while stressing that “everything we do on our development path we do with our customers’ needs in mind”. He adds: “We will follow their requirements always and be ready to support these with high-quality services, supported by the development of our digital environment as there are many things to be done in this area.
“But what is more, we will keep on reinforcing our team of worldwide experts because they are our main asset; and with the level of knowledge within our company always going up, we feel that having highly qualified, experienced, and well-educated personnel is the way to achieve a successful future.”
Highlighting progress in the last 12-24 months to improve service quality and operational efficiency, Lazarev notes: “We have just re-confirmed our Cargo iQ certification, which stands as our commitment to high-quality services. This included a lot of preliminary work and cooperation with our ground handling partners.”
He stresses that Cargo iQ embraces not only services for general cargo, but for special commodities as well, noting: “We have been working under the development on reinforcement of our specialty services, strengthening our internal processes, strengthening our dedicated teams of experts, and most importantly, collaborating with our customers and partners on the educational side of the process, organizing joint workshops, participating in regular meetings to share updates, and monitoring industry news, and upcoming trends.”
On the product side, confidence in the company’s internal procedures and our processes in April led it to introduce a new product, ‘abc premium’, for customers seeking guaranteed capacity and prioritisation on specific flights across ABC’s international network. Expected to attract demand from customers with urgent, time-sensitive shipments, the product can also be combined with existing services and products.
SVO cargo hub
And Lazarev confirms that the new cargo complex at SVO has also contributed significantly to improvements in ABC’s quality performance. “SVO is our cargo hub and most of our flight connections are being done through this major airport,” he explains.
“We have been able to achieve our growth and network development partially thanks to their support. With more than 85 weekly flights to/from SVO, we are able to guarantee flight connections with cargo transfer to various destinations within our international network.
“We have gradually become a top-tier network carrier and are able to provide our customers with air freight solutions for various types of cargo. In fact, SVO actively participated in the process of our IATA CEIV certification and contributed to its overall successful outcome.”
Asked if there are any aspects or capabilities offered by other cargo carriers that ABC admires or aspires to, Lazarev responds: “To some extent we admire the speed of digitalization penetration some cargo carrier peers are adopting at the moment, introducing it to all the levels of their organizations. This is what we are aiming to do too, although we should understand that digitalization depends on a number of factors, including each country’s regulations, customs authorities’ regulations, readiness of other supply chain stakeholders, and other matters.”
Strategic targets
Looking ahead at ABC’s strategic milestones or targets for the next few years, Lazarev notes: “Our short-term perspective is to concentrate on the provision of high-quality services, with special focus on leveraging volumes of dedicated cargoes,” highlighting, in particular, pharmaceutical products, oversize and heavy cargo, dangerous goods, and e-commerce traffic, for example. And on plans for other areas of ABC’s business, he notes: “Following our customers’ needs, we will expand our network and enlarge the fleet, as well as work on improving the digital environment our customers expect to experience while working with top-tier cargo carriers.”
Group fleet plans and affiliates of ABC
ABC’s parent company, Volga-Dnepr Group, along with CargoLogicHolding – both owned by Alexey Isaykin, president of Volga-Dnepr Group (VDG) and chairman of CargoLogicHolding – in July signed a package of agreements with aircraft manufacturer Boeing, including a letter of intent to acquire 29 Boeing 777 freighters and confirmation of an order for five Boeing 747-8 freighters. The package of agreements also included a commitment for both companies to explore other freighter solutions, such as new production 767 freighters or converted cargo jets such as the 737-800 Boeing Converted Freighter.
Isaykin explained at the time that CargoLogicAir, part of CargoLogicHolding, had started its business by flying 747 scheduled and charter flights to and from the UK, but would be extending its network “using a range of Boeing aircraft including Boeing 747-8F, 777F, 767F and 737-800BCF.”
There remains some confusion about the announcements, and the relationship between CargoLogicAir, CargoLogicHolding, and ABC – and one source close to the agreement indicated that the number of aircraft announced in the MoU had been inflated in order to support partner Boeing’s freighter programme.
Asked about this, and how many of these aircraft are expected to join the ABC fleet, Lazarev responds: “First of all, this MoU is aimed at serving the emerging needs of Volga-Dnepr Group’s fleet, as it is growing and constantly developing to meet the demands of our customers worldwide. However, we are happy to see that this MoU will support the freighter programme of our longstanding partner.”
There has also been a lack of clarity about the launch of CargoLogic Germany, which CAAS understands to also be part of CargoLogicHolding. CargoLogic Germany describes itself as “a new all-cargo airline based in Leipzig, Germany” that offers to “help our customers fulfil their European logistics requirements with an emphasis on short and mid-haul operations on B737F equipment”. CLG has reportedly taken delivery of two converted Boeing 737-400F freighters but is still working to secure its air operator’s certificate (AOC).
Despite the fact that both companies are subsidiaries of CargoLogic Holdings, which has the same shareholders as Volga-Dnepr Group — the parent company of ABC — uses the same branding and livery common to both ABC and CargoLogicAir, there appears to be an attempt to play down the connections between CargoLogic Germany and Volga-Dnepr Group.
Lazarev denies that ABC and CargoLogic Germany are affiliated, responding: “CargoLogic Germany is an independent European carrier specializing in express transportation of various types of cargoes, with special focus on leveraging e-commerce volumes. It is not affiliated to AirBridgeCargo or to Volga-Dnepr Group. The carrier is expecting to be issued with its AOC to commence its operations.”
But some in Germany, including Lufthansa Cargo chairman and CEO Peter Gerber, question the legitimacy of CargoLogic Germany’s application for a German AOC, “because you need to be European and it needs to be European controlled. If it really is an AirBridgeCargo subsidiary, that in itself contradicts the laws – because it’s controlled by ABC, and they can’t get a European Union AOC.”
E-commerce and digitalisation
Meanwhile, whether or not in partnership with affiliated – or non-affiliated – carriers close to ABC and VDG, ABC is among the many air cargo carriers that expect that e-commerce traffic will increasingly be a significant driver of growth in the short and medium term.
“E-commerce is one of the most dynamically developing sectors in the air cargo market,” Lazarev notes. “It has been growing at 20% annually on average during the last 10 years, and is expected to continue its upward trend with at least 15% growth rates, both for domestic and cross-border e-commerce shipments. With more than half of all cross-border e-commerce being inter-continental, air cargo is the most preferable mode for delivery, especially when it comes to meeting the term of 72-hour delivery frames.”
He continues: “Active development of regional fulfilment centres, increasing popularity to accelerate online purchases and deliveries, simplification of online shopping procedures and the emerging level of consumers’ confidence in this type of purchasing facilitates the increase of air traffic of e-commerce purchases to various countries of the world. We feel that e-commerce will drive the growth of cargo volumes and expect that more commodities will be embraced by e-commerce, such as pharmaceutical products (non-temperature-sensitive), household appliances (both small and big), furniture items, etc. From our side, we are ready to support customers with our dedicated ‘abc e-com’ product, which could be combined with other products and services offered by ABC.”
He doubts the suggestion that e-commerce growth could be punctured by changes in international postal pricing agreements, triggered by the planned withdrawal from the UPU by the US Postal Service.“This is hardly possible because the market is so consumer driven; the tendency is quite contrary, as more buyers around the world expect faster and friendlier delivery terms. Indeed, there might be some hurdles on certain trade lanes influenced by economic and political situations, but when one door closes, another opens – this will facilitate the development of another regions, as consumers will still target the fastest and most seamless online purchase experience.”
Changing role
In terms of how he sees air cargo carriers’ and freighter operators’ role evolving over the next few years to meet the needs of e-commerce customers and a new generation of digitally connected customers and logistics chains, he responds: “The only possible option to meet the demands of e-commerce customers is to guarantee high-quality services with enough cargo capacity and flight frequencies from regions of production to the points of consumption, which now will cover the whole world.
“There is a wide spectrum of things that lie behind successful operations for e-commerce shipments. It starts with modern and efficient freighters, capable of transporting various types of cargoes as well as having an extensive network and collaboration with trustworthy and reliable partners on the ground, because even if the carrier guarantees speed of delivery, ground handling hurdles could be the cause of delays. And, most importantly, introduction of a holistic digital environment which will guarantee 100% transparency and visibility of cargo status information.
“We are in an era when all supply chain stakeholders are expected to work in tandem as never before, stepping away from peep-to-peer data messaging to data sharing and working together to achieve greater supply chain efficiency. Digitalization for e-commerce shipments involves creating dedicated API (Application Programming Interfaces) to guarantee instant information flow between all the members of the supply chain, with data available for all the participants.
“We, at ABC, have already initiated this process for our dedicated ‘abc e-com’ product and received positive feedback from our customers with e-commerce cargo as they have access to real-time data and cargo updates. From our perspective, this is the future of digitalization – to maximize efficiency and accuracy of cargo movement data and deliver it to customers in an easy-to-use-and-read format. That is why, more than ever, the air cargo industry needs highly qualified IT specialists who understand the process of cargo flow and can adjust all digital processes accumulating data so it is all available in one place. Not only are we reinforcing our IT team, we are also closely cooperating with our partners’ IT departments.”
Market expectations
Meanwhile, on the market demand side, he comments: “The beginning of the year is shaping up slightly weaker than expected by the majority of industry experts. A lot of operators have introduced additional capacity at the end of the last year and plan more increases to their freighter capacity during 2019, which will, of course, influence demand-supply ratio and at the same time intensify competition.
“The last two years have been very good for the industry, and we know only too well that after an upward surge comes the downward trend – this is in the nature of air freight business, which is cyclical. Our expectation is that we will still see growth based on GDP figures and market drivers, such as e-commerce development and demand for dedicated services of special cargoes. Carriers are expected to orchestrate their fleet and network to meet their customers’ expectations in terms of high-quality performance, operational efficiency and digital environment.”
He concludes: “From our side, we will be focusing on guaranteeing high-quality services, including specialty services which have been in high demand, introduce more digital solutions to enhance customer experience, the development of logistics solutions based on our customers’ needs, embracing all the areas which might be essential for this. Basically, we will continue our path of development and will adapt to the current environment in the most effective manner.”
ABC re-shapes its European networkLast October, AirBridgeCargo Airlines signed a 10-year lease agreement on a new-build cargo handling facility at Liege Airport as part of plans to make Liege its main western European hub and massively upscale its flight frequencies to and from the airport.
The new arrangement signifies a major increase in the cooperation between the two companies, which has been growing since October 2017, when ABC switched some of its flights there due to slot restrictions at Amsterdam.
Under the agreement, AirBridgeCargo will lease 25,000 sqm of new warehousing in a €25 million investment, divided into two phases, with the first 12,500 sqm warehouse scheduled to become operational by November 2019, and the second phase next year. ABC also announced its intention to increase the number of weekly flights to Liege from its current weekly level of eight flights “up to 30 within the next 1.5 years”, with ABC expecting to “be able to leverage growing market demand for special cargoes, especially e-commerce shipments”.
Partnership with WFS
In April, ABC revealed it had chosen Worldwide Flight Services (WFS) as its handling partner at Liege Airport, at the same time fulfilling a strategic objective of WFS to enter the Liege market.
ABC’s initial plan to increase to 30 flights per week by early 2020, along with the original planned opening date of the new warehouse, has been pushed back somewhat to the end of 2020, and may still turn out to be optimistic.
Sergey Lazarev, general director of AirBridgeCargo Airlines, says “the development of further flights into Liege will be a steady progress for the company”, following the opening of the new warehouse facility. “It is a planned and gradual increase from eight existing weekly flights up to 30 weekly flights within the next years, optimistically aiming for the end of 2020. We are planning to accomplish this through both the introduction of new European capacity and the replacement of existing routings.
“The project is divided into two phases with completion of the first part of our handling facilities by the end of 2019 and the release of the second part of our premises in the first half of 2020. The new capacity will be introduced accordingly after the new facilities are operational to the full extent based on smooth workflows in a tailor-made warehouse, set up and meeting all the requirements for cargo handling.”
Filling extra capacity
Asked what makes ABC so confident of filling these extra flights, he responds:
“We have been working on the development of Liege and we are convinced we will be able to fill these extra flights, firstly based on support from our customers, and, secondly, by the involvement of the airport in the regional development and transformation of Liege airport into one of the leading airports of Europe. Its geographical location, proximity to distribution centres and highway accessibility makes Liege Airport an ideal location for leveraging the emerging export-import flows of the region. As opposed to other airports experiencing congestion, Liege is more flexible, which opens up new opportunities for cargo carriers and provides enough room for expansion.”
Asked if ABC has any specific commitments from customers to use such a big increase in capacity, he says: “We are focused on accommodating all types of cargoes, including burgeoning e-commerce volumes, as they might constitute a major part of our traffic, given the strategic cooperation with Cainiao.” Indeed, both Volga-Dnepr Group and Liege Airport have cooperation agreements with Cianiao.
“However, e-commerce traffic is becoming more complex and diversified, with new types of commodities becoming purchasable through the internet, such as non-temperature medicines, electronics (which are usually classified as vulnerable cargo), or heavy and hard-to-handle niche goods, which includes such oversize items as furniture and household appliances. Having said that, e-commerce is not the only driver behind the expected growth, as other commodities will also contribute.”
Asked where the additional aircraft capacity will come from to scale up ABC’s flights at Liege, Lazarev says: “According to our fleet development plans, we will have new aircraft ramping up our existing capacity and we are planning to deploy them for Liege frequencies among others. Basically, we are re-shaping our European network right now, finding the most suitable points for cargo handling and further distribution with friendly cargo ecosystems to guarantee our customers the level of services they expect.”
