When an airline executive says it’s a really exciting time to be at ‘such and such an airline’, it almost certainly gets written off as some marketing soft sell. But in the case of Virgin Atlantic Cargo’s head of cargo, this is no marketing fluff, it’s the real meal deal. By Donald Urquhart from Air Cargo Europe 2019.
“This is a really exciting time to be at Virgin Atlantic in terms of some of the things that are going on in the wider industry, for us this really future proofs us,” Dominic Kennedy, managing director, cargo, Virgin Atlantic Cargo says. Easy to dismiss, yet it’s clearly understandable why he feels this way, given the entirety with which Virgin is making sweeping changes as it continues to up its cargo game, one clearly centred around giving customers the best possible service and options.
These sweeping changes include the upcoming start of new services to brand new markets in South America and the Middle East, alongside a return to India; new aircraft coming into the fleet; a new warehouse coming on stream later this year at its Heathrow Hub; a new cargo management system in the works; and a potential joint venture with Air France KLM, in the same vein as its current JV with Delta Airlines.
But, while all this is very much on the march, the global cargo market has effectively tanked. With much industry discussion focused around the current slowdown Kennedy expresses a sentiment held by many in the industry – that it’s important to remember that the last two, very good years set a very high base for comparison. “The growth we’ve seen over the course of the last two years means this was an industry that was at a peak it’s never seen before,” he says.
But even taking the high base into account there is no denying that demand has slackened at the hands of trade disputes and various other factors. But as Kennedy notes, “if you look under the surface a little bit what you see are some differences based on geography, differences based on product segment.
“So whilst we’re certainly now not looking at 2019 as delivering the kind of growth that we’ve seen over the course of the last two years, we’re still looking at 2019 as one which we will still be striving to achieve relatively small, modest growth,” in the single digits he says.
While Asia has taken a fairly big hit in this downturn, the impact on Virgin is understandably small from that region, given its very large trans-Atlantic footprint and rather diminutive Asian presence. The carrier operates two China services – Shanghai and Hong Kong along with Virgin Australia which operates two flights out of Hong Kong to downunder.
“For us, mainland China has remained fairly resilient, there’s still strength and we feel we still have a really strong proposition for our customers in Hong Kong which allows us to weather the storms better than the market. We’ve seen a few ups and downs in Hong Kong, but nothing fundamental,” he adds.
And while mainland China has been steady for Virgin, Kennedy agrees there is some production shift taking place. “We do see some new, emerging off-line demand from countries in Southeast Asia.” Enough demand, in fact, that Virgin has appointed GSAs in Thailand, Cambodia and Vietnam, “which is feeding some of our online routes using some interlining,” he says.
“So yes we are hearing from customers about growing demand from Southeast Asia and we constantly evaluate off-line presence because we obviously don’t fly there directly,” he adds.
Return to India
One destination that Virgin plans to open later this year is no stranger to the carrier. Virgin is perhaps hoping that the ‘third time’s the charm’ for Mumbai which it had previously operated services to, but then pulled them, driven by decisions on the passenger side.
With the demise of India’s Jet Airways, both a new imperative and opportunity presented itself. Jet was a long standing partner of Virgin Airlines on the passenger side and it had an interline relationship on the cargo side.
“India is a growing market both in the passenger and freight space and this has meant that we’ve been keeping really close eye it,” he says. “Route decisions for any airline are based on supply and demand and when you see one of the biggest suppliers of inventory in that market no longer serving it, it changes the appraisal. So we made the decision to start fairly quickly.”
Virgin Cargo does have a long-standing GSA partnership with InterGlobe in India as a result of its daily Delhi service, “so we’re talking to them about how they can expand their coverage to Mumbai,” Kennedy says. At the time of this interview the announcement of Mumbai was only weeks old, with Kennedy saying a team was hitting the ground in the coming days to work out the details, such as ground handling ops.
“We’re fairly familiar with that market even though we’ve been out of the market for number of years now. It was a really strong cargo market when we operated there, but since we departed its seen a 50 per cent growth in demand eastbound and almost similar margin of growth out of India, so there’s a real buoyancy in both the consumption that’s driving the imports into India and exports of course, as well. So we’re really excited about the benefits that’s going to bring to customers,” he adds.
Of course Mumbai is of particular interest to Virgin because of the high proportion of pharmaceuticals and the life science market that exists in and around Mumbai. “Obviously this is an area of focus for us as an airline, so we’re very, very keen to be back into that market,” Kennedy says, adding he expects this will be a “significant portion” of Virgin’s business out of Mumbai.
He adds that the carrier has some “very compelling life science products,” including transit products as well, because of the accreditation the carrier has across it Heathrow campus and also with the certification that Virgin’s joint venture partner, Delta has.
Other new markets announced earlier this year will take the carrier to brand new destinations. “Following the Delta shareholding we focus very much on transatlantic and a lot on Delta hubs and these are obviously really interesting cargo markets.”
First announced was Tel Aviv starting this September and shortly after São Paulo for a March 2020 start was named, which marks its entrance into the South America market – virgin territory you might say. Both of these have high relevance for the carrier’s UK and US based customers.
“We know there’s more competition on some of those routes and we’re excited to bring the Virgin product into the market. Tel Aviv will be a daily A330 and I think it’ll be an interesting market, one that we will see the strength of the Virgin network helping enrich competition in the Israeli market,” he says, adding there are a lot of US connections Virgin can facilitate through Heathrow.
Again, pharmaceuticals figure into the mix as a key cargo item, and a fairly pronounced peak season of perishable volumes around the northern hemisphere winter, alongside an emerging high-tech industry, all provide a reasonable mix.
Kennedy says the focus is first on Tel Aviv and after that his team will start looking at São Paulo for the March start next year, which will tap the country’s substantial automotive industry, as well as perishables.
Other existing markets that bear mention and this includes the long-haul international capacity of Virgin Australia which Virgin Atlantic markets, which have proved very successful cargo routes.
“Johannesburg is a great market for us as well and we just put a second service in Johannesburg so we now have two overnight services using B787’s. It’s been a great network proposition for us, so again real strength in UK market, but it’s giving our customers in North America in particular connections to South Africa that we weren’t able to previously provide,” Kennedy says.
Virgin’s home market has obviously been key to its success, with Kennedy noting that, “We’ve got a very strong proposition in the UK market and we’re continuing to see real strength there with really loyal customers.
“We’re delighted with the level of market share that we’re getting from them and that’s been a real success story during the course of this year and in the main that transatlantic business just because the amount of capacity we have there.” Key of course on the transatlantic is the Delta Airlines connection, he highlights.
The Delta partnership is now five years old now and together the two carriers account for over 25 per cent of transatlantic cargo volumes on either a Virgin or Delta airway bill, so clearly that it’s working very well for both partners. “And we delivered a number of things over the last two years which certainly enriches benefits for customers through our partnership,” Kennedy adds.
New Heathrow infrastructure
Operationally Virgin is co-located with Delta in warehousing at Heathrow, Boston, JFK, Atlanta and Seattle. Where the pair have shared metal-market, whether it’s Virgin or Delta, customers interact with the carrier of their choice and services are seamless.
Across North America the intent is to be under the same roof as Delta and wherever possible and infrastructure permits, they are, “that has delivered fairly significant customer benefits in its own right,” he adds.
At Heathrow a new shared terminal will open in September, operated by dnata, who provides services for Virgin across the UK, but most importantly at the Heathrow hub. The facility Virgin uses at Heathrow was built 20 years ago and Kennedy says it has “served us well over the course of 20 years. But our business is evolving, it is growing and 20 years later trucks are bigger with more volumes to process,” he says.
Dnata was able to secure a piece of land that allowed for a facility that would handle not just the volumes Virgin and Delta have today, but a platform for even further growth down the line, according to Kennedy. “It’s also just thinking about everything to do with an end-to-end experience for our customers,” he adds. Scheduled to open in September the new cargo facility is 50 per cent bigger than her current facility at a total of 31,122 sqm.
IT game changer
Perhaps the biggest game changer in Virgin’s arsenal will be the carrier’s new cargo management platform. After many months of research on what is available in the market, Virgin opted for the Accenture Freight & Logistics Software 8.0 (AFLS 8.0) platform. This will come on stream in the first quarter of next year.
The time was probably well over-due for a new platform, the existing product dating from 10 years ago – likely still more modern than many carriers in the industry – that served the carrier well, but no longer.
“We spent quite a lot of time looking at how things are changing in our industry thinking about how we need to evolve and adapt to best server customers’ needs and there are number of things that became important for us as we thought about our changing technology requirements,” Kennedy says.
One of these was evolving the carrier’s distribution model away from telephone processing and customer service centres. “Our customers were telling us loud and clear that we needed to change in the space,” he adds.
Another key aspect, particularly with the Delta joint venture, was around partnership connectivity. “We wanted to be able to better integrate with our partner’s systems and again to offer our customers more through their relationship with Virgin Atlantic.
“We went to market and went through a fairly lengthy process where we looked at a lot of different vendors capabilities and selected the Accenture product.” Following this, Virgin and Accenture have been running the platform in the background for the last eight months, ultimately leading to Virgin signing on the proverbial dotted line.
“It’s a really exciting process for us,” Kennedy says. “Accenture is a very progressive company this is the best cargo management system on the market and we’re really, really excited about this and the advantages this is going to mean for us as an organisation and our ability to quickly evolve, adapt and most importantly, respond to customer needs,” Kennedy says.
“Our objective is to be able to offer to our customers the best of transactional capabilities that they get today by interacting through human interaction and our customer service centres. We want them to have that experience on our dot.com and beyond, building on that experience through an API version as well,” Kennedy adds.
One more JV
The final element in Virgin’s catalyst as it relentlessly pushes forward in its service offering is a possible new joint venture with Air France KLM, something akin to its current joint venture with Delta Airlines. At this point there’s not much to be said about it as it is still being scrutinised by regulatory authorities.
But should it go through, the sheer scale of Virgin’s offering will be staggering. As Kennedy notes, Delta’s cargo business is somewhere in the magnitude of three times bigger than Virgin’s and AF KLM is another three fold jump in scale over Delta’s cargo business. That equates to enormous capacity and network reach.
“We want our customers to benefit from as much choice as we can possibly give them, so one of the principles that guided the conversation with Delta is this principle of choice. We want our customers to be able to choose freely with whom they interact, but when they do, we want them to be able to access our partners inventory seamlessly.”
Marriages are often difficult things however and whether Virgin/Delta will be able to pull off a third party joining their happy relationship as smoothly as the original pairing, remains to be seen. But if they do – and why not, they do have the track record already – it will be a force to be reckoned with within the industry. Lets see.