January 2007 Newsletter
Air New Zealand’s “Fyfe, The Knife”
 I have been known to make odd, controversial statements on air
freight and other weighty matters during my thirty-seven year career
in the transportation business. From time to time, Air New Zealand
has copped a little flak from my musings.
Being born and bred in that “south seas paradise,” and having lived
away from that country for twenty-three years although I travel
regularly to New Zealand on professional and personal business, I
have witnessed many changes.
Unfortunately, most of these changes are in the negative column.
Just over three years ago, I likened the largest city, Auckland, to
Lagos, Shenyang or Mumbai (the old Bombay). In other words, a third
world city despite its English heritage.
Like Los Angeles, where the English language is starting to take
second place to Spanish, in New Zealand, Chinese is starting to take
the place of our native English. Everyone should start learning
Chinese before they are forced to! Queen Street, Auckland’s
principal retail/business thoroughfare, more resembles a dirty, back
street in Shanghai than a former British colony.
Only two top-ten companies of fifteen years ago remain listed on the
Auckland stock exchange, Air New Zealand and Fletcher Building. And
I don’t give Air NZ much hope in remaining on the N.Z. bourse much
longer.
Why?
Because of that “wacky” lesbian minister, Helen Clark. She was
forced to bail out the airline three years ago and her government
now sits as an 85 per cent shareholder. They want out. Enter Bob
Fyfe, “the knife”, as replacement CEO in 2006 and already the
destruction of a once proud airline has begun.
“The knife” is rapidly turning Air NZ into the world’s first
“virtual” airline. All the aircraft are leased; India is now the
call center. China now services the fleet. Catering is outsourced
and so too will counter staff. It is expected that later this year
all ground handling, including critical ramp personnel, passenger
and cargo will be outsourced. Cargo sales will be handed over to
G.S.A.s. The flight and cabin crews will be the last to go and will
be replaced by cheap Chinese labor under contract.
The only thing Air NZ will own is the paint on its aircraft. Air NZ
will be stripped of all its assets. Probably a staff of no more than
ten will be needed to control the money and its destiny.
"My recommendation is this; China is flush with cash. Hey, Helen,
why let “Fyfe the Knife” continue to muck around and prolong the
misery of all remaining Air NZ personnel? Sell the outfit, lock,
stock and barrel to Air China."
My recommendation is this; China is flush with cash. Hey, Helen, why
let “Fyfe the Knife” continue to muck around and prolong the misery
of all remaining Air NZ personnel? Sell the outfit, lock, stock and
barrel to Air China. Better still, hand over the whole nation to
China. Over the past ten years, little by little, but now in huge
chunks, New Zealand now resembles a Chinese colony in every sense of
the word. Thanks to you and your idiot crony colleagues, the country
has moved to the lowest common denominator. There is no question
that New Zealand has lost its identity and what little culture it
had. I think N.Z. is ripe for the plucking. At least, the Chinese
aren’t retrograde, race hating, radical, revolutionary Muslim
terrorists hell bent on destroying western civilization.
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The Hawaiian Airline Business;
Trouble In Paradise
 Normally, my interest in Hawaii is strictly as a tourist. I’ve
been traveling to the Islands for a number of years and it
remains one of my favorite Holiday destinations. From a cargo
perspective, however, Hawaii never has played an important or
even modest role in CII’s business. CII’s Mainland-Hawaii cargo
volume has been tiny and mostly ad hoc. That picture of a very
peripheral market is changing, however. We recently hired a
sales manager based in Honolulu.
Now, CII expects to pursue vigorously the Hawaiian air cargo
market not only between the Mainland and the Islands but also to
South Pacific and Asian destinations. While the Hawaii-U.S.
market is growing slowly but steadily, the same cannot be said
for the airline business between the Islands.
For there is trouble in paradise. This trouble in many ways is a
a microcosm of the airline state of affairs on the Mainland. In
Hawaii, the two “legacy” carriers, Aloha and Hawaiian Air, are
battling a low cost newcomer Go! which began service last June.
The intra-Island market is barely big enough for two airlines,
let alone three!
But all are battling to increase market share. To do this, in
time tested airline fashion, they are reducing fares to below
the breakeven point and waiting for the other guy to give up.
Adding to their problems is the changing demographics of the
Islands and the explosive growth of direct flights from the U.S.
Mainland that bypass Honolulu. These flights are up almost 100
per cent in the last four years. Since the year 2000, there has
been a 22 per cent drop in inter-Island traffic while at the
same time more flights are being added by the three carriers.
Little wonder that Aloha and Hawaiian Air already have gone
through the bankruptcy courts.
Fortunately, from our perspective, the U.S. Mainland-Hawaii
market basically is healthy and showing modest but steady
growth. We believe this market can sustain a new entry, CII,
offering competitive pricing and superior service. These
qualities have been our trademark since CII opened its doors ten
years ago.
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Acquisition Mania Moves “Down Under”
US airlines aren’t the only ones succumbing to the merger and
acquisition fever. Qantas Airways has recently accepted an $8.5
billion buyout by a consortium of Australian and American financial
firms.
The very symbol of Australia throughout the world is now in private
and partially American hands. The concern by a number of Australian
law makers and the airline’s labor unions that Qantas’ jobs would be
shifted overseas to lower cost locations and the airline’s non-core
assets would be sold, weighed little against the greed of
shareholders and management’s intransigence. Yet, Qantas hardly
needed “rescuing.” The airline, unlike many of its global rivals,
has remained profitable despite high oil prices and stiff
competition. Its prospects remain very bright. Qantas flies to
nineteen nations in Asia, now the world’s center of prosperity and
economic expansion. Its routes to the U.S. and to the U.K. are
consistently profitable. Why tamper with a successful enterprise? I
have little doubt that the new owners, to pay off the debt generated
by the acquisition, will strip the airline of its assets a la Air
New Zealand. Then, they will float a stock issue of a non-asset
airline to an unsuspecting public. A once proud airline will
resemble Air New Zealand in that everything will either be
outsourced or leased.
My concern for the Qantas acquisition is more than just as an
observer of the airline scene. A good percentage of CII’s business
remains Australia and New Zealand bound. With the new owners having
to pay off the enormous debt created with the purchase of Qantas,
cutting costs will be the order of the day. It is hardly beyond the
realm of possibility that flights will either be downsized to
smaller aircraft or eliminated altogether.
Where does this leave the freight forwarder with cargo destined for
“down under?” Let’s hope that cooler heads prevail and Qantas makes
no effort to shrink its cargo capacity.
"With the new owners having to pay off the enormous debt created
with the purchase of Qantas, cutting costs will be the order of the
day. It is hardly beyond the realm of possibility that flights will
either be downsized to smaller aircraft or eliminated altogether."
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Give United An “A” For Top Communications
 Just about every day, I receive an e-mail from United Air Lines,
updating me on company policy, rates, bookings, airport closures
or anything of interest they wish to share with their cargo
public. I have to admit my respect for this airline rapidly is
growing. It takes only a minute to read their informative
broadcasts, but I have learned a good deal from them.
CII has just won a large contract to a destination where United
is a major player. Our team unhesitatingly chose them as our
prime carrier over other major carriers. It wasn’t so much the
rate but the confidence that we will receive preferred service
and excellent feedback.
If you had asked me two years ago if I would consider United as
a first option, as quick as lightning, I would have said, “no
way.” Under its former cargo “guru” of a few years back, the
infamous Jim Hartigan, United had slipped to virtually last
place in my pantheon of airlines. Here we are five years later
and literally before our eyes, they are becoming market leaders
in cargo in every way. It just shows, where there is a will,
there is a way. It also shows what an appearance in bankruptcy
court can do in stimulating management to mend its wicked,
wicked ways. All credit must go to United’s current cargo
management. Keep up your excellent communications. You have
elevated the image of your airline immeasurably.
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More Australian-U.S. Cargo Service; Maybe
 While Qantas and Air New Zealand are floundering, there may be hope in
the cargo situation south of the Equator. The big Australian
logistics group, Toll is considering seriously increased cargo
service after taking control of Virgin Blue—the airline started by
Richard Branson. Toll is interested in starting cargo service to the
U.S., using dedicated, long range Boeing 747-400 aircraft which
would complement its passenger fleet. The logistics company believes
the growth in U.S.-Australian air freight volume could justify a new
service. Virgin Blue’s Board of Directors expects to make a decision
re starting U.S. service early in 2007. There is any number of
obstacles, however, before the first Virgin Blue cargo aircraft
lifts off the runway.
High fuel costs are an impediment. The ability to obtain flights to
the U.S., and Australian government support also must be obtained
before any decision is made. As a freight wholesaler serving the
Australian market, we say the more airlines carrying our customers’
freight, the better. A little competition never hurt anyone.
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European Air Cargo Starting To Revive
 While the U.S. remains by far the world’s largest importer, demand
in the U.S. economy is slowing. To fill the gap, strength is
coming from a surprising source—Europe. Long considered the home
of stagnant economies and hidden in the shadows of the Asian
economic boom, the 17 nations in the European Economic Union are
starting to flex their muscles. Germany and France, the two
largest and most important nations in the Union, are showing
growth once again after years of hibernation. Smaller countries
like Spain and the new entries from eastern Europe continue to
gain economic strength. The “euro” currency nations are on track
to show their greatest growth since 2000.
And it couldn’t be more welcome. The U.S. economy is
decelerating. China is making noises about accelerating its
domestic economy to ease tensions among its 1.2 billion-strong
population and to de-emphasize exports. The “tiger” nations of
southeast Asia are behaving more like pussycats. Air freight
needs a good shot in the arm. October air statistics, the latest
available, were dismal across the board. Domestic air freight
showed a decline while international cargo rose only one per
cent, the smallest increase in more than a year. CII is not
simply an interested bystander in the European trade revival. We
are strengthening and upgrading our agents throughout the
17-nation EEOC in addition to the U.K. We believe Europe will be
increasing its trade flows into the U.S. and throughout the
world in 2007.
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Final Thoughts For The New Year
 The
assorted “experts” and pundits have weighed in with their
predictions for air freight this year. At best, these all are
educated guesses. Let me add to this guessing game. When all is said
and done, the air cargo business will not be very different in 2007
versus 2006.
Existing customers will continue to use the “transport child” of the
20th century because of their distinct needs for rapid, reliable
delivery of cargo. New, fresh customers will be increasingly hard to
wean away from surface transport. The huge overcapacity expected
this year in container capacity, with a subsequent softening of
ocean rates, will, make it doubly difficult to persuade surface
shippers to shift to more expensive air. China will become less of
an 800-pound gorilla trading nation and more of a 600-pound simian
as that nation increasingly looks toward its own domestic needs.
Europe will show, at long last, trading strength. Freight forwarders
should turn more of their attention to Europe this year while
continuing to focus on Asia.
Unless an economic or political disaster occurs during 2007, which
no one can predict, air freight should show small gains
internationally this year with a flat to declining share of the
domestic transport market.
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Julian
Keeling
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