E-commerce is thriving and serving as a growth accelerator for Hong Kong Air Cargo.
Airlines are seeing their e-commerce business boom as shippers invest in airfreight services for customers keen to receive goods faster than ever.
McKinsey recently said that the percentage of e-commerce of overall air cargo volumes had jumped 10% in the space of five years and predicted e-commerce will likely stabilise as a third of total air cargo volumes.
The sector has expanded 10-12% per year post-pandemic, according to IATA, which pointed out, that air cargo is responsible for transporting 80% of cross-border e-commerce goods.
Hong Kong International Airport-hubbed Hong Kong Air Cargo (HKAC) is one such company that has benefited from the surge in e-commerce.
Launched in 2017 by HNA Group’s Hong Kong Airlines, which decided to spin off its cargo company for better positioning in the market, HKAC is still very much focused on building its fleet and network.
HKAC has traditionally focused on Asia and Asia Pacific scheduled operations with some charter operations, but e-commerce demand has seen it grow its geographical reach and begin operating more charter flights.
“In the past, we mainly did scheduled flights. But now we see more and more demand for charter flights, especially from our China-based e-commerce business partners,” Captain Clifford Hung, president and chief operations officer of the airline elaborates.
The e-commerce business model has been evolving, he notes.
Notably, rather than working with freight forwarders, HKAC is doing business directly with China-based e-commerce shippers.
“Initially we were dealing with just local GSAs, forwarders, but (now we are dealing directly) with e-commerce companies,” Hung says. HKAC has launched a flurry of e-commerce charter routes in recent months.
HKAC’s newest e-commerce airfreight route, launched in March this year, is to Riyadh, Saudi Arabia.
Shortly before, in February, the company began operating new routes to Liege in Belgium and London Stansted.
Only in October last year did it start operations in Europe for the first time with a service to Milan Malpensa.
Now, the carrier plans to further expand its network with more e-commerce charter routes in Europe and the Middle East, says Hung.
Depending on the demand & sustainability of these e-commerce routes, there is potential to turn them from chartered to scheduled.
Hung says: “When there’s enough demand for a route to be served as a scheduled flight then we might decide to apply and change it to or add onto a scheduled destination. It’s flexible.”
The airline says it has noticed a shift towards longer term charter contracts for capacity relating to both e-commerce and its traditional verticals, including general cargo, perishables, live animals and dangerous goods, that could support e-commerce charter to scheduled moves in the future.
However, charter rates have remained fairly stable, which means it makes sense to invest more in charter operations currently, said the company.
Hung adds: “I’m quite optimistic that e-commerce will be still dominating cargo demand in the next few years. But how long or how much growth nobody can tell.”
While demand has held steady, the company has noticed a commodity shift from electronics to clothing and other commodities selling in e-commerce, although this hasn’t changed the way it does business.
“The way we do charters and how we negotiate our (e-commerce) contracts with our partners hasn’t been changed at all,” Hung clarifies.
Fleet trails network
By 2027, HKAC aims to have 15 aircraft – comprising owned and aircraft, crew, maintenance and insurance (ACMI) leased aircraft, says Hung.
It’s an ambitious goal, given HKAC currently has five Airbus A330-200 freighter aircraft that are dry leased from its parent company Hong Kong Airlines, plus an EFW-converted Airbus A330-300P2F that is on ACMI lease.
HKAC also acts as a general sales agent (GSA) for belly cargo capacity belonging to its parent’s passenger planes. Now, the airline is considering its options for investing in new cargo aircraft.
“At the moment, we are evaluating all types of freighter in the market,” says Hung.
These options include Boeing 777Fs and Boeing 777-8Fs, as well as the Airbus A350F.
Any aircraft investments must also serve potential international routes, hence why aircraft on the bigger end of the scale are being considered.
Further in the future, when HKAC has suitable aircraft, e-commerce operations could be extended beyond Asia, Europe and the Middle East.
“We are looking at sourcing an ideal aircraft to operate into North America and even South America,” Hung explains.
But with cost efficiencies in mind, second-hand newbuild and conversion options, such as the Boeing 777-300ER, are also being considered.
There may also be further investments in EFW-converted A330-200s and A330-300s, capable of payloads up to 60 and 62 tons respectively.
Alongside the sizable volume offered, Hung explains the A330 also offers “optimal range and low operating costs”.
At the same time, leasing also provides flexibility for operations and is more suitable for HKAC on trial or temporary routes.
As Hung points out: “It all depends on our customers’ demand. We have to match it and to serve our customers’ need.”
Core investments
Like the majority of airlines, HKAC is investing in digitalisation in areas including data and automation to “catch up” with those innovating in the industry.
Staffing and skills is another area of investment, although, with approximately 230 staff, recruitment and retention is not as resource-intensive and so much a challenge as it is to other supply chain partners.
“The challenge as an operator is more about the shortage of manpower of our ground handling partners in airports. In some cases, we want to increase our frequency, but manpower constraints and staff shortages restricts the expansion,” points out Hung.
“This is something that might affect our development. But we have to live with it and then find alternative solutions. We are working with different airport authorities trying to resolve this issue.”
Increased competition is another challenge faced by HKAC.
“More and more airlines are flying to Hong Kong,” says Hung. “So, competition definitely is one of the greatest challenges to us. To maintain our market share we have to have more products, provide better services and flexibility.”
Of course, flexibility to alter flights, networks and strategy is easier as a small, medium, enterprise (SME).
Hung reflects: “That’s actually one of our competitive advantages because we are smaller in scale. So, it will make it easier to respond quicker to the market.”
