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Slide 1
1 Managing the Cargolux Network February 6, 2007 Propeller
Club, Basel
4 USD million CAGR 18.6% Revenue 1 2004 and 2005 figures in new
Lux GAAP standards 11
Slide 5
5 2005/ 2004 Consolidated profit & loss account USD million
Revenue EBITDA % of revenue EBIT % of revenue Net result % of
revenue 2005 1,215.2 225.6 18.6% 128.7 10.6% 83.5 6.9% 2004 +19%
-3% +7% 1,446.5 219.1 15.1% 137.5 9.5% 89.4 6.2%
Slide 6
6 Cargolux destinations ** = in cooperation with Bluebird Cargo
Komatsu Seoul Shanghai Taipei Singapore Kuala Lumpur Chennai
Bangkok Hong Kong Karachi Baku Damascus Kuwait Abu Dhabi Dubai
Sharjah Johannesburg Beirut Istanbul Accra Abidjan Luxembourg
Prestwick New York Huntsville* Houston Guadalajara Mexico City
Bogota Latacunga Sao Paulo Santiago Recife Calgary Seattle San
Francisco Los Angeles AucklandMelbourne Maastricht Budapest Tehran*
Nairobi Milan Curitiba Panama City* Kinshasa Fort-de-France* * =
regular charter destinationAdditional destinations are served via
interline and trucking Barcelona Lagos Lusaka Reykjavik** Chicago
Helsinki NDjamena Amman Doha Petrolina Dammam Beijing Xiamen
Indianapolis
Slide 7
7 Fleet & Investments 14 B747-400Fs Launch customer (1993)
2 more on order (2007, 2008) Launch customer of B747-8F 10 firm
orders plus 10 options First delivery in Fall of 2009 New hangar
under construction Operational early 2008
Slide 8
8 Airline Specific Dynamics High Fixed Costs per calendar
period (aircraft depreciation/lease, salaries) Aircraft (more than
$150 million for a new B747-400F) is typically depreciated over 18
years) High Fixed Costs per round-trip (aircraft
depreciation/lease, salaries, fuel, landing, over-flying) Global
business It does not mater whether one is China based or Europe
based if it wants to fly between Europe and China Constraints
Curfews i.e. Luxembourg, aircraft utilization is constrained
through 6 hour night curfew and possible penalties Slots parking
positions, arrival and departure times are limited at many large
airports (e.g. HKG, TPE, JFK) Traffic rights - aviation is heavily
regulated, in sharp contrast to freedom of the seas Heavy and line
maintenance regular downtime on aircraft between day and several
weeks depending on the type of check Unforeseen delays loading
delays, strikes, breakdowns on aircraft can compromise utilization
plan.
Slide 9
9 It happens.
Slide 10
10 Time again.
Slide 11
11 Cargo Specific Dynamics Cargo goes one-way China-Europe is
strong, whereas traffic is weak vice versa Strong seasonality In
Q4, China market surges by typically 25-30% Strong competition:
cargo is more and more seen as core business and a tool to develop
an economy Until early 90s, cargo was a by-product for most
carriers It was dominated by Europeans (Lufthansa, KLM, Air France)
Since mid 90s, there is a strong push coming from Asia (Singapore,
Korean, China Airlines) taking their share Cargo Airlines are seen
as a tool to develop local infrastructure and trade (Emirates,
Korean, Singapore)
Slide 12
12 Hong Kong Air Cargo Terminal export and import 20052006
export import Source: HACTL
Slide 13
13 Air Cargo Trade Flows in 2005 4 : 1 1 : 1 2.2 : 1 1.2 : 1 1
: 1.5 1.5 : 1 6.4 : 1 1 : 2.3 1.6 : 1 2.9 : 1 1 : 2 1 : 4.1 1 : 3.8
1 : 1.6 1 : 2.1 Explanation: e.g. US to South America, 1 : 2.1 for
every ton exported from USA, 2.1 tonnes are imported back via
airfreight Selected Regional Markets, 2005 Export/Import Tonnage
Ratio, Airfreight Only 1 : 3.4 Europe to East Africa 1 : 3.7 Europe
to North Africa 1.7 : 1 Source: YDL 1.8 : 1
Slide 14
14 Cargolux Network Management Objectives Main Objectives:
1.Maximize Operating Profit Relentlessly select best routes
(revenues versus costs) Maintain high aircraft utilization in order
to spread fixed cost burden and to achieve variable contribution
Guarantee network interconnectivity (e.g. South America to Asia
flights, US to Middle East) Ensure flexibility [quick reaction
speed to market changes and opportunities]. 2...but keep a close
eye on Reducing Risk Ensure flexibility [through use of external
leased capacity with short term cancellation] Focus on stability of
revenues [add traffic stops even if impact on Operating Profit is
at times close to zero].
Slide 15
15
Slide 16
16 Resulting characteristics of Cargolux network Asia trade
imbalance is cured via Middle East traffic stops No daily
departures and no fixed departure-time schedules Good connectivity
of North America flights to Middle East & Africa (ex Houston,
Calgary) to counter imbalance on these routes Maximum 5 th freedom
traffic focus (i.e. MEX/JFK, MEL/AKL-LAX, SIN/MAA, HKG/HEL,
HKG/BCN) Relatively high amount of destinations across all
continents, spreading risk both geopolitical and economical Tackle
peak-season requirements through wet-leasing
Slide 17
17 Various Models Backup
Slide 18
18 Various Models Backup
Slide 19
19 Various Models Backup Multi-stop Optimize load factor
through extra stops Aim for 5 th freedom traffic Example: Cargolux
Hub and Spoke Fixed daily schedule Hub is driving the system
Example: DHL, UPS, FedEx
Slide 20
20 Overview Cargolux Network
Slide 21
21 Results after direct operating costs (R1), results after
indirect operating costs (R2) and overhead (R3) Determine the long
term viability of a route or network Measuring Route Performance
Source: Cargolux Sales and Marketing variable fixed All flights
must cover direct operating costs in the short term to avoid
burning cash. If a flight cannot cover indirect operating costs and
overhead, then it either has a revenue or cost problem or both.
Determine short term viability of a route FU
Slide 22
22 Conclusions Cargolux has a clearly defined network model
balancing risk/return and will stick to it Critical success
factors: Cost knowledge Variable contribution approach (both per
kg. as well as per flight); Network profitability sensitivity
Quick- and disciplined decision making Team approach between
commercial and operations (maintenance and flight operations)