NYK’s sale of its air cargo business may be an omen. The leading Japanese logistics service provider, NYK Group, has agreed to sell its air cargo business, Nippon Cargo Airlines Co., Ltd. (NCA), to ANA Holdings Inc. which is the group that owns All Nippon Airlines. The price of the sale seems not to have been disclosed.
The reasoning behind the move was fairly clearly explained by NYK as being due to the cost of renewing its fleet, stating “continuous introduction of new aircraft to expand the operation and maintenance system, and the continuous training of personnel engaged in operation and maintenance required a considerable expenditure. In the highly volatile business environment of airfreight transportation, NCA has been facing challenges in expanding its business scale at a level that is commensurate with such costs.”
Nippon Cargo airlines has often struggled to sustain its profitability. Of course, the recent boom in the airfreight was beneficial but the future looks less promising.
In contrast ANA seems bullish about air cargo, saying “that in order to dramatically enhance its international air cargo network and products and services based in Japan, and also with the aim to contribute to the development of global economic activities both in Japan and abroad, expressed their strong desire to have NCA (the only Japanese airline dedicated exclusively to air cargo transportation) added to its business portfolio, and integrated and reorganised with the cargo business of the ANA group in the future, thereby realising the goal to provide high-quality and internationally competitive air cargo transportation services that can respond to the increasing sophistication of the supply chain”.
Ironically NYK acquired NCA from ANA, buying all of the equity in 2010, “with the aim of becoming a comprehensive logistics company offering ocean, land and air transportation.” That NYK is moving away from this objective is notable, both due to what it says about the viability of such strategy and the fact that a number of other large shipping and logistics companies have embraced such a business model by buying air cargo freighter fleets.
Admittedly NYK seems to ascribe its lack of profits to a lack of economies of scale. NCA’s fleet was always small and it really just focused on Japan and other parts of North Asia. The implication of what both NYK and ANA are saying is that a successful air cargo airline needs to be part of a large fleet of both cargo and passenger aircraft in order to cover the fixed costs of both acquisition and maintenance.
Author: Thomas Cullen
Source: Ti Insights
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