Ulrich Ogiermann: Managing Steady Growth at Cargolux

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Cargo isn’t usually the preferred job for airline executives but don’t try to tell that to Ulrich Ogiermann. The Cargolux chief executive left the passenger business over a decade ago while he was working for Lufthansa and is not about to go back.

“The people were speaking a different language I liked,” Ogerimann recalls when he first took the position of route management manager for the Americas at Lufthansa Cargo. “With cargo, there’s much more importance in designing a network,” he adds. “Network planning is everything because you have all of these one-way flights.”

He says managing a cargo operation is also more challenging than overseeing a passenger business because ground handling is more complicated. Then there is the added layer of trucking and only in cargo do you have volume density issues. These make it tricky to plan loads. “You need to understand all of this because it drives cost.”

Clearly Ogiermann is up for the challenge. In his nearly five years as chief executive of Cargolux, the carrier has steadily expanded its fleet and network and become the launch customer for the new Boeing 747-8. And he has done all of this while Cargolux’s ownership has been in limbo.

A 33.8% stake in Cargolux is still held by the administrators of the Swissair Group, which collapsed back in 2001. The administrators struck a deal at the end of 2005 to sell the stake to Cargolux’s existing shareholders, led by Luxiar with 34.9%, which plan to subsequently sell the stake to new strategic investors. But the deal, which initially was to conclude last year, has been repeatedly held up by unresolved legal issues.

“There’s a legal issue as to how and when it can be sold,” Ogiermann says. “I’ve stopped giving timeframes because so far I’ve always been proven wrong. Once we’re ready to push the button we’ll let everyone know.”

He says Cargolux has received interest from several potential new investors and two years ago it completed a preliminary screening of potential investors, including cargo airlines, financial investors and strategic partners. But the process has since been stalled waiting a legal resolution on the planned sale of the Swissair stake.

Selling the stake to another cargo airline is a distinct possibility as Cargolux has been looking at possible tie-ups with carriers in Asia and the Middle East. “We will go through this possibility once we’re ready,” Ogiermann says. “We’re not there yet.”

Cargolux could tie up with other cargo carriers through other avenues such as joint ventures. Several of the world’s top cargo carriers including Lufthansa and Singapore Airlines have expanded their operations in China by setting up joint ventures. But Cargolux has decided not to take this route for now. “We’ve evaluated a lot of options. We haven’t come across a real striking opportunity from a cost/risk standpoint that would be beneficial. We’re very careful. We’re not risk shy but we need to be reasonably sure what the upside will be,” Ogiermann says.

He is quick to point out that the Chinese joint ventures of some of Cargolux’s competitors are not profitable and there is currently over-capacity in the Chinese market. “I’m not sure if you look at the experience of the other guys [in China] they are totally happy.”

Ogiermann says Cargolux is satisfied to expand slowly in China and other Asian growth markets because they are over-saturated. “We feel there won’t be such strong growth anymore in these markets.”

Instead Cargolux is focusing more on growing its transatlantic operation, including to the USA and South America, and its services to the Middle East and Africa.  Cargolux now operates 15 747-400 freighters and will take delivery of its 16th and final 747-400 next summer. The first of at least 13 747-8s will be delivered in September 2009.

The carrier placed a launch order for 10 747-8s plus 10 options in November 2005 and in March 2007 increased its firm order to 13 aircraft. Ogiermann says two to five more 747-8s will likely be firmed up over the next few years because Cargolux’s fleet plan envisions 13 747-8s in 2013 and 15 to 18 of the type in 2015. “It depends on the growth path of the airline,” he says. “We want to grow with the market.”

Ogiermann points out Cargolux does not need a larger fleet to continue expanding at it is current clip of 5% to 6% per year because the 747-8 will be able to carry 20 additional tonnes of cargo compared with the 747-400. Environmental considerations were also a key factor in its decision to replace its 747-400s with 747-8s because the 747-8 burns 60% less fuel per tonne kilometre and is significantly less noisy.

“We talk about the environment a lot with the -8s because it’s a huge improvement on the environmental impact,” Ogiermann says. “We’ll let our customers know about this. The shippers are clear they want to be environmental friendly.”

Ogiermann says Cargolux plans to phase out its last 747-400 in about 2015. He says the carrier has already sold and leased back about half of its 747-400s. Cargolux has traditionally owned all its aircraft but has elected to sell several of its 747-400s recently to take advantage of the current high value of 747-400s and to avoid having to sell all of its 747-400s at once.

“When you do a fleet roll over there’s a certain risk. You don’t want to pull all your eggs in one basket,” Ogiermann says. “We want to spread the risk over a few years. We’ve embarked on a forward sales strategy.”

Early this year Cargolux also established an aircraft leasing joint venture called Freighter Leasing. Ogiermann says Freighter Leasing, which is 33.3% owned by Cargolux with the remaining stakes held by various investment vehicles and banks, now owns three of Cargolux’s 747-400s. He says Cargolux also this year completed a sale and leaseback arrangement for several 747-400s with an undisclosed third-party.

Ogiermann first joined Cargolux in 1998 from Lufthansa, where his last stint was as Johannesburg-based general manager of cargo for southern Africa. After moving to Luxembourg he quickly rose the ranks at Cargolux and became chief executive at the beginning of 2003, following a stint as senior vice-president of sales and marketing.
“I’m very happy where I am. I plan to keep working here. I like Cargolux. It’s a unique company with unique people. I really enjoy working here.”