Cargolux in the new morning calm

My Orchids. Phalaneopsis "Dual Hub". Photo ET

Cargolux in the new morning calm

If Cargolux flights were as silent as Cargolux management nowadays, and indeed the Luxembourg government, there would be no night curfew for CV flights at the Luxembourg airport. The silence must be golden like the Ming Dynasty, as it coincides with coming onboard of a Chinese partner. But it might be only circumstance that silence started cushioning Cargolux since the official date when on April 23^rd  Henan Civil Aviation and Investment Co. Ltd (HNCA) took a 35% ownership in Cargolux Airlines.

That silence appears to be more of a Darwinian self-protection evolution: a leadership prone to monumental errors strives to embrace secrecy as a hiding mechanism. After the Qatar Airways fiasco, it repeated its misjudgments with HNCA, basically copy-cutting past errors. The HNCA solution was imposed almost surreptitiously, and against the advice of most of Cargolux’ senior managers. The company (and the Government) made a bad deal, which still has unforeseeable consequences. Fact is that out of protest, the COO Peter van de Pas, SVP Marketing and Sales Robert van de Weg, and the Regional Manager for Asia, Matthew Ma left. Board and government treated their resignations with benign neglect. Both don’t understand that a company is defined by its management team. Managers are not exchangeable at wish in the competitive world. Only in nepotism.

An early sign of the misguided reorganization was the fall-out around Robert Song, bombarded SVP Asia and Pacific as a reward for his contribution to the deal it seems. He fell ill just on the occasion of Chairman Helminger’s visit to Zhengzhou, and of course we learnt without surprise that Robert Song had resigned. That was the end of most communication. In the meantime another negligence had been corrected by finally appointing a new CEO, Dirk Reich. The post had been vacant for way too long. Clients, competitors and observers have watched sometimes in disbelief the ongoing turmoil at Cargolux, a series of self-inflicted wounds.

Cargolux has been for many years a proud Luxembourg achievement, a leader in the industry, a benchmark for the air freight industry. With key management lost, there goes the substance of the company’s culture and reputation. The episode of relying on Mr. Song, then seeing him “resigning” seems to be more of a panicky reaction to forwarders’ displeasure with the changes in management, as reported by Cargofacts.com. It is morning again at Cargolux, though a new beginning that was unnecessary, and that morning was not calm. Only silent.

Obviously we now have a new Cargolux where the known unknowns are unknown. What is known is that the “old” Cargolux managed to have an encouraging though modest turnaround. 2013 will be the benchmark to compare future results. Whereas a loss was predicted, the old Cargolux managed to run a profit of $8.4 million in 2013, up from a loss of$35.1 million in 2012, the year of the Qatar Airways adventure. Revenue for the year was up 14.4% to $1.99 billion, driven by increasing demand. Cargo traffic for the year was up 19.2% to 5.72 billion RTKs, while cargo volume rose 16.7% to 754,000 tons. Despite the encouraging progress, the $8.4 million is a very thin margin that leaves no space for errors. However, now starts an ill-defined, unknown future. And yet facing the unknowns, Cargolux chose to change several variables at the same time, basically an unscientific approach, resulting in massive changes in management, in a confused workforce, in a partnership with questionable revenues and expensive obligations, and worse, questions about the company in the marketplace.

The best known unknown is of course the partnership with HNCA. Luxembourg officials are fascinated by the new vocabulary such as “dual hub”. Which it is not. There is no dual hub that would imply some privileges for Cargolux. That’s the case for the main freight available FROM Zhengzhou, electronics, where Cargolux has no priority as we have seen from various competing arrangements that HNCA or Zhengzhou Airport initiated. Those reach from Hahn to Liège airports, and Cargolux didn’t even know about those arrangements. In the absence of a monopoly, what was the point of entering into the HNCA agreement?

Now Cargolux has learnt already how to dance to the new Chinese music. Its inaugural flight was cancelled because of an unknown “administrative” reason, all the while the Luxembourg Minister of Transportation was waiting in great pomp for the newly baptized “City of Zhengzhou” to touch down at Zhengzhou Airport. 

It was a vivid demonstration of the realities in the new dual hub environment. A known unknown is also what the heck Cargolux is going to carry as cargo on four weekly flights TO Zhengzhou? A dual hub means there is something to do both ways. There doesn’t seem to be much to carry to Zhengzhou. The fact that there is a $15 million budget set up to compensate Cargolux for losses on the route, is only the known official acknowledgement of the unknowns. The first two quarter results will not yet show the full impact of the new partnership, but show a direction. That is if Silence doesn’t prevent us from learning the results.

If I understand the results of a recent effort to survey Cargolux staff, we are going to have open communications again. Indeed the “potential components of the revitalized Cargolux spirit” are clear, according to those who answered the survey. Only about 1 out of 3 answered, the motivated employees I guess. The remaining two have indeed to be revitalized. As for the key components, 2 out of 3 respondents see leadership as a problem: they appear to be distant, biased, and aloof. It is followed by poor communication: no or poor information on strategies, objectives, financial situation. All this is summarized by the most important component coming in third: respect.

For anyone misjudging employees’ preoccupations, please note that they do not care for the environment nor for diversity. Those two components came in last. Though politically they sound nice in conjunction with dual hub. However employees long for a bright future of their company. Who would have guessed!?