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AIR TRANSPORT

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W
ith the air cargo industry struggling to
maintain yields in the face of rampant
over-capacity, Coyne Airways presents
an intriguing vision of how freighter markets
may evolve over time.
The London-headquartered airline does not
own or lease any aircraft, and it eschews the hub-
to-hub distribution model favoured by most
global cargo operators.
Instead, Coyne Airways enlists the services of
various partner carriers to build a scheduled
network through recurrent block space
agreements and interline deals. By reserving part
or all of the space on other airlines freighters,
the company has developed specialised hubs in
Dubai and Tbilisi that connect Europe, North
America and Asia with countries like Iraq,
Afghanistan and Kazakhstan.
Its focus is undoubtedly on difficult-to-reach
destinations, chief executive Larry Coyne
explained, and while the model may seem
unorthodox, there is no disputing its appeal to
freight forwarders.
Coyne Airways is placed 91st in a list of the
worlds 100 largest cargo carriers by Airline
Businessmagazine, growing its traffic by 7.7% in
2012 to reach 195 million revenue tonne kilometres.
Further growth is now on the cards 2013 has
already seen expansion into Africa but Coyne is
candid when asked about the airlines more
humble beginnings.
Id previously been working in the property
industry and there was the downturn in the early
1990s, he said. So I was unemployed. I tried
various things. And then I met a Russian guy who
was in London to re-insure aircraft for the vast
number of mini-Aeroflots that had sprung up.
Coyne was referring to the fragmentation of
Russian flag-carrier Aeroflot after the collapse of
the Soviet Union, which left hundreds of
Ilyushin Il-76s dotted around former Soviet
republics in central Asia and east Europe.
Many of them were out there looking for
work, and a lot of the companies had never
flown them and didnt even have insurance, he
continued. The Russian said that if I could find
work for them, then he would insure them.
So I set up a charter brokering business, and
it became very successful very quickly.
In just two decades, Coyne Airways has become the worlds 91st largest cargo
carrier by traffic not bad for an airline that has no aircraft and specialises
in serving warzones. CEO Larry Coyne tells Martin Rivers how he pulled it off.
Coyning it in the
airline with no aircraft
Initially focussing on markets in the
Commonwealth of Independent States (CIS),
Coyne Airways launched operations in 1994. Its
second year involved more than 400 flights. The
airline indirectly benefited from Americas
efforts to rebuild its embassies in central Asia,
but expansion necessitated the development of
ties with local, often sceptical authorities.
Some of these places, like Aktau [in western
Kazakhstan], were cities where westerners
werent allowed in, Coyne said. They were
custom-built Soviet cities, and we were going
into the unknown.
Despite the challenges, the chief executive
quickly identified growth opportunities across the
Caspian Sea. The regions emerging oil sector had
created buoyant freight demand, and it was not
long before operations began in Baku, Azerbaijan.
But it was Tbilisi that would ultimately
become the companys base in the Caucasus.
After securing its own air waybill and designator
in the Georgian capital, Coyne Airways began
using interlines to develop a specialised hub-
and-spoke network. That model now involves
picking up European and American freight in
Amsterdam; flying to Tbilisi on an Etihad
freighter; and breaking down the cargo for
onward shipping to Kazakhstan and
Turkmenistan by air, or Armenia and Azerbaijan
by truck.
Etihads freighter which replaced a seven-
year-long partnership with British Airways
then travels on to Dubai World Central, from
where further interlines offer connectivity to
Iraq and Afghanistan.
Coyne Airways broke into the Iraqi market in
2004, one year after the US-led military
invasion. Wed been working on it for months,
and there was a general reluctance for us to get
involved, because it was so dangerous, Coyne
recalled. So I made a promise to the staff that
no-one had to go to Iraq. We found agents to
represent us. And within about three or four
weeks of agreeing that, it all happened.
The scheduled Iraqi network now includes
Baghdad, Basra, Sulaymaniyah and Erbil,
utilising partners such as RUS Aviation. Four
points are also served in Afghanistan, with
flights beginning in 2006 and now spanning
Kabul, Bagram, Kandahar and Camp Bastion.
Offering scheduled services to warzones on
set days of the week has a clear appeal to global
freight forwarders. Single air waybills, with
proof of delivery and online tracking facilities,
further enhance the customer service
proposition, while logistics supply chains can be
extended via ground-based transport
partnerships.
So that formula has developed over time,
Coyne said. We have used the designator and
The Coyne team: growing rapidly.
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CARGO
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the air waybill code to set up other routes.
As the drawdown of US troops in Afghanistan
continues, Americas strict regulations about the
use of US-registered aircraft for military cargo
have made Coyne Airways a favoured service
provider. The relationship is a valuable one, with
the US Defense Department allocating more
than half of its $3 billion annual transportation
budget to the private sector.
But Coyne stressed that his client base hails
from across the world. Alongside the majority of
European and American customers, Japanese,
Chinese and Malaysian firms are steadily
growing their presence in the Caspian region.
And while you might presume that flying into
warzones entails immense operational
challenges or added costs, Coyne stressed that
international air safety standards make it
business-as-usual in most cases. Iraq, long ago,
stopped requiring corkscrew landings to protect
aircraft from surface-to-air missiles, and the vast
size of Afghan military bases like Bagram
similarly keeps cargo pilots safe.
Commercial negotiations, however, can be
more troublesome. When we started, the
biggest problem we ran into was that there was a
residue of Soviet inefficiency, Coyne said.
Some of the airports had very little equipment
so it was difficult to offload an aircraft and they
had very high charges. Developing countries are
notorious for treating aviation as a cash-cow.
We spent a lot of time persuading these
airports that theyll get more business if they
dont charge an arm and a leg. We paved the way,
their rates became reasonable, and their
business started to develop.
No matter how effective the non-asset-
based approach proves to be, it always raises
eyebrows. Yet the appeal of the model is self-
evident. Just as many carriers prefer the
flexibility of leases over capital purchases, Coyne
Airways prefers being able to pick and choose
aircraft on an even more flexible, flight-by-flight
basis (although, in practice, many of these
arrangements last for years).
On services between Georgia and
Kazakhstan, for example, the airlines existing
Antonovs will likely soon be replaced with
smaller 737s. On markets that handle outsize
cargo, meanwhile, Soviet aircraft remain the
preferred solution. And on flights to Iraq,
military agreements make it necessary to use US-
built types like the 747-400F.
As long as we have an available supply of
aircraft that we can easily call on, the business
model works, Coyne said.
Asked if he would ever consider acquiring
assets, the chief executive pointed to the risk of
ownership faced by legacy carriers. Not only do
their freighters depreciate in value rapidly, but
also mega-orders from the Gulf are flooding
their markets with excess capacity. The 777 can
easily carry 25tonnes in its belly, which is not
much less than a 707, he noted. So when you
see orders for 400 or 500 large wide-body
aircraft, thats the equivalent of 100 new
freighters coming out.
Although block space agreements mitigate
such concerns, Coyne Airways is not immune to
yield pressure. The airline suffered a 14.3%
decline in revenue in 2012, despite its healthy
traffic growth.
Thus, the strategy continues to evolve.
Limited availability of spare freighters in Africa
a key growth region for the carrier may soon
force Coyne to consider short-term leases. Soviet
aircraft are also steadily being phased out due to
their lower fuel efficiency and flying restrictions
in Europe.
But the overarching model will not change.
We have the advantage of being able to use very
efficient, very expensive new aircraft without
owning them, Coyne concluded. Weve
become an airline without aircraft. Its a brilliant
model.
As long as we have an
available supply of aircraft
that we can easily call on,
the business model works.
LARRY COYNE
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