Carrier plans new routes to boost yields as growing trade imbalances hit profits Cathay Pacific Airways has mapped out an aggressive growth plan for its freight business, adding destinations in Europe, the United States and India. The airline, which may soon build cargo-handling facilities in Hong Kong and the US, will add five newly converted freighters to its fleet in the next two years, kick-starting a longer-term goal to be 'the leading air cargo carrier between Asia and the world', according to director Ron Mathison. 'Given our proximity [to China] and the shift in manufacturing from the US and the European Union to lower-cost countries in Asia, including China, we have a tremendous opportunity for growth,' Mr Mathison said. 'We will not be chasing the No1 spot just for the sake of it. But given the size of that market, there is no reason why we should not be much bigger than we are.' Cathay, the world's sixth-biggest scheduled freight carrier, generated $11.4 billion in sales from its cargo division in 2004. It will report last year's earnings on March 8. It is currently caught up in a global investigation into alleged price-fixing by most of the world's top cargo airlines. Mr Mathison would not comment on the investigation, but speculation yesterday continued to focus on an EU-based fuel surcharge formula unilaterally applied by airlines contesting a share of the $400 billion industry. According to British media reports, investigators are also looking for evidence that airlines have exploited the US-driven 'war on terror' to artificially inflate the price of transporting goods by air through a series of war-risk surcharges. While Cathay expects to expand its freight capacity by almost 9 per cent this year, Mr Mathison said it would be a 'year of consolidation' as the new freighters replace less fuel-efficient leased planes. Next year, cargo capacity is expected to grow 12.4 per cent after three more freighters join Cathay's fleet from its associate engineering facility in Xiamen, and in 2008 the carrier's expansion plans will turn in part to Europe. 'Geographically, we will be looking for one more point in each of southern, eastern and northern Europe to capitalise on growth in some of those secondary markets,' he said. 'We also have India in our sights.' Cathay believes flying direct to selected secondary markets will help it defy growing trade imbalances. Exports at the airport's biggest terminal last year outstripped imports 2.03 to 1, and the disparity continues to widen. The growing imbalance is eroding yields, the average revenue for flying a tonne of cargo one kilometre. By developing secondary destinations in the EU and the US, Cathay will become more competitive in its key markets, boosting volumes flown on the leg back to Asia. Airlines can also boost profitability by cutting costs. But more than a year into the highest fuel prices in history, most are hard-pressed to find more fat to trim. The narrowing search saw Mr Mathison late last year revisit Cathay's long-held policy of outsourcing global cargo handling, the biggest freight cost after fuel. In many respects, Cathay, which moved 1.12 million tonnes of cargo last year, became a victim of its own success. Very few handlers at any airport have the capacity to handle the kind of volume Cathay generates, making it very difficult for it to negotiate cheaper rates. 'That issue is raising its head in many places and as a result we are reviewing our whole approach to self-handling,' Mr Mathison said. 'We are probably more outsourced in that regard than any other major cargo airline.' Whatever challenges lie ahead for Cathay and the rest of the industry, Mr Mathison does not expect an erosion of Hong Kong's status as South China's premier cargo hub any time soon, as some bearish prognosticators are warning. He turned more than a few heads in Shanghai last week at the biennial Airfreight Asia conference when he said Hong Kong would remain ahead of Guangzhou and Shenzhen in volume terms until well past 2020. 'I am not in the camp that thinks Hong Kong will lose a lot of cargo to Guangzhou,' he told the Post. 'That is not to say we are complacent, we're not. It is not to say we shouldn't be investing, or introducing new services and improving what we offer - we should. 'It's just that I believe that Hong Kong's advantage in terms of the network, the quality of services - the controls on cargo damage and pilferage, the terminals' shorter turnaround and dwell times, the productivity, the work ethic, the business-friendly customs environment - all that combined makes us extra competitive.'