In this sequel of ch-aviation interviews we present you our first interview with a cargo airline. Thomas Jaeger had the possibility to talk with Eric Vercesi Vice President Sales & Planning at Air Incheon. Air Incheon is a new cargo airline that commenced operations in 2013 and is focused on operations from Seoul Incheon Airport in South Korea to Eastern Russia as well as Japan and China. Currently, the airline operates two Boeing 737-400 freighters with an average age of 23 years.
You have launched operations 15 months ago. What were the key reasons for setting up Air Incheon?
It all started with the activities in Sakhalin. Air Incheon is a spin-off of another company called Air Cargo Charter, which also belongs to Mr. Park and which has been operating a Russian Antonov 12 on a charter basis between Sakhalin and Seoul Incheon for about eight years. Because of the demand and the need for a better and more reliable aircraft, Mr. Park decided to create an airline registered in Korea and to operate with a 737. So this is where Air Incheon comes from. And then of course it evolved into a scheduled airline from there.
But are you still working with Antonov 12s today?
No, we do not operate with Antonov 12 any longer and we are not sourcing additional capacity from partners. We only use our own aircraft.
You mentioned Mr. Park also owns Air Incheon, so it is entirely Korean owned?
Air Incheon is 85 percent Korean owned while the other 15 percent in the airline are owned by foreign investors. Concluding, you can say that Mr. Park has built up the business over the years and then saw the need to set up Air Incheon because of the demand from the oil and gas industry in Russia.
What is the competitive landscape like on your key routes between Korea and Russia? Do you have competitors?
We do not have competitors per se in the cargo business. The passenger demand is low so competitors can only fly narrowbody aircraft between the two countries, so have very limited belly space available. But that is the situation right now. We cannot think that we will continue to be by ourselves forever so there might be some competition in the future. I would not be surprised if there would be some new players one day.
Who are your customers for cargo being sent to Sakhalin?
It is a typical oil and gas project area where the major project forwarders work, pretty much the same customers worldwide that you would see in Siberia, Africa, the US etc. Around 80 percent of the cargo is coming from seven major freight forwarders with the remaining business coming from a number of smaller agents.
So you are still operating under the radar of Asiana and Korean and they are not interested in this business?
I do not know whether Asiana or Korean Air are interested in flying into Russia with freighters. We are sure they are looking at it. The reason why they do not fly might be that they only operate widebody aircraft and there is just not enough volume to put a 767 or a 777 on those routes. In addition to that, the demand is only one-directional. There is only export to Russia but nearly no import. So the aircraft needs to be make money on the one-way. Only if equipment needs to be removed from Sakhalin there is demand on our flights out of Russia.
The equipment you move to Sakhalin does not all come from South Korea. Are you working with other carriers or does the equipment get shipped by sea to Seoul before?
We have been trying to establish some interline agreements with a number of different carriers. We had success establishing one with Polar Air Cargo so we are able to offer the customers to carry their cargo all the way from Houston to Sakhalin under a single Airway Bill.
I am basically aiming to set up a service for our customers in the mining, oil and gas industries making it possible for them to work with us from their origin to the final destination. Another option we have tried is to establish an interline agreement directly with the Korean carriers but obviously Korean Air is just not interested at all. So we will just have to wait.
Have you evaluated other aircraft before you chose to operate converted 737-400s and when did the decision take place?
We looked at different options. The Boeing 737 turned out to be the best option for us because of the high availability on the market and the low acquisition costs of the airplane. With that being said, the 737 cannot take all the cargo that should be traveling by air into Sakhalin. There are some long or very heavy pieces of cargo that do not fit in the airplane. But close to 92 percent of the cargo that needs to go air freight can be carried with 737s.
Are you worried that with so many B737-400s being converted right now you might run into a problem with your fleet strategy later on given there simply will not be aircraft available anymore for conversion?
I do not think it is a worry yet. Honestly, maybe the situation is going to change where we will need to turn around and go to lessors already in control of converted B737s as opposed to us going on the market to buy an aircraft to convert it ourselves. It is going to depend on the situation and we will have to play it by ear when the situation comes. It will be depending on price and timing. It is true that if we need an aircraft to be available quickly, meaning within four to six months from now, we will not have time to go buy an aircraft and send it through conversion. We cannot just buy five aircraft just in case.
Were there any challengers on getting the licensing or was that straight forward?
No, the process was according to the Korea Ministry of Transport regulations. There were a number of items and tasks to fulfill which were done. The AOC was awarded to Air Incheon as planned by the MoT without major problems.
You also operate in the express market between Korea and Japan. It that your side business to keep the aircraft busy or did you purposely do that from the beginning?
It is a little bit of both. Our business model is really oriented towards the Sakhalin projects. We have opportunities to fly to Japan in the evenings or to fly to China early in the mornings so we do it. We have the airplanes and we have the crews so there is no reason why not to get into that market. With that being said, we are always concentrating on the oil and gas projects as our basis but it takes a long time to get the traffic rights. We already have traffic rights for Russia of course. The next step is to be able to go to Mongolia. There is a big potential to fly cargo to the mines.
Where do you see Air Incheon in two or three years? You obviously want to go into Mongolia but are there any other steps that you have ahead?
The expansion depends on what is going on with China. The Chinese carriers are expanding very quickly outside of China as well so we have to look at how to continue in that market and under what conditions. Other development areas include Central Asia and South East Asia (possibly requiring larger aircraft like the B757) and we are also still looking at Japan as a very high potential market.
Thank you for the interview!