Jeff Lee
Hello and welcome to this episode of cargo facts connect, the podcast of cargo facts, the newsletter of record for the air cargo and freighter aircraft industries for over 40 years. I’m Jeff Lee, editor of cargo facts and it’s Friday, the 28th of March. Cargo Facts Asia returned to China for the first time since 2019 this week, and while there was a lot of talk about the trans-Pacific market and tariffs, another major theme was the prevalence of 737 Classic freighters among operators in the region. One of those operators is Skyway Airlines, a new carrier in the Philippines that got certified last year. Founder and CEO Jose Peralta and his colleague Vedant Bhardwaj sat down in Shanghai with my colleague Robert Luke and I for a chat about the company’s background and growth plans.

Jeff Lee
Thanks for joining me, Jose and Vedant.

Jose Peralta
Thank you, Jeff, for inviting us.

Jeff Lee
First of all, Jose, you know, you worked in finance previously, but now you are heading this new airline in the Philippines. Yes, how did you go from that world into this world?

Jose Peralta
You know, I always, I get asked this question by everybody. So basically, I spent my career in finance, my majors applied math, finance. So I did all the route of, you know, trying for my CFA, all my finance, background, stock market, banking, lending, all that stuff. So that had been my career path. However, I moved back to the Philippines from the United States maybe eight years ago, and did something on my own in the Philippines. So I started to become an entrepreneur, investing in a small types of businesses like SMEs and stuff. And so one thing that really excited me was purchasing this very small aircraft for charter operations during the elections. So it was just right the elections, there were, you know, some some items that needed to be used for charter. And that’s when it all started, where we had a small aircraft, I then started to think, What can I do in the Philippines that hasn’t been done before? And from a macro view, I looked at the Philippines, if you are familiar with the country, it’s a bunch of scattered islands. So I imagine that Logistics is an issue, and there is no real meaningful cargo airline dedicated using dedicated faders in the Philippines yet. And also looking at where the Philippines is in Southeast Asia, it’s all three and a half hours away from each of the countries. So we thought that, you know, this might be a good project, and that was three years ago. And three years later, I’m here with you guys, and we just launched our first international flight two weeks ago to Hong Kong. So yeah, that’s sort of like the story of how I got here, in a nutshell. But there were many other stories weaved along that you know wider story.

Jeff Lee
The airline business is not the easiest one to make money with.

Jose Peralta
Yes, correct.

Jeff Lee
But you it’s great to see you know another new freighter operator. So you were talking about the launch of your international operations. Tell us about that. And you know the process behind setting everything up to finally operating that first fight, sure.

Jose Peralta
So, you know, in the Philippines, it took, like I mentioned earlier, took me, took us two and a half years to get our AOC. And there’s a prerequisite with the Philippine authorities that you have to demonstrate domestic operations first before you go international. So there were a lot of preparations, a lot of legal documents that we need to submit. We had to undergo hearings with Department of Transportation just to get our permit to operate internationally. So that probably took another six months since we got our AOC, you know, before going to the international operations, obviously we had, we had to deal with the ground handling in Hong Kong, the authorities in Hong Kong, the airport, etc. And you know that that was really like a robust, you know, process, so many things to look, to look at there. So a lot of preparation went in it with our team, with our support partners, as well here and abroad, and obviously with clients. We needed to secure clients for us to be able to, you know, to start operating to Hong Kong, yeah.

Jeff Lee
Vedant maybe you can tell us more about this.

Vedant Bhardwaj
Yeah, definitely, we took us a longer time, but definitely we have done this, and we became the Philippines first freighter to land in Hong Kong. Because definitely, there’s a restriction on my certificates, mice, indications, there was no other freighter or aircraft which purely cargo was landing in Hong Kong from Philippines. So we became the number one. Our maiden flight was on 22nd so it was a great thing, especially beauty of customs from Clark. They have also wishes. Best luck for the first trader outbound, and definitely had a high support from Hong Kong authorities also that they they are very well organized in matter of giving us slots in matter of orienting us how to make this happen properly and on time. Yeah. So definitely, it was a great experience with Hong Kong authorities, definitely one of the best airports. I can say definitely, Philippines is a developing country. We are still learning from the high frequency cargo outbound. We are not a very export oriented country. So definitely, it will be a very twist change for us to see how Hong Kong operates. How one hour ground time, they can still fill in everything. And then can they, we can move how they do X rays, the big, huge X rays machines they have, which Philippines still importing, but it’s not there yet. So it was a great opportunity for us. We’ll start with Hong Kong. But yes, definitely we are adding up now our Macau flights will start soon. We are look, we are applying our CCAR, 129, to permit for China. That’s why we are here. Yeah. So we look into and definitely another destination which we see is Vietnam. So we got a very good potential with Philippines AOC, because we have this rights, profit rights, which became a topic of discussion and all the airlines after the pandemic, specifically before the pandemic, traffic rights was there where nobody usually has to very conservative approach, but now it has became first priority designation traffic rights. So Philippine AOC definitely will work for us in the future growth in the freighter industry.

Jeff Lee
Good. What kinds of things were you carrying on that first flight?

Vedant Bhardwaj
So first flying. So definitely, as I said, Philippines is not an export country. So, but we have export of vegetables and semiconductors and also fruits, which one of the famous is durian, a hot topic, but right on the Start season. So we were bananas, Mango comes out of Philippines. And in importation, it was purely e commerce, mostly e commerce, and our partner airlines. We have partner airlines, Philippine airlines with us, which was carrying also load for transshipment going to US and Europe via using Skyway air freighter, dedicated freighter until Manila and then connected to Philippine Airlines, triple sevens and belly load going to US and Europe.

Jeff Lee
It really helps to have a partner like that behind your whole operations. But as Jose was saying earlier, you needed to do six months of domestic first. How, how would you compare those domestic operations with you know, this area of growth, the international side of things,

Vedant Bhardwaj
it’s totally different for us in domestic Philippines, domestic market is still developing, very early stage development of cargo levels, so they are still okay with the time frame of sea freights. They are not very adaptive towards air freight yet. So belly load is the capacity of belly load is still there. Huge capacity is there. Because Philippines is, I think the only country has all the low cost carrier airlines, the premium airline is only Philippine Airlines, but it still acts as low cost carrier. So they they still not feel that high premium value of a freighter. So definitely, when we go to E commerce section, they know the potential. They know the worth of time. They know how, how this freighter industry works, which Philippines still is learning. So we are in a very early phase of learning how the freighters will be helpful for the country with 7600 plus islands, yeah,

Jose Peralta
Just might add to that, there’s definitely a lot of cargo for air. I think the challenge with a dedicated freighter is that we don’t have passenger and obviously we can’t drop to belly rates. But that’s sort of the struggle that we had with domestic cargo operation, is that we’re competing with sea sea rates, sea freight rates and belly cargo rates, whereas International, yes, that is also an option, But we’re getting better rates internationally for for E commerce. So that’s a, you know, the major difference for us wanting to operate internationally versus just domestic. There is potential for the domestic market in in my opinion, but it would have to be developed to in line with the E commerce platforms to offer some sort of premium for faster delivery. We’ve done it with we’ve, we’ve, we’ve done many shipments already with the E commerce platform, and we were able to prove that we shaved off their delivery from five days to two days. So it’s just a matter of. Of whose shoulders is cost. So that’s something that we need to work on with. You know, these e commerce platforms,

Jeff Lee
So clearly the major focus area of growth for you is that international market, when it comes to your fleet, obviously very happy with the 737, 400. Can we, what can we expect going forward?

Vedant Bhardwaj
So definitely, you’re right. We are very, very happy with 737 400 which we heard on our previous sessions. Also, it’s one of the best aircraft for us all, regional flights right now, going forward. Yes, definitely we are getting more planes this year, we are targeting for two more additional aircrafts, subject definitely to our additional rights to fly other regions. But yes, definitely targets for two more, four hundreds, and by then, we are also looking to upgrade ourselves to medium or wide body due to our partner networks with our airlines, which we see a huge potential, potential for connecting us to Philippines through cargo. It’s a very empty market still, and has a very huge potential. So that’s why our initial growth for fleet, expect one or two more for hundreds, and then we might shift to medium, to wide bodies.

Jose Peralta
Later on, later on, delivers.

Vedant Bhardwaj
Subject to availability.

Robert Luke
So Jose, just a quick question with your financial background and experience, how much did that aid you in having conversations with lessors or even potential business clients to be able to speak the numbers and dollars language that they’re accustomed to having when they have dialog with potential carriers looking to lease aircraft.

Jose Peralta
Yeah, I think my experience with finance was quite helpful understand all financial statements, income statements, balance sheet, you know, all the cash flow statements. And that was really key for a less source to take a look at. So, you know, a lot of it hinges on your projections, financial projections, into what your target revenue is, what the costs are. So I’m, I’m very keen on that. I’m very good at, and I’m not very good, but I’m, I’m, I guess I understand it. I have experience with modeling and all that stuff, and so that bit, I think, helped with adding some sort of credibility with the numbers that we have to present it to the lessors. So I think that was key. I think most of you know me being in finance and most of my team are really aviation based. When I speak to them, you know, pilots, it’s all very technical stuff. They they like airplanes, you know, the the routes, etc. But I really speak numbers. So I really, you know, just look at numbers. And I think that helps, I think that helps us, and helps me also with investors, because the investors also look at numbers as well. So you know, numbers don’t lie. So that sort of that helped a lot, I think, with the fundraising part and also the obtaining the aircraft from lessor part, yeah.

Robert Luke
So before you begin the process of getting your AOC. How long did it take you to one build your relationships with your existing management team that’s overseeing your operations? And what did it take for you all to realize not only was there synergy, but there was trust to move forward as one unit, representing a carrier, first time flying dedicated freighter out of Philippines.

Jose Peralta
Yeah. So before, before we actually incorporated the company in October of 2022 there were, I already have my post holders in 2021 so they were captains, you know, quality directors, etc. That was during the pandemic. So, you know, some of them got retrenched from the pandemic. So we spent maybe around six to eight months sort of under for me to understand it. So a lot I spent the entire day talking to pilots, asking them, you know, what? What does this mean? What? What’s an AOC, you know, you know, what’s a cab? Who the regulators are, etc, how you train pilots, just initial rating, etc. So, you know, I sort of took a crash course in aviation over the daily period for the first three months, and at that time, we also spoke to many agents domestic first. So we did talk to them, and a lot of them said that they do 20 to 100 tons of cargo daily for one for one agent. So we were thinking, wow, there’s really a big demand for for cargo. Domestically. So that’s sort of, you know, how we’re unraveled. We’ve been together for the past three years, me and my team. So there’s definitely a lot of trust there with my team, yeah. So that’s sort of how I built the team, how long we’ve been together, and the trust that we have is, you know, I have a pretty strong trust in the team.

Robert Luke
So speaking on the 737, classic, the usage out there usually, from what you’re telling me, it sounds like your cycle to flight hour ratio is like one to one and a half, if that’s the case, and usually your engines are going to be somewhere between 1500 to 2500 cycles for green time. How do you manage the usage of that if you’re flying the shorter segments even going to the Hong Kong, Hong Kong, which is like a one and a half hour flight.

Jose Peralta
Yeah, I’ll let Captain vedant take that.

Vedant Bhardwaj
So basically, it’s definitely, definitely depends on the it’s not a one hour, one and a half two hours of cycle, but definitely on a load capacity, and that’s why we are behind the yield of minimum load and maximum maximum value for it. That’s why the domestic market was not very feasible initially for us was, reason was, is the same amount of hours, but lower value. So definitely, when you have your higher U position of entrance, definitely you want to see your mr. Is going you have to have that much enough maintenance reserves with you to cover up that amount of time cycles you’re losing up. So that’s where we shifted towards, the first prime location, Hong Kong. That was strategical for us, that because Hong Kong is the place where you can get a higher value for your goods. If we didn’t target China, and Hong Kong also has an open skies. So once we are there, we have multiple routes to cover up. In addition, which is under negotiation for now, for us to fly other destination from Hong Kong, not only Philippines. So that’s where we are covering up our less site, more cycles and less cars. Okay,

Robert Luke
so you don’t need a TCO out of Hong Kong. You can just go wherever you want, as long as you come back through there. That’s right. Okay. Understood that being said from the domestic theater of operations, what would be a more suitable aircraft if you got to put the classic into the international market to maximize your revenue?

Vedant Bhardwaj
Efficiency, classic will be also the key for the message, it’s just a matter of time. And the this freight forwarders, this client and client realize the importance, because they have not feel that like we said, we have done and shown e commerce players that we can do in what they do in five days. We can do it in two days. It’s no matter of time that they will find out who will pay for that service. So right now they are, they are doing it in Indonesia. The same is that, same players in whole Southeast Asia, the same platform, which are doing in Indonesia, Malaysia and in China, coming from all around, from China. So it’s just a matter of time when they will do it. Also in Philippines, because customers, the orders are increasing. The growth is increasing. They cannot build more, bigger warehouses because that additional cost. The only way to cover up that thing is to expedite the delivery time or lower, lesser the delivery time. And that’s what eventually because before they have no choice. When you don’t have a capacity or don’t have an option, definitely you will not look for one now they have option with Skyway. So sooner or later, as we have already shown them in our first expanse, that we can do it, they will come. And eventually they are coming. They eventually their follow ups are coming. They are asking renegotiating. We know the market is always coming out bound from China, they will look for the cheapest rate, and then, unless we stick to our ground and say, This is the rate we can do the time, so that will happen eventually, and the 400 will be the best player in domestic as well, because the other segment which we were we studied, was ATRs before. But as ATRs in domestic sector is not feasible because the load factor is only 7.5 tons. So whenever you see for E commerce, they are always looking for a volumetric so they don’t want to deal even I can carry seven tons every day or every flight, they say, No, it’s not worth our time. So if you can carry bulk and do multiple, make six or seven flights a day then, so that’s what they want to see, a macro way of doing it. Then only they will think about increasing their premium service. Or we can do one day service, one day door to door, two days door to door. That will eventually happen in E commerce segment in Philippines, because it’s happening in Malaysia and in Malaysia already.

Robert Luke
So how much does the presence of skyways now enable you to establish those government relationships, to hopefully open up the skies of Philippines so that you don’t have to go to Hong Kong to necessarily increase or maximize your revenue, but you can go from your home base to wherever you want.

Vedant Bhardwaj
So basically, government is working on it definitely it’s working. Is a work in progress. As I said, we are the first freighter, and our government agencies are also looking into us already, and they are seeing a huge potential of growth. And definitely, Philippines itself as a country is developing very rapidly on a cargo, cargo level, which is which was not seen before, but it’s doing but it will take a matter of time, I don’t think so, more than a year or two, when we see a good, great potential in the Philippines of building on this relationship, doing transshipment, easy, open skies, easier rules and more more organized way of doing it, it will eventually happen.

Jose Peralta
And I think for us, the regulators allow us to fly where the aircraft is capable to fly. I think it’s just obtaining the necessary permits in the destination, destination country, China, for example. And I think Taiwan has some sort of designation designation also. So for us, our since our, you know, CAB permit came out. We’re able to fly anywhere we want, as long as, you know, the other side is okay with us flying there too. So, yeah, the government is supportive, and I think should be beneficial to our economy too. You know, bringing in a lot of E commerce items, either terminating or transshipment, should help the country. I think, I think in the long run for us, we want to help the farmers as well. We want to help the perishable items. See, in the Philippines, you know, we’ve talked to some of the provincial you know, businessmen there, the issue becomes, okay, there is, there is something to sell from here where there’s fish or some fruit or what have you, but there’s no reliable transport for them to get it out from the province into a city that is densely populated. So that’s where we are. We’re trying to solve a problem, sort of connect the islands and also connect the Philippines to the outer regions. So that is the goal, and that is the aim, and hopefully we get to achieve it. But obviously we have to, obviously it’s a business too, so we have to match the rates and take a look at the numbers, see if it makes sense for us.

Jeff Lee
Well, congratulations on this achievement and good luck going forward, we look forward to seeing what you do with the 737s. Thank you.

Jose Peralta
All right, thanks. Thank you so much.

Vedant Bhardwaj
Thank you so much.

Jeff Lee
That was Jose Peralta, founder and CEO of Skyway Airlines, and Vedant Bhardwaj, Skyway’s Director of Business Development and External Affairs, talking with my colleague Senior Associate Editor Robert Luke and I at Cargo Facts Asia in Shanghai this week. And that’s all the time we have today. For more coverage of the freighter aircraft and AAM market, visit cargofacts.com. Thank you very much for tuning in, and join us again next time.