With rare exceptions, the world’s passenger airlines punch below their weight when it comes to cargo. For decades, aviation’s powerful speed-to-market advantages have been nullified by obsolete information technology that impedes visibility and keeps goods languishing at airports for days after arrival. Airlines long ago ceded cargo’s value proposition, both in pricing and consignee loyalty, to freight forwarders and integrated carriers like FedEx and UPS. Today, airlines are reduced to selling bellyhold volume, not value. The C-suite does little to promote cargo as a valuable part of the overall business, viewing it instead as just a contribution to overhead.
Despite that, cargo often spells the difference between profit and loss on many international widebody routes. In the case of two European airlines, between 60% and 70% of widebody international flights would be unprofitable without bellyhold cargo, according to a white paper published in May by Strategic Aviation Solutions International (SASI), an aviation consultancy. Des Vertannes, former cargo head at the International Air Transport Association (IATA), found during his tenure that cargo represented 12% of a typical IATA member’s revenue. That was three times the revenue of first-class traffic and just below the revenue generated by business class, according to Vertannes’ data. Even before the e-commerce boom, cargo, express, and mail was an $85 billion-a-year business.
Half a year into the coronavirus pandemic, it is apparent that cargo has assumed the central role in airline operations. Pretty much all that flies internationally today are “ghost freighters,” planes with cargo in the bellies, on passenger seats, and in the main cabins with the seats removed. With passenger traffic shut down indefinitely, cargo has become the only way for international flights to earn a buck. In addition, cargo revenue will be critical for airlines to resume profitable commercial operations when global skies open up.
The pandemic has given airline management an unprecedented opportunity to showcase cargo’s value. The opportunity is amplified by the surge of international e-commerce traffic, the speedy fulfillment of which plays into air service’s wheelhouse.
Can it be done? Yes, says SASI President and CEO Stan Wraight, a 40-year aircargo veteran, but only if the airlines develop a new business model for cargo. What won’t work is tinkering with a four-decades-old approach that, among other things, led to the loss of high-value small-package and express business to the integrators, Wraight said. If airlines continue down that path, they will suffer at the hands of the integrators as well as newer, formidable players like Amazon.com and Alibaba, both of whom focus on understanding the needs of the shipper and the end-customer. If the airlines don’t step up their game, most global e-commerce spoils will go to competitors, he said.
One of the most salient points is that airlines should not think like airlines. Integrators like FedEx and UPS spend only 15% on aircraft, and 85% on data and ground-handling services. Airlines typically reverse that ratio, which is a liability to efficient cargo movement, Wraight said.
Another is the development of digital “air logistics corridors” connecting multiple airports. These corridors enable real-time shipment visibility from one stakeholder to another. The destination country gets shipment information before the goods arrive, and the origin country receives all status updates in real time from arrival to delivery, Wraight said.
Most important, cargo needs to be treated as an airline’s core business and cargo logistics as a rewarding profession. “Logistics as an airline career deserves respect and attention from the CEO and board of directors,” Wraight said. It will get that respect, he added, if the C-suite “understands airline economics.”