We have tried to highlight, through history and the present, how the tech
nological and economic factors that are for the most part not under the control of individual airlines are constantly challenging the business of air cargo. The market has grown and prospered over the years and matured to one that must be addressed with caution, and with management skills that demand the best we can be.
Airlines will have to invest in training and learning. They will have to make air cargo and logistics an attractive career choice, not a transitional position to move on to other posts in the airline, a career where dedicated experienced professionals are available to cope with what is to come.
The slow acceptance of IT tools that could revolutionize the way we do business, the constant turnover in senior management, the lack of inno
vative and creative marketing and product development can be solely laid on the shoulders of the current leadership. This must change if air cargo is to grow in step with the massive capacity increases and emergence of a wealthier global middle class who will be there to purchase the goods only air cargo can deliver. Only by making air cargo a core business in every airline, a position it deserves, will this change.
We would like to give the last word to Joseph (Joe) Czyzyk, CEO and founder of the Mercury Group in the United States, a true legend in the business and someone who knows. From an interview he gave and with Joe’s permission, here are his thoughts:
Fred Smith saying that ‘the halcyon days of air cargo are over’ tells me that although he is the greatest, he hasn’t got this one quite right (regarding the speech of Fred Smith, founder of Fed Ex at a recent IATA conference). Smith appears to have a very short- to medium-range outlook that is understandable in his business, but his medium to long-term range outlook for air cargo will not materialize as he thinks. The truth is that the world is going to experience another 1 billion-plus people joining the middle class in the next decade from the emerging nations. And what is the definition of someone from the middle class? It is someone who not only subsists, but has a few bucks to purchase an iPad, get on an airplane, and in the larger picture be someone who will want stuff shipped to them. Maybe in the short term air cargo is taking a hit whilst
experiencing a bit of flattening out but given the realities of our global future, I think that air cargo will as an industry keep moving on and will grow into an even greater business.
In the early 1970s when the first B747F air cargo freighters were introduced on non-stop transatlantic and trans-Pacific flights, a barrel of oil was at US$12, the amortization or depreciation for a 747F was US$250,000 per month, fully allocated operating cost were approx.
US$5,000 per hour, the cost of warehouse and ramp labour was US$5 per hour, and the air cargo rates were between US$1.50 and US$2.00 per kg in either direction for a transatlantic flight. Today, all of those costs have tripled, quadrupled, and fuel has multiplied eight times, but only one of those numbers has remained the same and in many cases has even decreased. Of course, that’s the rate per kilogram without even adjusting the present day value of money. So it’s natural that so many airlines, with a few exceptions, are looking to reduce or completely eliminate their freighter fleets.
Joe Czyzyk
Air Cargo History 35
While more than half of the air cargo in the world is flown in the bellies of passenger aircraft and that percentage will continue to grow over the decades, there will be less and less incentive for combination carriers to artificially adjust their tariffs to support their freighter fleets.
It will be more accretive for them to park their freighters, as many have already done. Another one of our customers with a full passenger load flew its A380 nonstop to Dubai and carried more than 18 tons of cargo in their belly while their triple seven (777) carried 25 tons. It’s obvious that air cargo pricing will become more and more influenced by passenger carriers. The operating costs of a passenger carrier on a ton/kilometre basis will remain more flexible, profitable, and their reliability and frequency will continue to outpace the all-cargo carriers.
So what’s the future of the freighter aircraft?
There will always be a need, but survival and profitability will require higher pricing, eg for shipments exceeding 2.4 meters in height, very heavy shipments, charter work, government, aerospace, and specialized shipments, but certainly fewer of them flying on scheduled routes, and I suspect that Boeing will eventually shut down its freighter
manufacturing lines over the next decade, as the demand decreases.
I predict that, except for the integrated package delivery carriers, there will be no growth and most probably a progressive reduction of freighter operations from Los Angeles (LAX), simultaneous with international tonnage increasing over the next decade. Today in our business, where my company provides warehousing services for international airlines, we are analysing that eventuality and its impact on our business. More and more of our systems are becoming geared towards accommodating the cargo preparation, loading and delivery systems for passenger flights.
Let’s face it, more and more people are travelling by air and as the next billion earth inhabitants (as mentioned earlier) join the middle class over the next decade, many of them will want to fly and that sheer growing demand for passenger travel will provide a tremendous abundance of additional air cargo capacity without adding many more freighters. Of course my comments need a ‘safe harbour’ statement, and just as Fred Smith pointed out in his keynote remarks at WCS, because all predictions are theory and certain future events such as simple acts of aviation terrorism or a dramatic reduction in the price of jet fuel can easily invalidate these predictions.
Joe’s words accurately sum up what the industry challenges will be. Do not be fooled and think this is a United Statesonly phenomenon because Joe is based there – his company is global. It is our responsibility in air cargo to make sure the management and staff of airlines, logistics companies and all the associations and government authorities that are needed to make it work are on the right track to ensure its survival as the premier trans
portation mode, and one that is always profitable for its investors. We need to invest in training and knowledge transfer to the young leaders of today and show them what an exciting business this can be, when managed properly.