INTELLIGENCE > CARGO AIRLINE TEMPLATE
Cargo As A Dedicated Science
Ghosh, President, American Friendship World Air Cargo Corporation
a grown up child that has lived for too long under the same roof
as his parents, it is now evident that air cargo operators have
stayed for too long under the umbrellas of their passenger counterpart
and now they have to grow up as a separate entity, feels DJ
As the dedicated air cargo business evolves and grows, a new science
must emerge to cater to this new and emerging industry. Like a child
who has grown into an adult, achieved financial independence from
his parents, and acquired a new circle of friends, air cargo businesses
must stand on their own two feet; forge independent relationships
with their customers and suppliers, different from their passenger
brethren. And while a significant portion of global air cargo is
still carried in the bellies of passenger aircraft, dedicated freighter
aircraft and freighter operators are here to stay.
|Each new day, and each
frayed cord from the passenger business will propel air cargo operators
towards creating their own independent platform and in the process
a whole new dedicated science on how this emerging business should
be run. We believe that this new identity brings significant opportunity
and the need for a greater degree of specialisation. All the major
suppliers to the airline business will now need to specially tailor
their products to suit the needs of dedicated cargo airline operators.
|Air cargo value
proposition is very important in this reference. Any value proposition
should be based on researching every aspect of the cargo airline
business, to create new benchmarks on how this business should
be run. The industry needs to create a body of knowledge and
intelligence to turn air cargo into a dedicated and profitable
science, separate from the passenger business.
As a start, we need to work with each of the following types
of partners and principles towards achieving this objective:
airline customers, long-term contracts, aircraft manufacturing,
aircraft financing, dedicated cargo airports, airline investors,
air cargo shippers/ freight forwarders, MROs and part suppliers
and last but not the least the application of information technology.
I will address these issues one by one.
The industry should steadfastly promote the business case for
all airlines, integrators, freight forwarders and government
agencies to “outsource” the operation of their cargo
aircraft to specialised freighter aircraft operators. If we
talk about long-term contracts, then to encourage stability,
innovation and eventually cost savings, we need to move towards
very long-term cargo airline contracts, of 10-12 years or more.
Large shippers need to drive this move to long-term thinking,
and encourage their forwarder partners to do the same. Short-term
thinking, manifested in short-term contracts, has been the curse
of this industry.
DEDICATED FACILITIES ARE A NECESSITY
The new identity of dedicated air cargo business
will grow as a significant opportunity
Aircraft manufacturers are another very important issue in this
regard. We need to work towards moving 100 per cent of all cargo
on new and converted dedicated cargo aircraft, away from passenger
aircraft, thus ensuring the long-term viability of the freighter
business and ensuring the safety of passengers. Eventually, passenger
aircraft need to be re-configured for passengers and their bags
only and not for freight. All freight should move only on specialised
freighters. The industry needs to partner with banks and leasing
companies to help create “Spe-
cial Cargo Aircraft Related Financing Structures” (SCARFS),
distinct from passenger aircraft financing, to lower financing costs
for new and used freighter aircraft, thereby creating a new market
for their products in the global air cargo market. Financiers need
to recognise that if long-term contracts are in place for freight
operators, their revenue model will be much more stable than that
of passenger operators which depend more heavily on daily market-based
pricing, assisted by revenue management systems.
air cargo needs to rapidly migrate from higher-cost hub airports
to lower-cost dedicated cargo airports with dedicated facilities
for cargo operators and freight forwarders. In the long run,
all air cargo should move through dedicated cargo airports.
Large shippers and forwarders need to make this happen. Also,
the air cargo industry needs to work with Wall Street research
analysts to spruce up its very shoddy investment image. Working
with these analysts, we need to create a separate set of metrics
and a distinct investment class for the air cargo business.
We hope that this transparency will create a path for venture
capital, private wealth and institutional money to enter the
air cargo business.
Air cargo shippers/freight forwarders are another important
factor that affects the sector significantly. We need to carefully
study the dynamics of each type of air cargo product and air
cargo customer, and promote specialisation, branding and product
differentiation in the transportation of each product category.
At the same time, the industry needs to specialize in seamless
“end to end” temperature controlled global transportation
solutions, to cater to both the growing perishables and pharmaceuticals
markets. Additionally, to drive new efficiencies in our business
we must work with both MROs and parts-suppliers under long-term
agreements to lower the costs of maintaining and increasing
the reliability of our aircraft. And as I said earlier at every
stage of our business, we must incorporate the latest information
technology into our offerings to streamline and optimise all
processes across the supply chain.
RENOVATING ITSELF: Air
cargo needs to migrate
from higher-cost hub airports to lower-cost dedicated
cargo airports with exclusive operations for cargo
operators and freight forwarders.