United & Delta Cargo Undergoing Drastic Changes

It is no secret that on the North Atlantic and more and more the Pacific airways are overcrowded and that there is too much capacity on offer. This applies to the passenger traffic, but especially for cargo and is the principle reason why yields remain so low for the airlines.

Former KLM Cargo exect Jan Krems heads United Airlines Cargo  /  source: hs
Former KLM Cargo exect Jan Krems heads United Airlines Cargo / source: hs

Larger aircraft, ample belly space and cheap rates - all this makes “flying across the pond” a dodgy financial undertaking.
But - this is surely not the reason that both United and Delta have decided to revamp their cargo products.
One, (UA) with the appointment of a new cargo CEO and the other (DL) with the retirement of its cargo CEO and the plan to integrate their cargo product within the passenger organization.

 

What could really be behind these two major moves?
At United, it’s hard to say!
Robbie Anderson out and Jan Krems of KLM in. Probably the first time in United’s history that they have filled such an important position with someone from outside the company, with the exception some time back of Scott Dolan, who came from Atlas Air.
So, did Robbie (who was pulled in from UA’s new sister - Continental) under perform in the eyes of UA’s top management, or has he not been able to push through his ideas and beliefs as to how United Cargo should be run in the future.
He had a daunting task to try and repair the mess in United’s hub in Chicago when the handling was taken from Swissport and given to a start up handler. Also trying to change the outdated IT system and integrating UAL and CO’s products were stones he had to try and step over.
UA has a large fleet of passenger aircraft, among others, many Boeing 777s which offer huge belly capacity cargo capabilities worldwide.
When one sees how much belly space they offer for example from the United Kingdom to the USA on a daily basis, or for that fact most routes, then basically there is no reason to think of putting freighters on these (and other) routes.

However, is all this space being filled, whether North Atlantic or Trans Pacific?
Rates are under tremendous pressure and now fuel prices are raising their ugly head again. There are undefined rumors that there is a budget deficit running into hundreds of millions of U.S. dollars and that barriers were set far too high at the start of the merger.
Officially, Robbie stepped down from his post on 9. June.
The announcement of Jan’s appointment came at almost the same time. So it seems that this development has been in the making for some time.

Jan Krems is certainly no “new kid on the block” as far as air cargo experience is concerned.
He has spent the best part of the last 27 years with KLM Cargo and was one of those managers entrusted with the process of putting AF/KL-Martinair’s cargo product into one box.

Integration of Martinair into AF-KLM Cargo was a doubtful move
Although this process is said to have been successfully completed by the group, one really wonders whether this is actually the case as the results shown so far are far from positive.
The AF/KL cargo structure is under a lot of pressure and quite frankly not performing at all compared to the prominent position it once had in the past.


This is however, not Jan Krems’ personal fault, but cargo has almost been a KLM mandate in the merged company since day one. Many will say that it’s what the cargo senior management has done, or better said, not done with it since its inception.


The integration of Martinair Cargo (MP) into the AF/KL family, as an example, is also in many people’s minds a total mistake and the integration of that niche that Martinair had into the bureaucracy of a merged KL/AF a big mistake.


The MP product should have been allowed to operate as a separate niche airline with the aim of bringing better revenues and returns to the group instead of just swallowing it into an already hard hit AF/KL cargo environment. Freighter operators today have to be in a niche, low cost and free of bureaucracy. Air France and KLM are not models of that!

Anyway! - Jan will have his hands full at UA, but we hope he realizes what a culture shock moving from the paternalistic Dutch to the ruthless American business environment will be and we hope he has prepared himself well.
He’s no stranger to the United States, having been until his change to UA acting as the VP Americas for AF/KL Cargo.


Working in a top position at U.S. airlines is mildly speaking - somewhat tougher than that of a position with long standing European carriers.
There’s no mercy in those U.S. airline boardrooms.
The statement made by United’s Executive V.P. and COO, Greg Hart, mentions in essence that they welcome Jan’s coming on board as a means of ensuring improvements and getting UA back on line as an industry leader.
A tough job - good luck Jan.

 

Tony Charaf leaves Delta Cargo after having spent the past 18 years with the airline  /  source: DL
Tony Charaf leaves Delta Cargo after having spent the past 18 years with the airline / source: DL

Deltas Airlines has decided to do it another way!
Officially, Delta has decided to “downgrade it’s cargo department,” undoing what Neil Shaw had worked so hard to set up.
This is happening to one of the globe’s largest carriers!
Either the cargo division is deeply in the red or the DL management has a secret formula and decided to align and integrate cargo into the passenger division!
Why?
Tony Charaf, Delta’s cargo CEO is said to be taking voluntary retirement. How much of that is voluntary after having spent the past 18 years with Delta is speculative.

Something must really be very wrong internally
For years, we have known that cargo and passenger divisions of airlines should be kept as separate entities. Neither one has any commercial synergies with the other and the same applies for handling.
Not because they don’t like each other, but more so because both products need a separate steering mechanism in order to enhance revenues and profits for carriers.
Putting them together endangers their ability to perform and to timely recognize which strategies are best implemented in this ever changing environment.

Delta’s mysterious decision
Delta aims to put cargo sales under the wing of its Global Sales Team and cargo operations fully under control of its Airport Customer Services Division.
If they have a magic formula as to how this will positively work out for the carrier - then we are sure that many others would love to hear about it.
There is no successful role model for the separation of handling from sales in cargo - not one!

Here, as with United, it’s interesting to read the company statements issued during the past couple of days.
On the one hand it’s said that “under Tony’s leadership, Delta Cargo outperformed the industry in revenue and volume and improved operational performance despite a challenging freight industry landscape - including competitors with larger aircraft and more freight carrying capabilities.”
Wonderful! - then there is no reason to turn everything upside down - or?

It’s no secret that Delta Cargo revenues have dropped, but that at the same time the carrier’s revenue profits have soared.
If then, cargo is not performing, why integrate it into the passenger division where it runs the high risk of maybe becoming a secondary product.
That surely cannot bring positive results!

In the past years, American carriers have been going through cargo managers on a regular basis. One can look back on all the press which was made regarding many of these new management additions which have dissolved in the meantime.
Are we then to take these latest decisions seriously?

John Mc Donagh

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