Costs up, margins down: A growing number of carriers are facing enormous financial pressure despite the current fall in oil prices. To counteract this downward trend in earnings, more and more passenger airlines are rediscovering air freight as an important business to better their bottom line.
A growing number of passenger airlines are focusing on air freight carriage in the holds of their passenger aircraft to improve their earnings. Michael Hoppe, Chairman and Secretary General of
the association Board of Airline Representatives in Germany (BARIG) delivered this rather surprising message at a press briefing held in Frankfurt. This comes at a time in which all market
forecasts indicate that the air freight business will face challenging times in the months ahead.
In Frankfurt, Munich, Dusseldorf or Cologne clocks seem to run somewhat differently at least when seen with the eyes of airlines that focus on passenger transport and paying little attention to cargo.
Margins going south
This is changing, Michael has observed. His point is: The margins of many carriers serving Germany, in particular the income of traditional legacy carriers, tend to continuously go south due to the aggressive price policy of low cost carriers and increasing tough international competition. Consequently, this constant pressure on airfares leads to a steady decline of yields, despite the downturn of fuel prices.
Seeing it from the other end, carriers serving Germany have to shoulder high fees and charges, leaving little room for profitability.
Landing fees, airport charges, air navigation charges and, and, and! “Those cost factors are a reality we are facing and have to get along with,” states the BARIG chief, knowing that they represent roughly 100 airlines, including eight global cargo carriers that account for about 105,000 jobs throughout Germany.
Cargo as main differentiator
During the Frankfurt-held briefing, Michael outlined his association’s efforts to lower some of the costs by pushing for optimized processes at airports, an efficient exchange of electronic data between airlines, handling agents, forwarders and customs to streamline the cargo flow. Despite first successes, he admits that this rather tedious process needs time, producing hardly any immediate results to protect his member airlines’ finances.
Michael’s conclusion: “We are observing that a growing number of passenger airlines serving German airports, particularly the largest, Rhine-Main, have lately put cargo issues on the agenda. This, because the transport of shipments in the hold of passenger aircraft is a key differentiator when it comes to earnings or losses on a sector flown by the carrier.” In other words, if cargo figures are constantly positive the risk of a route going into the red decreases substantially.
By rediscovering the importance of air freight, Michael confirms, “some of our BARIG members are able to compensate for the passenger margin decline.”
New levels of data transmission
Further, Mr Hoppe announced that cargo would play a more prominent role in his alliance’s activities. BARIG representatives participate in different working groups under the umbrella organization ‘Cargo Community Frankfurt’, initiated last year to improve air freight processes at FRA. In this respect, an important goal is to enhance the flow of data between all participants in the supply chain, bringing it up to new levels. For instance, truckers bound for Frankfurt’s CargoCity South with their vehicles filled with shipments can be assigned a certain time and gate position for unloading their goods at their handling agent of choice at FRA way before arriving the airport. This prevents traffic jams, saves time, lowers greenhouse gas emissions and optimizes the flow of goods. “The technique is there, what we are now doing is mapping out an effective plan to give the project a go.”