"Freight Expectations: How air-cargo can adapt to a new reality” was the title of the webinar hosted by FlightGlobal and sponsored by SmartKargo on 30JUL20. Moderated by FlightGlobal’s Head of Strategic Content, Murdo Morrison, and featuring a panel made up of Olivier Houri, Executive Vice President and Chief Revenue Officer, SmartKargo, Abhi Shah, Chief Revenue Officer, Azul Brazilian Airlines, Tim Strauss, Vice President, Cargo, Air Canada, and Paul Stoddart, Chairman and Founder, European Aviation Group, the webinar looked at ‘preighter’ and cargo demand and supply over the next 6 months, the longer-term trend in airfreight, and what opportunities there were for airlines to exploit.
“Today, we are addressing the cargo market, and looking at the opportunities for airlines in a very different world to the one we found ourselves in at the start of the year,”
Murdo Morrison kicked off the webinar, illustrating the known situation of next to no belly-capacity as up to 90% of passenger flights were grounded, and pointing to a number of airlines opting
for ‘preighters’, either with or without the seats removed.
One phone call, and out-of-service planes were flying again
Paul Stoddart described how a single phone call from the British NHS earlier this year, led to 4 of the currently 19 passenger A340s on his books being converted to temporary freighters and carrying out 60 flights transporting PPE. Having since received STC and able to transport larger quantities, he is certain that ‘preighters’ and pure freighter conversions are the way forward, despite the fact that most PPE is now moving to less costly land and seafreight: “I also see a tremendous future for passenger- to-freight conversions however with a difference. I mean, it's one thing to take the seats out you're limited by restrictions on what else you can do. But we're looking forward to, in January, announcing a fairly exciting new innovation that is effectively a sort of a halfway house between a full freighter and a passenger aircraft, that would allow us to carry roughly 450 m³ / 75, tons of cargo. And a lot of it will probably be targeted at the eCommerce and the light parcel/light mail, anything that sort of the one to five kilo range or a little bit higher, that we can very easily, and we've proven it with the PPE, hit the turnaround times to load the cabin. There's still no freight door yet, but certainly a frame system within the aircraft and I think there's a long-term future. I don't think the demand is going to go away!"
“A 777 is a freighter with people on top!”
Those were once Tim Strauss’ words in answer to a passenger airline CEO declaring no need for freighters in the fleet. “Cargo is in the driver’s seat,” Tim Strauss is convinced, predicting a strong six months ahead for cargo, and more, given that “passenger business won’t return as fast as we hope. Those who can operate preighters will do quite well.”
He recalled that the aviation industry took 3 years to recover from SARS, 7 years to recover from the 2008-10 financial crisis, and expected that with COVID-19, the industry was looking at a recovery rate somewhere in between. With the increase in revenue that cargo is bringing passenger airlines, it will soon have a seat at the table and, he says “we’re still a few years from the real impact of nearshoring” that he can see happening mainly “for geopolitical reasons.” There are cargo opportunities in relocating plants and then in ensuring the first and last mile delivery networks, given that much traffic runs on a hub-to-hub basis only. Efficiently run aircraft with good turnarounds, can compete well by delivering the necessary speed compared to laborious truck times. Drones will also play an increasing part in cargo transportation of the future.
Make more use of those bellies
Olivier Houri lamented the missed opportunities of most passenger airlines pre-COVID-19 when it came to the “perishable product” of belly space, pointing out that mostly only 20% of overall belly capacity was being utilized by cargo – and that was when there was a focus on cargo. 80% was being wasted. Yet “cargo can save an airline!”, and while in the past it was seen as a nice-to-have extra revenue possibility, “today, it is becoming an increased focus, it's becoming a true line of business. And I believe this focus is here to stay.”
Illustrating facts and figures about the rapid rise in eCommerce and with neat, “safe” parcels averaging 1-5 kg in weight, it being the perfect commodity for belly holds, or even placed on cabin seats in cargo-only passenger planes, he extolled the vast opportunities eCommerce was offering for airlines: “It comes from a known shipper warehouse, and it's easy to load. It's identified, […] you can track it and trace it. So this is a perfect shipment. […] and more importantly, the yield associated with shipping eCommerce is two, three, and sometimes more, higher than general cargo or even special cargo so it's a very exciting opportunity for airlines.”
“Without a beep, you know, nothing exists…”
Abhi Shah described Azul’s “smart and lucky” entry into cargo logistics, and the situation in Brazil, a country just starting out in eCommerce, where 2-day delivery times were an illusion for most destinations given the absence of alternative modes of transport, and the times were closer to 7-14 days.
Success is built on the flexibility of a very varied fleet of all different sizes, including “the world's first Embraer 195 adapted for cargo where we removed the seats,” and technology enabling the build-up of a huge, cost-efficient network in partnership with around 350 eCommerce retailers in Brazil to create a full first to last mile network across the 3,000 communities in Brazil. One of the biggest challenges, was getting handlers to scan, or as Abhi puts it “beep”, the shipments in order to secure full tracking. “Without a beep, you know, nothing exists!” The future in eCommerce is a matter of a tightly intermeshed and incentivized network of thousands of partners in every location, allowing you to scale up and down as required to ensure functioning end-to-end processes.
Looking back in 12 months from now – how has the market been?
Olivier Houri: “We are in the business of helping our clients promote, sell, and operate their available cargo capacity by deploying integrated transportation solutions to their end clients. This is going to be the trend: we're going to see more players expand beyond the air component and try to service their clients to their needs. I'm a strong believer of this opportunity [which will] be driven by the growth in demand. [If] you are able to adapt and become flexible and respond to the demand, then you can be successful. So, I think we're going to see more increase in the cargo role within airlines. Cargo needs to have a seat on the board. I think they've earned it. So that's going to be the tremendous change.”
Paul Stoddart: “I think it would have been good for any companies that can adapt. If they can react very quickly to changing market circumstances, and they deliver the service then I feel that the freight industry as a whole, or air freight industry in particular, is going to both hold its own and see a level of growth that sadly our passenger friends will not.”
Tim Strauss: “I think, passenger airlines will be back to 70% of the volume they were carrying previously, or the systems they were running previously, eCom will continue to grow very quickly. Those with artificial intelligence and able to really leverage that will be ahead of the game. And if you have cash in the bank as an airline you will win this game.”
Abhi Shah: “I agree with the group in general, I would say that airline organizational structures will be much more integrated. I think that no route planner will have a discussion about a route without cargo, without eCommerce. I think no financial planning group will talk about anything without logistics. I think no fleet discussion will be without thinking about cargo inputs so the more integrated your teams are, the more you're speaking in one language, leveraging the brand especially, I think it's just going to be a much more integrated world.”
Flexibility, adaptability, eCommerce were the keywords that came up most throughout the webinar. The outlook for cargo, albeit in a rapidly changing form, appears positive. Great results to follow those great expectations, then.
We always welcome your comments to our articles. However, we can only publish them when the sender name is authentic.