Ailing air cargo market calls for new flight patterns

Ailing air cargo market calls for new flight patterns

These are challenging times for the air cargo industry. On one hand there are large customers like Amazon who are setting up their own air cargo operations and on the other very few air cargo airlines are profitable because of incessant price wars on key routes and a general slump in world trade.

Air freight experienced in 2016 a U.S. dollar-yield decline of 16 percent worldwide compared with the first five months of 2015, according to World ACD. The cargo division of Lufthansa, one of the world’s top airlines, recorded its fifth quarterly operating loss in a row, and the German airline group’s logistics business — which includes Lufthansa Cargo, ULD specialist Jettainer and its other investments — recorded a 16.4 percent year-over-year decline in second-quarter revenues. 

It is imperative that the leadership of cargo airlines adopt new strategies and thinking to ensure that their businesses remain relevant and profitable in the future.

One way cargo airlines can remain profitable is introducing “milk runs,” which refers to using a single aircraft to cover a multitude of airports on a circular relay basis. Such a set-up provides scheduling and operational flexibility by allowing carriers to add or delete flights based on demand, which will increase aircraft utilization levels. For a milk run to be effective, however, it will be essential to have a central hub airport with a facility for warehousing transit cargo.

Consider Emirates recent decision to add a Delhi leg to a freighter service from Dubai to Hong Kong, allowing the airline to haul Delhi-Hong Kong freight, and opening immense possibilities for milk runs.

I have worked out a 5-day, weekly milk run plan that will facilitate a weekly or biweekly service covering 10 countries using just a single aircraft, opening up a large number of service combinations at low operating costs that will enable cargo airlines to achieve leadership in these markets.

Another way to boost the bottom lines of cargo airlines is the establishment of dedicated freight airports in much the same way that logistics companies invest large amounts in dedicated central warehouses that act as linchpins in cargo storage and distribution networks. Dedicated cargo airports are not unheard of; Al Maktoum International Airport in Dubai, for example, started life as a dedicated freight airport.                          

Such airports can function as hubs that will warehouse transit cargoes for milk run operations, and e-commerce companies and others might find them attractive for establishing fulfillment or assembly centers.

These airports would also offer operating advantages such as flexibility on take-off/landing slots, and savings on landing charges and parking fees, in addition to others. Dedicated freight airports would also open new revenue streams from landing charges from other airlines and other related activities.

I’ve estimated that if land is acquired under a long-term lease it will probably cost about $50 million to set up a freight airport that can service aircraft like the B747.

These are just some of the solutions that the air cargo industry should consider and adopt to ensure long-term health and sustainable growth.

Praveen Raveendran is a logistics consultant based in Dubai. Contact him at praveenaca@gmail.com.