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In the last of a four-part series, Stan Wraight, president of air cargo consultancy SASI, takes off the gloves to explain how all stakeholders in the industry can reclaim the vast revenues that have been given away to forwarders and integrators
So, what is the answer?
Airlines: The answer is product portfolios, dashboards through API solutions to all “principles” and, one common operational system geared to your own needs – not the herd solutions that exist today. All must be managed throughout with a KPI/SLA by product type, for operational processes throughout.
Accept finally that cargo is a core business for the true maximum revenue optimisation of each flight. Encourage key personnel to re-think the idea that only passenger-career aspirations can lead to advancement; air logistics can and must be shown to be a rewarding career.
Cargo deserves respect and attention from the CEO and board, and will be if they understand the economic benefits. This should be a key priority for IATA, if it is to truly serve the air cargo industry. Best leave products and how to handle them to private industry: they do it better, faster and are more up-to-date and relevant.
Together with airport authorities, airlines must lobby local, federal and global authorities to allow the new business model to work seamlessly, as it will enhance economic progress for everyone. Operational processes must be equal or better than integrators , and this can be done in a virtual way, and can also be at a variable cost.
Invest in your people. Provide training on strategic selling, and review all current ways of doing business. Remuneration should be based on products sold and clients gained and retained, not on filling export aircraft capacity in their station, which is totally ridiculous and out-of-date today.
Last, operations must be separate from sales, as it’s a strict discipline based on your “product portfolio” operational specifications. The product definition as to speed, quality and transparency is what is sold and delivered.
Airlines have vast experience in doing this in the passenger model through digital web solutions. First class, business and economy are all products, which get more expensive the closer the buyer is to the flight time. Why not learn from that? You pay heavily for a same-day, or close-to-same-day passenger flight “product”. In cargo we do the opposite, why?
If you use their services, change the engagement with handlers and sales agents to one of strategic partners, with a menu-based system for products rather than an outdated kilo price mentality – you will all benefit. They serve as shopfronts to deliver your airline’s product portfolio strategy.
It should not be your purchasing department that is holding negotiations with these suppliers, but your marketing team, because what happens on the ground from now on, will dictate your success.
Airports: Your facilities must be a tool to assist your airline and other stakeholder clients. They are marketing tools for your airport to ensure profitable air logistics solutions – they should not be relegated to simple real estate transactions.
While developers and leaseholders will understand that rent, concession fees etc are important, they should know too that as much weight will be given to ensuring the economic sustainability of airlines.
Full data and ecommerce capability, paperless operations, full capability to handle verticals that the airlines wish to develop, should be in the RFP for developers. Ensure these criteria are implemented by tenants as a pre-condition.
Airports must work with handlers to isolate pain points and allow them to upgrade their capabilities. If airlines are presented with a menu of operational capabilities, handlers can and will invest. And airlines will profit too.
The economics for handlers are severely restrained as airlines claim their margins will not allow anything else. That is ridiculously short-sighted, and a major part of the circle of decline for both parties.
Handlers: Please question airlines when they approach you with requests based on association-led projects.
How many of them built expensive pharma handling capabilities on airport, only to see pallets completely bypass them and be picked up directly by the consignee? Offer the highest levels of capability to allow a door-to-door operation, which again can be achieved on a variable cost basis, if organised properly. Embrace technology, and support cargo community system implementation, because this variable cost solution is the only way forward, especially for SME stakeholders.
With developments in passive airline containers with lithium batteries that last more than 11 hours and are only improving, will facilities really be required? Do you need racks with power adaptors instead? Unnecessary costs should be taken out to keep competitiveness intact.
Build specific handling capabilities based on airlines’ business plans and product development – not what the press finds the flavour of the day.
Cargo community systems, and stakeholder associations chaired by the airport, are a must to ensure standards are met and constantly reviewed. Facilitate an ongoing interface with local authorities to ensure they are engaged in this new approach, and are providing assistance to all airport stakeholders on pain points.
Data and logistics corridors
A digital air logistics corridor between two airports enhances shipment visibility for all stakeholders and optimises the flow of cargo data, and is one of the UN’s goals for trade facilitation. These digital data corridors can connect multiple airports and countries, using the simple principle of data federation and trust.
If airports adopt these systems, it immediately starts creating a global capability to handle all products, with a plug and play capability for stakeholders. This sort of collaboration on a one-to-one basis, especially in operational efficiencies, have great potential for revenue enhancement for both airports and airlines, and all stakeholders who join. Examples are last and first mile providers, pharma specialists, e-retailers, customs, security, chambers of commerce, etc, all of whom will benefit.
These systems will allow this new business model to rapidly accelerate. For every exporter, there is an importer who wants information on the consignment. E-retailers judge the success of a sale on the consignee’s satisfaction, and work hard to gain that information as repeat buyers are key.
How many airlines and airports understand that simple fact and provide this capability?
First and foremost, we must get those widebody aircraft flying again, and it’s painfully obvious that we are three to five years away from doing that profitably if we only depend on passenger revenues. Cargo yields and volumes pre-Covid will not do it.
It takes courage to admit we have been ignoring the obvious, and not embracing the needed change, both in mindset and operational capability. But for those who are willing to do so, the economic rewards are substantial.
A simple overnight express product, using existing non-stop passenger transcontinental belly capacity for 1000 kilos only, could give a net margin of $45,000.00. Apply that same logic to e-retailers and present them with an alternative capability to Amazon and Alibaba who take up to 30% of the sale price, and watch the flood gates open.
Engage, collaborate in service elements, embrace technology and heed the obvious competitive threats that are there.
The world of air logistics now revolves around three key elements:
If the industry does not recognise the need for change and embrace it like never before, widebody aircraft will not return profitable results for years to come, and all stakeholders will suffer as a consequence. Jeff Bezos and Amazon, Jack Ma and Alibaba have shown what can be done.
If you think price pressure was hard pre-Covid, just wait until the megaliths like Amazon and the large forwarders control most of the high value air cargo, and see what they are willing to pay going forward. Small and medium (SME) enterprises in both retail and the forwarding business are not the enemy; they are struggling and need solutions to compete.
SASI has many solutions to this new way of doing business because it is not new to us. We have been teaching the techniques through our training activities to major airlines, airports, sales agents and handlers globally for years.
My warning to those CEOs, CFOs, board members and cargo managers who choose not to embrace change and become a disruptor, is that you have no choice.
If you continue to subscribe to merely cutting costs as we have regretfully seen many do, the revenue will not recover for years to come.