“The emphasis on air freight impacts an airline’s profitability

Dr. Wouter Dewulf (UAntwerp) analysed strategies in the air freight industry

In recent years, the air freight industry has evolved from a by-product to a mature industry. Dr. Wouter Dewulf (UAntwerp) analysed the possible strategies of airlines that carry air freight and concluded that the chosen strategy significantly influences the company’s profitability.

Traditionally airlines have always considered air freight to be a by-product of passenger transport. In the air freight market, pricing tended to be based on a marginal cost plus structure and profit contribution was a nice bonus. In recent years, however, airlines’ mindset has fundamentally changed. Increasingly, air freight is considered a product that allows airlines to significantly influence their income and profitability.

“The air freight industry has now evolved into a mature industry, in which strategies play an increasingly important role”, says Dr. Wouter Dewulf of the Faculty of Applied Economics. “In 2012 direct turnover in the air freight industry amounted to almost 60 billion USD. If you take the logistics services associated with this into account the turnover is even higher.”

Dewulf analysed the strategic approach of airlines that transport air freight, on regular passenger flights or in freighters, or using a combination of both. His research revealed that there are seven possible strategy models for air freight. Based on its characteristics each airline can be linked to an appropriate strategy model. He used a dataset of 47 airlines, which generate three quarters of the air freight volume transported worldwide.

Carpet Sellers and Cargo Stars
Dewulf identified the following strategy clusters: the ‘Carpet Sellers’, the ‘Basic Cargo Operators’, the ‘Strong Regionals’, the ‘Large Wide-body Passenger Operators’, the ‘Huge Americans’, the ‘Premium Cargo Operators’ and the ‘Cargo Stars’. They each have their own specific characteristics, similarities and differences.

Brussels Airlines, Ethiopian Airlines and most all-cargo operators were classified as belonging to the ‘Carpet Sellers’ cluster. “These are mainly smaller companies that focus on a niche product or market. The cargo product they offer is more capacity-driven rather than margin-driven. It’s fast, rather than well-thought out, aimed at selling the available space, hence the name ‘Carpet Sellers’.”

The second cluster ‘Basic Cargo Operators’ are combination airlines such as Korean Air and Qatar Airways, which focus, besides the transportation of passengers, on the transportation of large volumes on a fast and reliable way throughout their networks. The ‘Strong Regionals’ are a third cluster, which consists of relatively small carriers such as Swiss, Jet Airways and all-cargo operator Cargolux. These airlines operate a strong short- and medium-haul network, complemented with a specific focus on a number of long-haul destinations, from a second tier passenger and cargo hub. The strategy model of two important and very large US based airlines, American Airlines and Delta Airlines, justifies the construction of a single cluster, the ‘Huge Americans’. These very large, and profitable airlines operate a huge worldwide network, primarily focused on passengers’ transport. A fifth cluster group is identified as the ‘Large Passenger Wide-body Operators’. Well known, on a worldwide basis operating combination airlines such as British Airways and China Southern belong to this cluster group. Empirical research shows that these operators have a vast cargo capacity in the wide-body belly holds, which is professionally and aggressively sold on the air cargo market. KLM and Singapore Airlines were classified in the ‘Premium Cargo Operators’ category. “KLM and its subsidiary Martinair have traditionally focused more on air freight. Consequently, KLM achieves better results for air freight, among others because of its greater product differentiation and better capacity management. Lufthansa and Emirates, however, are ‘Cargo Stars’. The cargo division markets a separate and differentiated cargo product relatively independently of the passenger airline whose freight capacity it sells.”

Key success factors

The results of this research reveal the existence of several air freight strategy models. The most important success factors that contribute to ‘winning strategies’ were studied in more detail.

Read the full article at page 39  in CargoHub Magazine,  here


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