According to the International Air Transport Association (IATA), it has only been in the last nine years that the airline industry has emerged to produce regular but inconsistent profits. Operating margins on a seasonally adjusted basis ranged from 3 to 5% from 2010 to 2014, rose to 10 to 12% in 2015-16 and have been declining since. Profitability has been recently reported for 2018 at $6.90 per passenger globally.
With that as a backdrop, for any airline that flies freighter aircraft or passenger wide-bodies, cargo can be a significant opportunity, especially in high air cargo demand seasons like the fourth quarter. Just as with managing passenger seats, managing that cargo capacity well is critical to making a difference on both financial and customer satisfaction metrics. But there are major differences to managing freighter capacity compared with passenger wide-body capacity.
Freighter capacity – space and weight to work with
Every freighter route is flown based on the expected profitability of the air cargo riding it. While freighter aircraft handle a larger variety of cargo than passenger aircraft, the job of managing that capacity is often more straightforward. Freighters start out in most cases with a nearly set amount of upper and lower deck space and weight. For example, the largest scheduled freighter aircraft, the Boeing 747-8F, has 34 main deck 125-inch by 96-inch pallets, 27 of which can be loaded to 10 feet high, and the remainder as high as eight feet. In addition, it loads 12 lower deck pallets up to 62 inches high, two LD1 or LD3 containers, plus another 520 cubic feet of bulk loadable space. Unless there is an inoperable pallet position, planners can reliably plan to use the full cubic capacity of the aircraft. That’s a lot of space to fill.
The other major payload variable is weight. For example, Cargolux shows its maximum revenue payload for the 747-8F at 134,000 kilograms, or 295,000 pounds. For a given route, payloads normally can be planned with a high level of certainty based on the aircraft and distance to be flown, but factors such as en route weather, runway length, temperature at takeoff time and destination airport conditions can squeeze payloads at times.
Carriers like FedEx, UPS and Amazon that carry small packages and e-commerce traffic are normally able to generate a consistent mix of piece sizes and weights. This enables them to better maximize every nook and cranny of available cubic capacity in their fully enclosed “structural” containers that fly on their aircraft (see photo above). Their challenge is more often “bulking out” before “weighting out” an aircraft.
Heavy cargo – a jigsaw puzzle in three dimensions
But other airlines with a heavy cargo focus — for example Cargolux, Emirates SkyCargo, Korean Airlines and Lufthansa Cargo — fly a large variety of cargo on their freighters, including hazardous cargo, overlength cargo, heavy cargo, live animals, perishables, automobiles and larger vehicles. These are often built up with pieces of varying dimensions on flat pallets. The main challenge in managing capacity on these freighters is the ability to continually juggle and balance a jigsaw puzzle in three dimensions to maximize the load. Customers with regular allocations may ship the same commodities on an ongoing basis, but these can vary at times too. Balancing out such allocations along with spot market traffic to maximize revenue means every flight carries different cargo, with no two departures being the same.
Best practice means getting good advance booking information on the commodities to be shipped, number of pieces, piece weights, lengths, widths, heights and stackability from shippers and forwarders. This is critical in planning loads for the available cube on each pallet and avoiding surprises that result in offloads. Knowing what cargo can only go on the upper deck versus that able to fit on the lower deck is key. Knowing what cargoes can be loaded in close proximity versus that requiring separation (such as dangerous goods, live animals and perishables) is also important. Very heavy pieces such as dense oilfield equipment, aircraft engines or vehicles often need to be loaded in the center of the aircraft over the wings, known as the wingbox, to ensure proper aircraft weight and balance.
The jigsaw comparison is appropriate not only for individual pallets, but multiple pallets at times. Pieces on some pallets may have overhangs and must be married up on the aircraft with other pallets built with “cutouts” that allow both pallets to safely fit side-by-side and be locked onto the aircraft. Good cargo operations staff develop the skills to be able to accommodate heavily booked flights by mixing and managing pieces to stack both vertically and layer horizontally. Freight that can be stacked to follow the inward contour of the upper deck or “winged” to follow the outward contour of the lower deck helps maximize the cube. There is software available for airlines and cargo ground handlers that helps plan the buildup of all pieces to maximize space and weight.
But a great deal comes down to a strong line of communications with shippers, getting the booking details as accurate as they can be early and getting periodic booking updates from the customer to account for any changes. Sales focus may need to shift into the booking period based on heavy, long or other special cargo already booked for the flight and the need to find new bookings that marry up well.
Dealing with the unexpected
Still, there are unplanned events. Bookings are canceled, trucks inbound to the airport break down, a storm delays a harvest or a catch, or damage is found on a piece upon arrival at the airport and now cannot fly. Many freighter operators try to protect themselves on larger bookings through Shipment Capacity Agreements, in which shippers or forwarders guarantee the revenue to the carrier for tying up large amounts of space.
Another tool that is available is overbooking, just as is done on the passenger side of the business, to ensure a flight goes out full, but must be balanced against product integrity and customer satisfaction. Many more sophisticated airlines have optimization software that analyzes the historic customer “no-show” or “low-show” rates (showing up with less than what is booked) and compensates with a prudent level of overbooking within the booking system.
Another feature of freighter flying to and from the U.S. is that some flights make multiple stops, such as a routing Frankfurt-Atlanta-Chicago-Frankfurt. Normally each station on the route would have a weight and space allocation on both main and lower decks to book into and manage. Stations can request trades with the downline station to accommodate day-to-day local demands. In this case, Atlanta may ask for more space or release space back to Chicago based on the local demands in both stations or vice versa.
Passenger flights – what’s sellable for cargo can expand and contract like an accordion
Managing cargo capacity on passenger flights and providing consistent, reliable uplift for shippers involves another level of complexity. Here, air cargo uses the lower deck space and weight left after passengers and their baggage. Day-to-day space and weight available for air cargo can expand and contract like an accordion. What’s put out for cargo sale depends on several passenger variables, with less leeway for error with less aircraft space and weight left over. Depending on aircraft type, route, passenger loads and baggage, payloads can really vary widely. Based on the aircraft model used, most current passenger wide-bodies can accommodate between four and 10 lower-deck 125-inch by 96-inch pallets stacked 62 inches high for air cargo. Provided there is no weight penalty, the payload capability can range between seven and 15 metric tons — and sometimes much more.
Airlines solve the question of how much cargo space to offer in different ways. The most conservative approach is to use forecast cargo space and weight left assuming a full passenger load. A slightly more aggressive assumption for cargo would use a lower passenger load factor to forecast a bit more cargo payload.
Software to help figure it out
Alternatively, there is industry optimization software from suppliers such as Sabre and Revenue Technology Services that dynamically forecasts available cargo space and weight for each flight. It starts with the aircraft space and weight capacity and calculates payload left for cargo using the current passenger bookings, forecast day-of-departure passenger load and historic route bag loads per passenger by season and day of week.
This software can analyze recent flight route performance and payloads and adjust capacity for routes with recurring weight restriction issues, such as ultra-long passenger flights that are often most weight-sensitive. It learns quickly after several days, but still may need manual analyst overrides for new or short-term operational developments that can add to or subtract from cargo payloads. More fuel needed for bad weather en route, high headwinds and destination airport weather means weight that comes off air cargo payloads. Runway construction may require the use of a shorter runway, which cuts payloads. Hot weather at takeoff time means a longer takeoff run and more fuel to get the aircraft airborne.
Managing no-show and low-show
And just as with freighters above, that software can look at historic customer no-show and low-show performance to continually adjust sellable capacity and overbooking levels on each flight each day as the flight’s departure day approaches. This is especially important to cover potential open space at hubs when flights misconnect booked cargo. Airline analysts have the ability to factor into the software the internal costs for offloaded cargo so that each day an optimized level of capacity is put out for sale it is balanced with product reliability.
The same best practices disciplines used with freighters also delivers best results for passenger flights. Sales and customer service teams have to actively engage customers to ensure accurate booking details for commodities, pieces, weights and dimensions. Ongoing followup with shippers and forwarders must be proactively done to firm up allocations and earlier bookings to release unused space early enough to permit resale elsewhere. The cargo envelope here is smaller, and shipment sizes often are as well. Still there is less margin for error than with freighters.
Prioritizing top revenue passenger flights
Ideally every flight scheduled for passengers also would be full with cargo, but many fly in markets that have light cargo demand. In my experience, good planning and capacity management disciplines can really make a big difference on passenger flights that are regularly in high demand for cargo. Putting together a list of the top 25 to 50 cargo routes that engages all of the airlines’ passenger planning and front-line operations stakeholders is key, so that all understand the value of this group of flights for the airline. Cargo-optimization systems can take the planning process quite far, but effective and timely communications and execution between cargo planners and airport operations on the day of flight really works to improve loads, revenues, route profitability and cargo customer satisfaction.
Actions include maximizing each pallet and container built up for lower deck loading, including ensuring the cargo warehouse builds out (or “wings out”) to the lower deck contour, where possible. Tight inbound connecting flights must have transfer cargo and containers properly built to facilitate transfers. With advance coordination on baggage policies, passenger baggage can be built up to minimize use of full baggage containers for just a few bags and increase the usage of the aircraft’s manual pit for a set number of bags and smaller cargo. The goal – increase availability of freed-up baggage containers for one, two or even three more containers of revenue cargo per flight. That can represent 10 to 15% more cargo revenue for the flight, with high contribution to the bottom line.
New-generation aircraft such as the Boeing 787 and the Airbus A350 that fly those extra-long flights with recurring heavy weight restrictions (such as U.S. to Singapore or U.S. to India) present a different capacity challenge. Simply put – sell space but not weight, so find cotton balls to load, not lead. That means working the air cargo market to target consistent highly volumetric lower deck cargo with high chargeable weight and very low actual weight. It can be tough, but necessary to fulfill the revenue potential of these very difficult and inconsistent flights.
Measures of Success
And when those freighter and passenger flights finally take off, what are the KPIs and measures of success? There can be several, including total revenue per departure, meeting product revenue targets, load factors, yields, shipments boarded as booked and percent of station allocation used. There is also a lot of team satisfaction from executing a solid plan across multiple internal departments, customers and vendors to go along with the quantitative measures. That is important because it will need to be repeated over and over again on future flights to squeeze best results out of a thin margin business.
With SONAR, freighter and passenger wide-body capacity is now more transparent, with metrics to help subscribers better understand market trends for air cargo tonnage capacity at key airports. This is updated weekly and covers both freighters and passenger wide-bodies in and out of major North American airports, going back to early 2018 and out 12 weeks into the future. Regional breakdowns will be forthcoming shortly as the latest enhancement. An overall look at U.S. passenger and freighter weekly tonnage capacity for key U.S. airport market areas is shown below (IACTP X-Market TreeMap, IACTF X-Market TreeMap).
The tree map on the left side shows all the U.S. passenger wide-body markets, with New York (JFK), Los Angeles, San Francisco, Miami and Chicago as the largest on the upper left based on weekly tonnage capacity. For freighters, shown on the tree map on the right, the top gateways are Chicago, Los Angeles and Miami in the upper left. Weekly tonnage is shown along with the percent change vs prior month. Other comparisons available include change versus prior week, two weeks and year.
SONAR data is also available in chart form to track longer term trends at individual airports or multiple airports. Following these trends can help trucking firms and other providers understand airline capacity increases and decreases planned and potential opportunities for volumes in and out of key airport market areas.