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A R C H I V E S

E D I T O R I A L

"SECOND QUARTER DOG DAYS"

     Maybe a few years down the line, all of us will look back upon this time with a perspective that allows the open admission that from September 2001 until late Fall 2003, there was this dead stop in the fortunes of the airlines, unlike any other time in history.
     There is just so much equipment out there.
     Just look around the country and for that matter the world’s air gateways right now.
     So many airplanes, and people, and gates, and entire airports, going underutilized, or worse, unused at all.
     Scratch any trade show that you can think of, be it Air Cargo Americas in Miami this Fall, or the next must-to-attend aviation hot info. conference, and the bet is that the majority of attendees could easily be people out of a job looking for work.
     A look at projected and reported second quarter performance of the big U.S. airlines, must have airline executives in office with financial analysts, and later stretched out on the couch with their head-shrinking analysts, trying to figure out how so many smart people could have been so wrong as to what could happen industrywide.
     Here are some profit and (loss) projections for second quarter 2003 for the U.S. majors, (in millions).
     US Airways ($43), American Airlines ($439) Continental Airlines ($61) Delta Air Lines ($260) American Trans Air ($3) United Airlines ($551) Northwest Airlines ($245) America West ($16) Southwest Airlines $86.
     In total the top ten U.S. airlines could lose combined better than $1.5 billion.
     Ouch! As a matter of fact—double ouch!
     The second quarter is traditionally strong for the airline industry, as leisure passengers and vacation travel fill the skies.
     So what is going to happen after these negative numbers are released during the next few weeks?
     Analysts no doubt will find some daylight in lousy numbers saying useless stuff such as “it can’t get worse,” although those kinds of words are at best, transparent.
     American Airlines, saying a while back that it broke even on a cash-flow basis during May and maybe June, confirms that the world’s biggest airline is having some result from its program of Draconian cost-cutting.
     But when an airline business looks to Continental, which is expected to lose big, ($61 million) as its strongest financial report of any of the majors for the quarter, you know something is being made out of nothing.
     Of course CO already has been bankrupt (1993) so CO enjoys a low cost structure, yet to take firm hold on the bottom line of the other U.S. majors.
     Southwest Airlines, the low-fare super star airline, is expected to report profit of $86 million for the quarter. Jet Blue is forecast to earn $18 million and Air Tran $14 million.
     Interestingly, all three of the aforementioned are ordering new aircraft like crazy, proving once and for all that there is always investment money for the airlines.
     Which is probably why the future if you care to look at it favors the big U.S. carriers too.
     First of all, ten airlines occupy the space that twenty years ago was flown by three dozen airlines.
     So the number of U.S. majors, added to some kind of foreign ownership relaxation, plus costs cut to the bone and beyond that, the alliances, will reshape and reinvent the U.S. airline landscape like no other time since the Civil Aeronautics Board (CAB) went out of business in 1978.
     Looking back, we kind of miss the old CAB. At least with the CAB you knew what to expect. Sure the airlines were an old boys club, but everybody made money no matter how lousy things were run.
     Being out of work isn’t fun anymore either.
     Once you could spot executives before and after lunch, asleep in the big overstuffed leather chairs inside the old Wings Club at The Biltmore Hotel in New York City or involved at impromptu business meetings making deals while getting their shoes shined in the club bathroom that had urinals big as bathtubs and attendants to hand you a towel.
     Now The Biltmore is gone and the Wings Club has moved from Vanderbilt Ave. near Grand Central Station to what seems to most airline people as an undisclosed location elsewhere in the city.
     Thinking ahead, some day while aloft up there about six miles high, passengers enjoying a meal that they just paid for, will barely remember free food that they didn’t like anyway. Airlines like Pan Am, Eastern, TWA, Piedmont, North Central and Mohawk, People Express, and all the rest including (God forbid) maybe even a few low-cost carriers (once the majors harp their act, get their costs down and overwhelm them) will be relegated to distant memory and card tables at memorabilia meets in otherwise empty airport hotels on Sundays.
     There will always be airlines and airplanes.
     Only the names will change.
     The good news for the big carriers, analysts say, is that things can’t get much worse.
     That’s why some observers have an improved “optimistic” outlook right now.
     “Almost all that could go wrong with this industry has already happened,” one smart guy said. “We continue to anticipate bright skies, as we move ahead.”
     If you listen real hard you can hear that little kid with the bright red hair break into tune:
     “Tomorrow, tomorrow, there’s always tomorrow.”

CIVILITY IN AIR CARGO

     We have been thinking about how many jobs may be lost this year in air cargo.
     The reflection brought about by so much upheaval in the airline business right now, with daily postings of jobs lost, that may never be replaced.
     But even more than any specific job in air cargo, what concerns us most, is how the worldwide airline financial meltdown has impacted an industry that has always been pointed to as genteel and quite civil, as compared to others.
     The airline business, in the first place by nature of what we do is quite a social occupation. On the passenger side it is almost like show business in the manner it is conducted, both toward its customers and employees alike.
     It’s not like air cargo was always a poster girl for good business manners either.
     Some trucking and forwarding companies throughout air cargo history have had a notorious reputation for their dealings in industrial relations, including the ever popular cement shoes neatly fitted upon some disgruntled employees, or even bad debts, during the formative years of the industry in New York, U.S.
     If what we have heard lately is any indication, civility toward an employee, a company no longer wants, has declined from the advances of the eighties and nineties.
     Today, with the accountants running just about everything, civility once again is a thing of the past.
     Does that mean cement shoes may come back in fashion?
     “Only if they think that can get away with it,” a source confides.
     But seriously, lose your job in a downsizing, or direct firing for whatever reason, and the bet is that the dismissal will be offered in the form of an ambush.
     You walk in and are told that you are out and that some guy with a neck as big as your legs will be your shadow while you clean your desk into a Tupperware bin.
     “Keep the cell phone until nightfall,” will be the advice.
     Believe it, that’s how it goes.
     We talk to a lot of people and hear these stories daily.
     The core of the problem really is the terrible business climate.
     Ask yourself. How does a company, like say Singapore Airlines go from a $500 million dollar profit last year to its first in history loss this quarter?
     The answer is they don’t take that kind of reversal of fortune very well at all.
     Why should they?
     The other day we were delivering our June 2003 paper at JFK, and the guy in the office at SQ Cargo said:
     “Do we have to pay for that?”
     “No,” we responded gently, as we heard a sigh of relief.
     But later the thought occurred. If the only thing that people think about when they see their monthly industry newspaper is whether it’s for free, then we are all in trouble.
     What if Air Cargo News doesn’t matter any more was another thought.
     We started to pay attention to comments from people who work in air cargo and also asked questions of the industry around the major gateway airports we serve in the U.S.
     We are happy to report that most people are just happy that Air Cargo News has not succumbed to lack of advertising business, and that we are still publishing.
     While air cargo is being tight-fisted about every dime, and lots of folks, not just us, are either concerned or running scared, the most often repeated comment we heard was “Good to see you” and “what’s new” and “you are the only news and opinion in this industry that we believe.”
     Our favorite and most often heard remark came from Los Angeles: “You are the industry news source that we do see.”
     Not much money in those sentiments to pay the bills.
     But a strange thing occurred, as we canvassed the readership in this earnest, if unscientific survey.
     The reaction of positive energy from our audience has manifested itself by energizing every one of us to the task of working as hard as we can to do the best job possible, as the only independent voice of air cargo in the world.
     Air Cargo News steps forward to do its job with the rest of the industry, not as some phony platform for a special interest group, or industry association run by well-heeled fat cats, or as a rag sheet with two or three special reports each issue that are nothing more than hack advertorial destined to put readers to sleep.
     Air Cargo News is the voice of the people of air cargo—we are humbled and proud to be regarded by so many of our readers in that manner.
     A little civility and caring amongst every day air cargo industry people in the end, has gone a long way toward keeping Air Cargo News in business.
     It’s also interesting to witness the kind of work that you do when the going gets tough, and your back is to the wall.
     But the core of the task for the industry ahead whether it is at our little book, or at American or United or US Airways or Virgin Atlantic or elsewhere, is we think working toward finding that special civility mentioned earlier that has always been a hallmark of our business.
     What you say to your friend, or about your friend, who has just lost a job, is quite important too.
     The market will recover, it always does. Nobody is predicting anything but growth for the airline industry in the years ahead.
     Maybe things will never be the same and were not meant to remain constant in the first place.
     But what’s between us, you and me, is that we both should do our damnedest to do the right thing, serve each other and support the industry and the business that we love.
     Geoffrey Arend

 

Acrimony Among The Acronyms

Protectionist Alliance? FedUPS Hypocrites
Block DHL

By Captain Cargo

     Parked next to a brown parcel carrier at Oslo airport with a big N and some numbers on the side, just arrived from Gothenburg, I wonder what all the fuss is in the States over DHL’s operations over there. I mean it’s not like they’re doing anything new. They’re not trying to muscle in on a new market.
     They are not flying European registered aircraft in the States. It’s the fact that Deutsche Post, a German postal company, is now the major shareholder, that’s getting the competition worked up. Meanwhile, FedEx are now trying to get back into Europe, after all but packing up their own flights here years ago. While trying to re-establish themselves here in Europe they have sided with UPS in the petty squabble over who owns what Stateside. Is that wise?

     What’s the definition of hypocrisy? I found this definition online:
     1.The practice of professing beliefs, feelings, or virtues that one does not hold or possess; falseness.
     2.An act or instance of such falseness.
     Cologne has a whole ramp of brown transatlantic cargo tubes parked next to smaller European and N registered aircraft operating on feeder routes inside Europe. There’s so many now that we’re getting pushed further and further down the ramp, and are now parking on passenger stands that have to be vacated before the morning rush. Whereas DHL have paid lip service to the legislation passed by Congress in April (the intention of which was to ensure that US carriers profited exclusively from the military’s re-modelling of Iraq) by selling off and re-branding DHL Airways as Astar, the other two primary colours of express parcel delivery continue to operate unhindered in Europe.
     OK. How about European legislation being passed to restrict the operations of foreign registered companies operating in Europe?
     Or, even better, existing legislation being abused, as it is in the States.
     Why should American operators in Europe be treated any differently to European operators in the US? Perhaps the Brown Ones are worried about DHL’s new yellow colour scheme….though now I wonder whether the comment I heard in a bar in Brussels recently referring to the fleet of brown aircraft as the “flying turds” was actually referring to the colour scheme . . .
     It’s not that I have anything against UPS. I don’t. I’ll fly whatever my company wants me to. At the moment it happens to be a bright yellow 757. I am not advocating UPS being kicked out of Europe. They’ve been here years, and have an established customer base. But why should American crews be allowed to fly European routes on US registered aircraft when there’s a lot of pilots out there with JAR licenses looking for work? Why shouldn’t DHL be allowed to operate N registered aircraft in the US, when UPS are operating them over here? Surely DHL should expect to be allowed to operate European registered aircraft in the US?
     When I was flying the Electra we flew some UPS routes. They’ve got a great crew room and fed us hot food, a welcome change from the bottled water, coffee and dry biscuits we subsist on normally. My only complaint was they were a bit quick to blame the crews for any delays. The ramp agent would turn up twenty seconds before departure and then put the delay down to us.
     Evidently their own pilots are all mathematical genius’s and can work out the performance figures in a couple of nanoseconds.
     It’s a shame the same can’t be said of the management.

Is Domestic Air Freight
“Going Back To The Future?”

     What’s happening to the “air” in domestic air freight? Is it in danger of disappearing? If present trends continue, our industry may well be “going back to the future” with domestic air freight becoming an endangered species. The old fashioned sober truck instead of the sleek jet may well become the symbol of our domestic industry.
     The signs are everywhere. DHL is proposing to buy Airborne’s ground services for $1 billion. For Airborne’s fleet of aircraft; zilch. FedEx, once the very symbol of overnight delivery, now rarely mentions its air capabilities but rather boasts of its ground services. The Memphis giant reports that almost all of its recent revenue gains came from old fashioned trucks. UPS planned to furlough a number of its pilots, then rescinded the order at the last minute because of retirements and natural attrition. It had no intention of furloughing any UPS truck drivers. Integrators are fleeing the overnight air business as fast as they can. Emery Air Freight now is just a memory and BAX Global sees its domestic future in a network of truck rather than air hubs.
     What’s going on here? Why is an industry, once hailed as the poster boy of a new “paradigm” in transportation, falling on hard times and showing little or no growth? The reasons are many. They include a persistently soft economic climate and a subsequent obsession with the bottom line by shippers, more effective competition from primarily LTL truckers, more sophisticated supply chain systems by customers, and a reluctance by many in our industry to engage in the admittedly tougher fight to gain new air freight shippers, than to spend time and energy on the easier task of stealing each other’s business.
     Hardly helping is the dire straits of the U.S. scheduled airline industry. While the carriers’ air cargo sectors have been less affected than their passenger divisions, air freight offices have been closed, personnel slashed, with advertising and marketing efforts reduced to near zero. Perhaps even more important to our industry, airlines have cut and continue to reduce the number of domestic flights. They also are substituting less capacity narrow bodied jets from the wide bodies on many routes—inflicting a double whammy of limited choice of flights and less space on existing aircraft.
     Coming up fast in the rear view mirror is the LTL truckers who are biting off a growing slice of the air freight pie. Originally hardly aware of the air cargo market, LTL truckers now are a major threat to air freight forwarders and airlines alike. They have grown increasingly sophisticated in honing their product to serve the more precise needs of the air cargo customer. With the exception of next day service, trucks can deliver cargo in much the same time as airplanes to most of the U.S. Little wonder that DHL, UPS and FedEx are concentrating on less expensive ground services—at least during currently soft economic times.
     The hi-tech revolution in information technology has been both a boon and a curse to the air freight vendor. A boon in that, forwarders and airlines have far more sophisticated informational tools at their disposal. We can plan and implement transportation strategies combining more precise delivery of cargo with cost efficiencies that were unknown as little as a decade ago. A curse in that, traffic managers and purchasing agents; excuse me, supply chain managers, now have the same analytical tools at their disposal. Worse yet, they know how to use them. Unlike the past when a customer without hesitation, would consign a 10,000 lb. shipment for overnight delivery, today he often will move 1,000 lbs. by air to “crank up” production and ship the remaining 9,000 lbs. via surface.
     At Consolidators International, we believe moving domestic cargo by air, particularly “heavyweight” freight, faces harsh realities. These “realities” include:

  • The reality that recovery from our current soft economy will be long and painful, not short and sparkling.
  • The reality that shippers, having cut traffic costs to the bone at the expense of forwarders and airlines, will continue to nickel nurse their transportation bud- gets even as times get better.
  • The reality that manufacturing and distribution systems have changed forever. Precise timing of shipments to fit production cycles will become even more important than speed of delivery.
  • The reality that for the many shippers who have switched from air to surface are finding second, third or even fourth day delivery is fully consistent with their own production or distribution requirements.
  • The reality that scheduled airline service, for reasons that have nothing to do with air freight, has been degraded both in numbers of flights and cargo capacity.
  • Finally, on a positive note, the reality that tough economic and political times have helped forge a new understanding and spirit of cooperation between forwarder and airline.

For those who care about our industry, we reluctantly must face the fact that the old, free booting days of “get it there whatever the cost” are gone forever—with the exception of relatively few emergency situations. Detailed cost analysis largely has replaced the “gung ho” attitude of many shippers who in more affluent times thought little of anything else except to get their products to market “fustest with the mostest.”
     Yet, there is something melancholy about our going back to the future. Unlike surface transportation which has been part of human history since Biblical days, air freight is a child of the 20th Century. Its proponents confidently predicted that air would be the transport mode of the future. Sadly, that prediction has not yet been fulfilled. Perhaps the pendulum will swing back to air—sooner rather than later. Before that pendulum can reverse course, however, new, persuasive rationalizations for utilizing air by airlines and forwarders will be necessary.