Competitor or Co-Pilot: Air Carriers Work Together to Fill Gaps

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With airlines limiting lift in most areas and shippers demanding more, major airlines and cargo carriers survive by combining forces. Goal? To provide worldwide seamless service by managing capacity across carriers to better match the demand.

At 2:55 p.m., a Taiwan airline calls Exel, a Hamburg-based forwarder, requesting the urgent delivery of a collision warning device for the cockpit of a grounded Airbus A320. The parts are stored at the Airbus Material Support Parts Facility at the Hamburg airport.

In just one hour, Exel receives confirmation that the eight-kilogram part is booked from Hamburg to Taiwan via Singapore Airlines Cargo, which takes over the shipment from Lufthansa Cargo, flying it directly to the Taiwanese port metropolis.

The WOW Way

In the past, these types of bookings took eight to 10 hours to coordinate. But since 2000, when Lufthansa Cargo, SAS Cargo, and Singapore Airlines Cargo joined forces to create the WOW alliance, speeding bookings has become easier and more fluid. The bookings typically took this long because the origin airline would have to wait eight to 10 hours to receive confirmation of the onward flight from the respective transfer airline, according to Wolfgang Stadie, Lufthansa Cargo sales manager, Hamburg.

That example alone shows how the alliance has made a difference in global shipping. "Along with these alliances, airlines are adopting and using the Global Freight Exchange booking system, which is creating a better way to ship globally," says Torsten Diedrigkeit, head of Exel's Hamburg-based Aircraft Parts Logistics.

Alliances Not Simple

Now that JAL Cargo has joined the group, WOW offers 500 destinations and seamless service to 103 countries. But this kind of four-company alliance is not simple to achieve, says David Wirsing, executive director, The Air Forwarders Association.

"Air cargo businesses are fiercely competitive. For the alliances to work seamlessly, and for the carriers to gain profit enhancement, they have to get cooperative services handling agreements to preclude service disruptions," he says. "They also must have a common platform for tracking and tracing, as well as communications. And they must be able to handle efficient accounting or single billing."

The airlines have been aligned for years to provide this kind of seamless service for passengers, but it was not until four years ago, when WOW and SkyTeam Cargo were developed, that they began to tackle the cargo side, says Karsten Schmidt, vice president, WOW program manager, Lufthansa Cargo.

"Cargo doesn't walk onboard so you need to have processes in place at the respective hubs," he says. "IT systems have to be tuned to be able to communicate and read messages coming in from the partners regarding booking and space requirements.

"It takes a lot to integrate the partners and we approached the integration from a customer point of view," says Schmidt. "We started by harmonizing the features of our partners' express products such as guarantee for uplift, time-definite, and booking confirmation. This eliminates confusion and helps the hub processing. While the names of the services are different for each airline, the attributes are the same, so customers get the same performance guarantee."

The next thing on the WOW agenda was to integrate the IT systems. "We have each airline's flight in our respective IT systems so the transits can be booked seamlessly," says Schmidt. "We network the partners' booking systems so that the shipments can be booked and tracked with a mouse click, or the users can pinpoint a shipment at any time, regardless of which of the four airlines are transporting it." For example, shippers who book cargo on Lufthansa can trace the shipment through the Lufthansa web site even if it moves onto a Singapore Airlines plane.

It took a year before WOW put out a harmonized product. "In the early days, we had some hiccups here and there, but we did quite well in ironing them out," says Schmidt. "Then we set out to harmonize our general cargo and large and heavy express products."

Integrating Partners and Services

Shippers benefit from the WOW partnership, and so do the airlines. For example, Singapore Airlines Cargo can offer its customers more destinations and services as a result of the partnership," says Freddy Khoo, regional vice president, West Asia, Africa & Alliances, Singapore Airlines Cargo.

"We receive much more business now than we did before we began the partnership," he notes. By working with partners to provide additional destinations to customers, Singapore Cargo can now handle 100 percent of many customers' needs.

Right now, WOW is busy integrating JAL Cargo. "We have been working on integration since JAL joined in July 2002," says Khoo. "It has taken one year to set up IT interfaces. Now it is a harmonized product. Early next year we will have the J-Freight service up and running. But first we need to invest time here to iron out the details before we can provide the products and services."

In September, WOW moved all its partners into one part of a facility in Frankfurt, Germany, to offer a single drop-off and delivery point for all customers.

"It is extremely important to get us all into the same facility," Schmidt says. "It is cost effective and facilitates handling times. It also makes it easier to move the cargo from plane to plane when the partners are all in one part of the building."

WOW has a comparable facility in Copenhagen with the exception of JAL. "JAL does not fly to Copenhagen, so Copenhagen is not a WOW hub for all partners, but we are looking to achieve similar situations in Tokyo and Singapore," says Schmidt.

Some areas of the alliance, however, could use some tweaking. For now, billing is not unified. WOW customers get just one bill from their point-of- contact carrier, but it is not a WOW bill. For example, Singapore Airlines may provide the services, but if the shipper's contact is Lufthansa, then the bill comes from Lufthansa.

In addition, shippers cannot track through the WOW web site; they must track through the partner web sites. WOW does, however, provide links to partner sites on its own web site.

To show its strength in the global market, the WOW cargo alliance unveiled a Lufthansa Cargo MD-11F—the first aircraft in WOW livery in November. It was an internal and external symbol, says Schmidt, to show the success of the four partners.

The Skyteam Cargo Solution

It's 11 p.m. in Boston and Jim Mullen, director of transportation for Worldwide Perishables, is ready for bed. Before he turns in, he phones Delta Air Cargo's Atlanta call center to check on his 500-pound lobster shipment headed for Paris, France. He could go online to check, but prefers the personal touch. He holds his breath—until he hears that the shipment landed an hour ago and all is well. For Mullen, who is responsible for moving 20 million pounds of fresh fish annually, dealing with a call center and an airline with four partners was a bit of a transition.

"Worldwide Perishables was a loyal supporter of Delta," says Mullen. "When Delta came to us three years ago and said they were creating an air cargo alliance with several partners, I was very skeptical and not too happy. Because 85 percent of our fresh seafood—primarily lobsters and shell fish—moves into the European market, I need vendors who really know the perishables business. I thought the personal relationship we had would get lost in the alliance."

Mullen was concerned that a partnership of this size—made up of Delta, Alitalia, AeroMexico, CSA Cargo, Korean Air Cargo and Air France Cargo—would squelch personalization, and his close relationship would go out the window.

He got over his first hurdle when Delta put off its SkyTeam inauguration until January in order to serve the increased volume of customer shipping it received in December. Mullen's company alone does 15 percent of its business in a two-week period in December.

His next hurdle was learning to work with the call center, instead of his Delta sales rep, for follow-up. "When the fish hits my warehouse, it has to be delivered in 12 hours. I don't have time to waste—I need to know that my product was lifted and is on time.

"I could access the SkyTeam Cargo web site to follow-up, but I need up-to-the-minute information. I need to talk to a real person because of the perishable nature of our product. Delta put me in touch with its call center and I follow my shipments nightly through them. At first, it was like going out into a black hole. I was concerned I would get lost in the shuffle at the call center, but they keep proving me wrong."

Mullen's concern is understandable considering the magnitude of creating an alliance of this size, with six large air cargo companies offering 512 destinations, and moving 15 billion freight ton kilometers per year. It is a daunting task for all parties involved and certainly took some creative planning.

The challenges to integration are great and you have to start at the beginning, says Jennifer Young, director of alliances and international, Delta Air Logistics, and chairperson of the SkyTeam Cargo Alliance.

"We had to align ourselves around a common product portfolio first, so we created four basic product categories: Equation (urgent shipments), Cohesion (just-in-time shipping), Variation (atypical shipments), and Dimension (basic shipping) and branded them the same," explains Young. "If a shipper picks up the phone to call any of our partner agents, they can order any one of these services."

Coordinating Operations

During the first three years, SkyTeam's major concern was rolling out the products. "It meant adding or changing what we do. For example, Delta did not have an international express product so we had to adapt to offer that," Young says.

Like WOW, SkyTeam Cargo partners needed to gain access to each others' flight schedules so a shipment could be booked within the network via one Delta or Korean Air agent, even if it rode two or three partners' planes.

To create further ease of access and provide a single point of sales contact in the United States export market, SkyTeam created a cargo sales joint venture with Korean Air Cargo, Air France Cargo, and Alitalia. This provides U.S. exporters with an option to do business with all partners, and offers an integrated product.

"We are also moving toward having one single location as a sales agent for all the partners in Europe," says Young. "Right now, throughout most of Europe, Air France is the selling partner for Delta's European network. All the SkyTeam partners operate through these countries with one contact."

SkyTeam Cargo is also working on aligning its warehouse operations to provide synergies.

"We are approaching this in several ways," says Young. "One way is co-locating our warehouse operations together under one roof—for example, in New York's JFK airport, where four of the six partners are located under the Korean Airlines roof."

Several partners are also trying to coordinate services by using the same handling arrangements or third parties. Right now, 72 percent of the freight that moves through common SkyTeam cities is processed through integrated warehouse operations or by common ground handlers.

The alliance not only benefits the customers, but the airlines as well.

"Delta never flew to Hong Kong, or other Korean Air destinations before," notes Young. "But we have customers that need to get to those places. Likewise, Korean Air does not fly to Oklahoma City, but we do. Interlining freight that can move on a combination of both networks provides value for the shipper as well as the airline."

Mullen says he is comfortable with the alliance and the expanded partnership, even though his contact point is the Atlanta call center now, instead of a Delta salesperson.

"We get more flexibility and more lift because of the alliance," he notes. "For instance, if we are moving a shipment to Paris, Delta does not have capacity. In a business where our product—such as live lobsters—can perish, time is of the essence. Now, Delta, through its own computers, can access its partners' flights and have our shipment booked on an Air France flight," says Mullen. Before the partnership, Mullen had to make several calls to find a flight for his shipment.

With SkyTeam Cargo handling the shipment, Mullen benefits in ways he couldn't have with Delta alone. "We get a fresher product to market than some of our competitors because in many cases we eliminate paperwork and extra calls," he notes.

The Alliance Trend

Air cargo alliances are not a passing trend. They are here to stay and shippers can expect to see more of them in the next few years.

"The cargo alliances such as SkyTeam and WOW are good starts in concept," says David Wirsing, "and I don't doubt that there will be further expansion of existing alliances in the future, as well as new ones."

It's a matter of survival, says Hugh Cutler, vice president of global transportation, Menlo Forwarding. "These alliances are primarily driven by the needs of the passenger market. For competitive reasons, any carriers that are not participating in larger alliances will not be able to compete with alliance carriers that offer global capacity.

"For the shipper, these air cargo alliances translate into expanded global networks designed to handle express shipments," Cutler says. "They allow carriers to utilize freighter networks of alliance members and provide consolidation of ground sales and marketing infrastructures, which improves processes to the best of the alliance members."

Both WOW and SkyTeam Cargo will continue to evolve. WOW is currently looking into potential new business. "We are looking to get into markets that the alliance partners do not cover 100 percent," says Schmidt.

SkyTeam Cargo is in the process of talking to potential members. For one, "Air France is merging with KLM. KLM will continue as an independent airline, but a holding company of Air France and KLM will own the airline. Because Air France is one of our members, this does affect us," Young notes.

Despite the benefits, several air cargo companies still have not joined an alliance. Schmidt says this is due to the large level of integration needed, which may be overwhelming for some carriers.

"Alliances require a huge investment of time and finances, and a lot of resources inside," he says. "The carriers need experts working on the project, and they may have to shut down projects in-house to start. Some airlines may not have the resources, finances, or time to begin such a complex process."

So what does an airline do if it does not join a major alliance? It makes alliances of a different kind, says Bernd Maresch, a spokesperson for Swiss International Airlines.

"On Oct. 25, we lost 30 percent of our capacity and on Oct. 30, we announced our agreement with Polar Air to purchase capacity on Boeing 747 freight operations," says Maresch. This enhanced Swiss Air Cargo's access to markets in Asia and North America. Polar Air also has capacity agreements with Korean Air.

"I don't think we will ever join an alliance," says Maresch. "We are working in a completely different style. We are a niche carrier with niche markets and niche products and the Swiss values are on the quality and service side. We want to focus on that."

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