U.S. Airlines Need an Attitude Adjustment

Airlines in the United States contain a hidden treasure. But through indifference, disinterest, and even disdain, this treasure never will reveal its true worth unless and until senior airline management realizes the importance of freight operations.

The passenger side of the industry is doing comparatively well five years after the Sept. 11 attacks—with packed airplanes and higher fares. But it’s still tough to make a decent profit with jet fuel prices close to or at record levels.

The cargo business is less in the public eye. Yet, rather than building on the potential strength of domestic and international cargo, U.S. carriers seem oblivious to a vital source of revenue.

Much of senior airline management (in combination carriers they all come from the passenger side) considers air cargo to be a dirty, messy business. To be assigned a cargo position at many domestic airlines is considered being sent to Siberia.

Exacerbating the situation is the tangled relationship between airline and forwarder. This relationship is a key factor in any future prosperity of air cargo. Unfortunately, it still is far from ideal.

Unlike the majority of international carriers that promote air cargo with men, money, and marketing, freight, in the immortal words of Rodney Dangerfield, gets no respect at most domestic airlines.

Compare the United Airlines passenger terminal at San Francisco International Airport with its freight facilities. Despite United’s recent emergence from bankruptcy, and after four years of ruthless cost-cutting, passengers are delivered to their gates on moving walkways, in a cathedral-like setting.

In stark contrast, United’s freight facilities at the same airport are housed in leaky, drafty sheds, many of which were built when the airport opened in the 1950s.

Cargo’s Unfulfilled Potential

With the downturn in passenger business after Sept. 11, most domestic carriers slashed expenses across the board. Despite the cargo business holding up well, cargo staffs were reduced and freight offices were closed. Some carriers appointed outside general service agents rather than in-house staff to handle their cargo business.

Personally, I haven’t seen a domestic sales rep in two years, although my office is located less than one mile from the Los Angeles airport.

The potential for increased domestic cargo volume remains largely unfulfilled. After 50 years as an industry, air freight generates only about 2 percent of all intercity domestic cargo traffic. More distressing is the low yield on existing business. Forwarders are fortunate if they earn 3 percent net profit on domestic volume. While truckers’ rates go up, airlines’ rates go down.

Air freight is a premium business and should demand a premium price. Airlines should proffer and stick to fair, compensatory rates—with no last-minute “spot” rates that create havoc with forwarders’ own rate structures, and often are actually less than surface transportation.

Carriers created a monster when, early on, they decided the passenger side should absorb almost all the costs of operating an airplane with freight merely adding minor, “incremental” expenses. That monster should be exorcised immediately, with rates rising to reflect cargo’s true expense structure.

We also need airlines to play fewer tricks that often create chaos for forwarders and inhibit selling efforts. Tricks like:

Pretending they still fly wide-bodied aircraft to key domestic destinations when they actually use narrow-bodied aircraft. Continental Airlines, for example, used to fly wide-bodied MD-11s between the key markets of San Francisco/Los Angeles and New York. Now it flies much smaller 737s to keep passenger load factors at close to 100-percent capacity, but with far less cargo capacity. Thus, cargo does not move as intended. The carrier then comes back and tells the forwarder if it really wants to move that cargo, it will have to pay express rates, which often are 200 percent more than the standard tariff.

Changing rates quickly, often without warning. Forwarders are left holding the bag with customers, often charging non-compensatory rates.

Eliminating flights. Sometimes airlines eliminate flights that are critical to forwarders’ commitments to customers because the passenger load factor is too low, or their hubs cannot support current volume.

Domestic carriers, unlike their international sisters, often forget that their best friend is the forwarder. Almost 70 percent of all domestic “hard” freight—weighing more than 50 pounds, for example—is originated by freight forwarders.

Too often, domestic carriers have collective memory loss when it comes to forwarders. They should ask themselves:

• Who has an army of sales people covering every nook and cranny of the United States searching for cargo business, with every pound of that business carried on an airplane?
• Who has a single-minded devotion to cargo, and is not distracted by passenger considerations?
• Who has created new delivery systems and appealing price and service packages to attract new customers and convince current shippers to increase their air cargo use?

One striking example of how airlines can improve their cargo operations falls in the area they constantly boast about—technology. Carriers complain forwarders don’t use their online booking systems often enough, and that they either are Luddites or just plain stupid.

Forwarders are neither. The fact is, airline booking systems are half-baked. Most airline cargo booking systems don’t provide enough information. Their web sites might indicate a shipment flew as booked, for example, when only two of five pieces of freight committed to the carrier were actually placed on the flight.

While U.S. carriers must make a greater commitment to air freight to stop domestic cargo volume erosion, forwarders also have to do their share. Forwarders require candor on both sides. They should not make commitments to the airlines that they cannot fulfill, or promise delivery schedules to customers that they know will not occur.

The days of a simple tariff structure, or a single, overnight service satisfying the shipper are past. Unless both airlines and forwarders adapt to this new environment, domestic air freight will never realize its enormous potential.