Virgin Atlantic Cargo: Keeping it simple
09 / 01 / 2018
It was a busy first 90 days for Dominic Kennedy after becoming managing director of Virgin Atlantic Cargo, spending time with teams in functional areas that were not part of his previous role as director, commercial planning with the UK carrier.
There are equally busy times ahead as Kennedy looks to build on the ‘metal neutral’ partnership and ‘one-roof’ co-location opportunities with Delta Cargo, its US joint venture partner and 49% stakeholder in Virgin Atlantic.
Of his new role, Kennedy says: “My first thoughts were immense pride and delight at being given the opportunity. I’ve worked in this team, specifically the cargo leadership team, for five years. It is a really exciting time.”
Kennedy, who studied geography at university and then briefly taught English, has not been parachuted in from passenger but has solid, high-level experience in Virgin’s cargo business: “I have grown up in the commercial vertical of the cargo business.
“I came into cargo in 2008 to set up a centralised pricing steering function and then I went on to manage the revenue management and capacity control teams, which is our inventory function, as well as space buying and ULD control.
“For the last three years I was director of commercial planning, a broad remit covering revenue management, pricing, capacity control, joint ventures, commercial insight and revenue integrity (accounts).”
Kennedy is used to speaking directly with freight forwarder customers, and makes his stance clear on the current debate around airlines bypassing forwarders and going directly to the shipper: No way, José!
“We place significant value on our partnerships with freight forwarders and the vital role that they play in the supply chain.
“We have a number of situations where we do sit down and talk with the forwarder and shipper when it comes down to specific and bespoke commercial and operational processes, but we strongly believe there always needs to be a true appreciation of the importance of the end-to-end role and value that freight forwarders play in the supply chain.”
The relationship with Delta, and with his US airline counterpart, Shawn Cole, Delta Cargo vice president, is a key one at both a professional and personal level.
Says Kennedy: “I have known Shawn for only three months but we get on really well personally and professionally, so it has been really easy, and the working relationship has benefited from the fact that we have made a personal connection.”
The joint venture with Delta is “a key strategic priority” says Kennedy, citing the one-roof Pharma Zone at their London Heathrow joint facility which will support the growing volumes of temperature-controlled healthcare and life science products carried by both airlines.
“The priorities for this year, first and foremost, are about ensuring that the Delta joint venture continues to develop. We want to be able to offer our customers more choice and an overall service proposition that brings together the best of both of what Virgin and Delta have to offer.”
He continues: “This is one of our guiding principles for 2018: how can we simplify what we do to remove as many of the complexities from our business as possible?
“We want to be easier to do business with, so we want to try to make our commercial and operational processes as simple as they can be.”
So what does metal neutral mean to the airline’s customers and is there not a danger that the Virgin brand will be lost, after so many years of preserving a distinctive image as a small, flexible cargo division, focused on quality but with a sense of humour?
Kennedy agrees that Delta and Virgin have different brand images, adding: “With Delta you have something different, but we see it as complementary.
“[With Delta] you have got scale, you have got a very strong focus on operational reliability, and I guess our challenge from that is how we can give customers more choice by bringing together the relative strengths of the two brands.”
He adds: “We are committed to taking the joint venture commercially to the next level, which is really about bringing our strengths together and giving customers more choice, and what we are working to ultimately is to build a metal neutral environment between us and Delta.”
As one would expect of an airline founded by Sir Richard Branson, Virgin Atlantic Cargo has an ethos of listening to the customer in a structured way, with a monthly survey canvassing feedback.
And one quote from a customer sums up the benefits of the joint venture: “Our carrier of choice is Virgin but we just wish that you were as big as Delta.”
Observes Kennedy: “If you are that customer then you will interact with Virgin and be sold to on the front line by Virgin and you will inevitably interface with a co-branded, co-located warehouse, but our ambition is to align as much as practically possible our operational processes.
“If that is your preference, then the touch points along the journey will remain Red [Virgin], even though in the background it may well be a Delta fin on the aircraft that flies your shipment from A to B.”
In terms of the one-roof policy, it has started with “shared-metal” markets, today covering Heathrow, Boston, JFK and Atlanta.
“Our joint venture with Delta covers the transatlantic market to and from the UK and the US, so there are other stations where we are in the same facility, an example would be Seattle.
“At some stations it is simply not possible to co-locate but ultimately our ambition is one-roof within the joint venture.”
The shared-metal approach means that on a transatlantic service to Boston, where the carriers both have daily flights for example, they are now able to maintain the frequency on a market that often sees cancellations in the winter season.
Strong outlook for 2018
Asked about the current airfreight boom and the outlook for 2018, Kennedy says that the level of demand, particularly from the UK and eurozone, has been “very, very, strong” throughout 2017 and that UK customers are planning for 2018 to be “as strong if not a little bit stronger”, helped in part by the lower value of Sterling, particularly attractive for US importers and consumers of UK goods.
Looking beyond 2018 is “a bit more of a challenge”, says Kennedy, adding: “We have seen growth in pharma, and we expect to have Wholesale Distribution Authorisation (WDA) accreditation in January 2018 at Heathrow, while Delta has IATA’s CEIV certification at its headquarters and in Atlanta and is looking to replicate this at other major gateways, so we have got a really solid end-to-end product for pharma.
“We saw steady growth in 2017 and expect 2018 to be a best-ever for our pharma performance.”
E-commerce is another interesting vertical, but is it easily identifiable as an airfreight consignment beyond Black Friday, Cyber Monday and other marketeers’ mega-hype?
Says Kennedy: “We can tell you what pharma and perishables are, but e-commerce is a bit more of a challenge.
“That is not to say that there are not discrete bits of e-commerce that you can call out, and certain freight forwarders that we deal with have got very specific online retail customers who are very easy to identify.
“But there are significant amounts of e-commerce shipments that are being consolidated into general freight movements and also significant volumes that flow through mail channels.
“We were well into double-digit growth in e-commerce in the last quarter of 2016 and expect something similar again this year .”
Is e-commerce fundamentally different to traditional air cargo?
“No, it is a product that demands speed which is why it is using air cargo, but there are some subtle differences to e-commerce. Typically, it is volumetric and we know this as consumers ourselves.
“Whenever you get a parcel from an online retailer, there is a lot of air, so you don’t necessarily get the same sort of build density from e-commerce as you do from dense manufacturing goods or from perishables products, so that presents its own challenges.
“Associated with that is that it does not often build as favourably, although forwarders tendering e-commerce are getting much more sophisticated.”
The days when online retailers were building ‘pyramid pallets’ with conical loads are long gone, replaced by sophisticated wrap-arounds to optimise the use of space on the aircraft, although this does not avoid what remains an inherently volumetric business.
Adds Kennedy: “The other thing is that e-commerce tends to be very peaky, so there is a lot of activity in the fourth quarter, Thanksgiving and Christmas-related, which means that you get bursts of activity from online retailers.
“From a predictability perspective it can be a little bit difficult to pinpoint exactly when you are going to see spikes in demand.”
Asked about digitisation, electronic air waybill implementation, and the air cargo industry’s ability to keep up with technological changes, Kennedy joins the growing industry consensus that the drivers for change will come from outside, from the disruptors.
“Historically, this industry has been quite slow to change. If you think about distribution today, yes we might be using computers but we are still distributing predominantly by telephone, the same way that we were 20 years ago.
“Again, if you look into the warehouses, there might be the odd computer littered around, but generally speaking, the processes are not too dissimilar to what they were.
“Digitisation innovation is something that is going to happen very quickly. There are a number of active disruptors, the Freightos of this world, who are going to have a significant impact.”
He continues: “These disruptors are going to be part of the catalyst for change and the pace of change will be phenomenal.
“This change is not going to be led by the carriers; it is going to be led by starts-ups. Freightos is a great example, because they had no association whatsoever with airfreight.”
And his message to the industry about Virgin Atlantic: “We are always striving to be easier to do business with. Virgin Atlantic Cargo will never rest on our laurels. We want to make sure that on all these fronts we are ahead of the pack.”
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