AF-KLM’s Bram Gräber says premium products won’t save you

The strong air cargo growth of the three decades to 2008 will not return and premium products are not going to save airlines from margin pressure.
These are the conclusions of Bram Gräber, executive vice president of Air France-KLM Cargo, as he prepares to quit the airfreight business for a job in the maritime sector.
“We have had the idea for a long time that we could escape from margin pressure by adding extra services and quality to our products,” he says.
“But you can forget about that: today’s reality does not allow it. 
“Instead we have to offer very sharp service at a very good price. 
“You can’t just add personnel and expertise and facilities and hope that margins will come.”
Such a blunt view is perhaps due to the perspective that a stint out of the passenger business has given Gräber.
In cargo for a decade until 2006, his career then took him onto the passenger side where he ended up heading Transavia, the low-cost subsidiary of Air France-KLM. 
He still holds that role but was brought back to the cargo side of the business last year for a “last lap” heading the cargo division.
That will end on June 1 when he moves to Royal Boskalis West-minster, a company that provides seaborne services to offshore industries such as oil, gas and windfarms.
Taking a last look at the air cargo business, the biggest trend he sees is that passenger growth has overtaken that of cargo − a change that looks to be permanent.
“We are all still struggling to adapt to that reality,” he says. 
This is not just the result of strong passenger demand but permanent changes in cargo flows.
“The demand-supply balance has changed forever. Growth on the back of hi-tech shipments and China is not there anymore.”
All that airlines can do is adapt to this new reality, and Air France-KLM, to its credit, started to adapt long before others.
It has made massive cuts to its freighter fleet, which will come to an end in June when the last MD-11 departs.
This will leave it with just two Boeing 777 freighters at CDG and four B747Fs (operated by Martinair) at Schiphol.
That, says Gräber, should mean freighter operations return to profit next year “so that is no longer top of the worry list”.
The focus will then switch from re-sizing to being more efficient − doing things in a more cost-effective way in a world where yields no longer go up.
How can this be achieved? A lot of it seems to come down to better planning through the better sharing of data with forwarders.
Gräber says that he is amazed at how slow cargo has been to adapt to new electronic ways of interacting.
“Things are changing now, but the system is still very inefficient. 
“Some companies still do everything by phone.”
He says that even a small improvement in information flow from forwarders could make a big difference.
“It is unbelievable that I get a booking on Monday for one tonne, the forwarder knows on Wednesday it will be half that, and then what turns up is 30% of what was booked. 
“There is always some volatility, but it should be possible to exchange some data. Even if we could save two percent of load factors by this method, that would be a very big thing.“Sometimes the shipper has the data and does not tell the forwarder, but sometimes the forwarder knows and does not tell us.”
He says that dialogue has started with forwarders on this topic but it is at an early stage. He hints at possible rewards for customers who cooperate.
“It is very strange to me that there is no incentive for the forwarder to give good quality data, even though this is very relevant to the tedious process of planning to get the cargo ready for flight.”
Presented with the comments of Lars Droog, chairman of Tiaca’s new Shippers’ Advisory Comm-ittee, who called, in the April 18 issue of Air Cargo News, for more direct contact between shippers and airlines, Gräber is blunt.
“I don’t want that,” he says. “The forwarder will have to organise the data. I think there is already a lot more data in their systems and we just have to organise things to get that data out of them.”
One area that might be helped with better data is the general cargo product, which still accounts for 50% of volumes and which Gräber reckons has been overlooked in the rush to specialist products.
He reckons it would be useful to be able to distinguish between must-fly products and those that could wait one or two days. 
More flexible customers could then be offered cheaper prices.
This was in fact tried by both Lufthansa and KLM in the late 1990s, apparently without success. But Gräber says that in those days “it was created commercially but we were not ready for it operationally: our operations were organised around flight specific shipments”.
He also suggests that premium products need to be drastically simplified, a surprising position for a veteran of a carrier (KLM) that was the high priest of specialist offerings in the late 1990s, offering a veritable encyclopedia of products.
Gräber is not saying that it should now exit sectors such as pharmaceuticals or express, but that every activity has to be analysed to see if it is profitable.
“KLM currently has 300 handling codes, while IATA has 30. Some of our codes are even customer-specific. 
“We need to reduce these to a set that we can actually deliver.
“At the moment, the way we organise premium services has too much complexity and too much re-planning. We need to be more robust so that it works well the first time.”
Underpinning all this has to be further investment in IT. Gräber applauds his predecessors for spending €30m on a single management system that he says has made the carrier more reliable to do business with and shrunk its unit costs.
“We have also invested in digital programmes to make connections from this system to the outside world.
“For example, now if there is an offload the customer gets an automatic message stating why it happened and what rebooking we have made.”
But there is more to do, and now that the carrier is no longer sinking capital into freighters, he is optimistic there will be more money available for system enhancements.
The carrier is, for example, piloting a quote and book engine in the UK, Nether-lands and India for shipments up to 300 kilos.
“Ten years ago the technology was not available for this type of service, but now it is,” he says.
He would also like to make e-bookings more truly “e” − currently a lot have to be “touched up later” by service centre staff − and to focus all remaining phone staff on services that really add value.
“Giving status updates is not part of that,” he adds, estimating that currently this takes up as much as a third of their time.
But all this, of course, will really be a task for Gräber’s successor, while he looks forward to his new job with Boskalis and its worldwide fleet of specialist ships. This, he admits, will involve going out to sea, something he has not done much so far.
He insists he will miss the “creative and friendly people” in air cargo, but above all its family atmosphere.
“I am not sure I will find that in another sector, but every move has its pluses and minuses,” he sighs.