The end of easy pickings

IN April, Swiss International Air Lines celebrated its 10th anniversary – a decade since it arose out of the ashes of the former Swissair.
These have been eventful years for cargo, and looking back over them Oliver Evans, chief cargo officer for Swiss, sees not just the story of one carrier that has managed to thrive despite many challenges, but also of an air cargo industry that has, as he puts it, “left its age of innocence”.

He cites three key changes that have brought about this transformation. Each in their way has been traumatic for air cargo, but each has the potential to leave air cargo more focused and better equipped for the 21st century.

Change number one has been the antitrust investigations over surcharges. While this has undoubtedly led to what Evans calls “some tragic personal circumstances” for some executives, he says it has also led to all air cargo companies instituting rigorous new regimes about antitrust issues, with thorough awareness training for staff.

He concedes that, for a period, this also took some of the friendliness out of the air cargo industry, with executives afraid to be seen talking socially to rivals – “there was an over-reaction by companies, who did not trust their senior executives” – but now he thinks that the situation has settled down.
“We are seeing the return of community spirit, while knowing certain territories are outside the law and should not be approached.”

The positive side to all this is that air cargo now has the environment in place to collaborate on security, e-freight and other issues.
“That is why I joined TIACA and became an officer with them with the full support of my company,” says Evans. “I am perfectly aware of the legal framework, and every TIACA meeting has a legal reminder at the start.
Others are also now joining TIACA and other organisations to improve collaboration, whereas a few years ago people would have been nervous to do it.”

The second trauma and transformation has been in e-freight which, in its early days, saw IATA and airlines setting over-ambitious targets and omitting to involve for-warders properly in discussions.
“There is no doubt that we wasted several years in a shouting match,” says Evans. “Airline CEOs got together and set targets, but they failed to understand that cargo is different from the passenger side, because in ticketing the airline controls the whole process.

“There was gross oversimplification which led to anguish and a lack of coordination between forwarder and airlines, but in turn that led to more of the right kind of dialogue.
It took the frustration of forwarders telling airlines where to get off to bring about a better approach, and certainly under the excellent stewardship of Des Vert-annes and Tony Tyler, things are now moving in the right direction.”

There is still a lot to be done, however, with Evans admitting that e-freight lev-els at Swiss, for example, are still not particularly high.  Perhaps the biggest barrier is a lack of an overall formal agreement between IATA and FIATA on the legal terms for e-airwaybills, which would replace painstaking negotiations between individual air-lines and forwarders.

There is a flash of frustration from Evans on this topic. “This is an example of how slow the process is,” he says. “There is an agreement in principle, but it is not yet translated into a document where all airlines and forwarders are listed and de facto would be included.
In my view, that would be an easy step to take and would save an awful lot of work for the entire industry.”

On the plus side, Evans says that most of the technical hurdles to e-airwaybills, such as incompatible versions of EDIFACT or IT problems – have now been overcome and, he says, Swiss is working with some customers on some lanes to rep-lace the six other documents defined by IATA.
Overall e-freight numbers are going up at the carrier, and Evans insists the end of 2014 target for full implementation set by IATA is definitely achievable.

And all of this despite the tough mar–ket situation that has left many carriers struggling for survival. Evans con–cedes that it is hard in such circumstances to find time to focus on issues such as e-freight, which have no short-term bottom line benefit.

This leads neatly into the third of the three major changes over the last 10 years – the end of easy pickings. Evans sees the current downturn in demand as only temporary, but reckons that the capacity side of the equation will never go back to the way it was.

“In the past, demand grew strongly, and the imbalance between supply and demand in some markets led to some easy returns for airlines who served them,” he says. “But those days won’t come back.
Everyone sees the honey now, and there is a glut of newbuild freighters, along with the latest generation of long-haul passenger aircraft with large bellies.”

As a result, he predicts that even when the current dip ends there will be few, if any, markets in which carriers will be able to make money easily. “Airlines will have to select their markets carefully, which is bad news for any carrier which does not have a very clear idea of what value they bring to the market.”

Swiss, of course, is a famous example of an airline that has identified that value very successfully, focusing on premium products that keep its belly capacity full at good rates. It notably moved away from the policy of its predecessor, which operated freighters in and out of Switzerland.

But that doesn’t mean that this business model can be replicated by everyone. “There are so many different mod-els, and I urge carriers to think carefully about who they are, what country they are based in, and what commodities fly in and out of those countries,” says Evans.

“Our model is successful because it suits our environment. You can’t just replicate it somewhere else.”

Nor does he think it is simply a case of freighter operations bad, belly cargo good. “There are very successful examples of mid-sized freighter operators and a lot of belly operators are suffering, so it is a matter of different business models.

“It is true lots of freighter operators are going out of business, but there are also very successful freighter operators too. For example, some have been very focused on setting up networks targeted to the demand of specific customers – flights partly or fully used by one customer.”

It matters not just for each airline that they get this calculation right, but for the wider air cargo industry. That is because one final change that Evans has noticed in the last 10 years is that there seem to be fewer cargo executives these days (who are) prepared to lead and shape the debate about air cargo issues.

Where cargo heads of carriers such as KLM or Singapore Airlines were once vocal in industry debates, now many seem to focus purely on their own bottom lines. “I think we and Lufthansa (Cargo) are among the very few companies voicing their demands and ambitions and trying to get the industry to achieve these targets,” observes Evans.

He reckons this goes back to the  profitability of the industry. “If, like me, you run a day-to-day business and it is working – our flights are full, our revenue and profit are on target – you don’t have to worry day-to-day about this, and can devote your time and effort to other issues.

“We at Swiss are still able to do this, and we need other companies to be profitable so they can join us. Our industry needs this focus on the broader agenda, and not just our individual bottom lines.”