Change is Hard

I needed to change my weight, like many of us, the pandemic caused me to become a little sedentary and gained some weight. So, I wanted to motivate myself and went looking for a great quote to put on my phone and screensaver – I found so many about change. But it got me thinking, airlines are currently experiencing an evolutionary moment in dealing with ballooning debt, loss of business passengers, and increased competition, even as leisure travel passengers are starting to return. Airlines are facing a time of intense change – but change is hard. With this in mind, I went with Socrates for my quote, “The secret of change is to focus all of your energy not on fighting the old, but on building the new.”

Airlines are at one of those points in the business where they can choose to embrace change or simply go back to the way things were in 2019. As countries open up and competition will heat up, airlines that are lean and innovative will thrive. In a recent article in the Wall Street Journal, there could be as many as 90 new airlines launching in 2021. Debt levels are at some of the highest levels ever for existing airlines and will be a drag on investment and innovation. Potential loss of future business travelers is evident, as companies and corporations adopt video collaboration tools for meetings and personal selling, successfully. With these factors affecting airlines, it is a perfect time to think about changing your organization by driving new revenue opportunities.

Some airlines are beginning to change by hiring different types of employees with different skill sets. In one of our previous blogs, we spoke about a new type of executive, who sees e-commerce cargo as a tremendous opportunity. New perspectives drive innovative ideas and new revenue streams. But these kinds of changes take commitments from the top and continuous communication throughout the organization.  As an example, Azul airlines have moved toward a complete commitment to the e-commerce logistics market over the past few years. The whole company has been committed to driving change and realizing this additional revenue source as part of its business model. The results have been phenomenal, and Azul continues to be one of the most successful cargo logistics companies in Brazil.

Change is hard. I’ve only lost 3 LBs, but change for airlines is hard as well. Airlines need to think about what they can evolve in their business models. Technology is not a panacea but it is a great vehicle to drive change, adapt to new cloud technologies, and let more new employees step up. As airlines begin to get back to serving global markets, post covid, they will also need to innovate. Airlines will need to innovate to drive more revenue to service the debt, compete with new airlines, and make up for less business travel. The essential focus must be on the change needed to thrive going forward and will also require letting go of what worked for us in the past, as in the old, “Socrates was a smart man.”

Air Cargo a Revenue Life Preserver or Long-term Advantage?

Let’s face it, Air Cargo has been an afterthought for many passenger airlines. With a focus on passenger traffic which brought in the lion’s share of revenues, resources were understandably concentrated on passenger operations and its corresponding revenue. While a few carriers may not derive any revenue from cargo, those that do have generally contributed only 4% to 5% of total revenues, at best, in a given year. However, the world was hit with the pandemic and things are changing.

As the pandemic caused a precipitous drop in passenger revenue, and the almost simultaneous demand for cargo capacity emerged to move urgent medical supplies and other goods around the world. With the world in lockdown, people also became more dependent on e-commerce for delivery of the things they needed to their door. Consumer demand for e-commerce plus new technology that empowers airlines to operate integrated logistics means the airline’s Cargo business can contribute a double-digit piece of the pie.

In the case of Azul Brazilian Airlines, it was unheard of 32% of total airline revenues after the adoption of the SmartKargo e-commerce solution. Carrying e-commerce cargo can be very profitable and airline executives are beginning to see the large revenue potential.

In today’s environment, airlines are scrambling to make sense of this shift and have begun to bring in a new breed of executives to lead their cargo teams. These leaders are disruptors. They are technologically savvy and have a vision of competing for the surge in capacity demand resulting from the growth of global e-commerce. The e-commerce retailers that shipped their packages via postal services now have better alternatives, and these executives are taking advantage of this opportunity. They are creating strategies to create more revenue from the biggest asset their companies have invested in – an airplane! In doing so, they are bringing in much-needed revenue for their companies while facilitating the airline industry in overcoming one of the toughest economic challenges they have likely ever faced. And they are making a substantial difference.

Understanding the promise of e-commerce for a passenger airline translates into incremental, profitable, and immediate revenue that can make a difference to any airline, as it weathers the current crisis and strives to bring in more revenue in the future.

APIs and EDI Messaging— the Glue of the Digital Economy

The last year has seen the acceleration of e-commerce and the belief that we do not expect the in-store or terrestrial shopping experience to go back to the way it was in 2019. Regardless, e-commerce has grown much faster than expected and e-commerce globally will grow from an estimated $5 trillion sales this year to a projected $6.4 trillion in 2024.

In many ways, the e-commerce space is the story of the API economy. The integration of systems for content, catalogs, Martech, CRM, e-commerce platforms and so many other systems are paramount for hitting the $5 trillion target this year and in the future. The main purpose of all the integrations is to provide the greatest customer experience, one that puts the best product(s), at the right price, at the right time, for the customer to purchase.

Now, why bring all this up at a company like SmartKargo? Easy, in the logistics part of the e-commerce customer experience, it’s no different – API and EDI are paramount. And they are just as important to the customer experience and the brand promise to the customer. A logistics solution to a logistics e-commerce solution must connect airlines, warehouses, ground crews, freight forwarders, delivery vehicles, and of course, customers. All of these connections need to utilize EDI or APIs and must integrate into an easy-to-use platform for fast and flexible implementation and adaptability.

Does it matter if they are integrated? You know the answer, of course, it does. The integration provides real-time information to your partners, employees, regulatory bodies, and most importantly your customers. Our partner, Azul airlines, has implemented our solution in conjunction with their overall strategic focus. With their attention on building a long-term cargo solution focused on the high growth e-commerce market, they were able to increase revenue by 65.9% year over year.1 This helped in adding significant revenue to their top line, even with the pandemic. Azul is a disruptor in the Brazilian market and is now one of the biggest e-commerce logistics companies in Latin America. And the integrations empower an airline with the capabilities to expand their business and disrupt their normal course of business—with little upfront investment.

The interoperability of the e-commerce ecosystem is made possible by EDI and APIs. They are often the unsung components, but with an overriding need. These integrations make it possible to message within your full ecosystem, your partners all along the chain to drive revenue. The real-time insights that the end customer now expects are only made possible with an integrated system, which makes all e-commerce possible and the end customer happy.

CFOs Need eCommerce Air Cargo Revenue

It’s been a tough year for airlines – and that’s an understatement. CFOs are in the middle of the madness. Whether it is getting loans, working with local and federal governments, looking ahead to 2022, raising capital, or diving strategic decisions with their executive team, CFOs are busy. The lack of planes in the air has caused revenue shortages that have directly impacted CFO decisions. Air cargo is a great way to bridge the revenue gap, drive more revenue in the near term while diversifying revenue streams for the future.

All airline CFOs model for risks, for all kinds of scenarios from terrorist attacks to major market issues. But no one was ready for 2020 and the pandemic. All risk modeling essentially failed to help the CFO manage the crisis. The biggest issue faced was with the long-term assets of the plane and the lack of cash flow needed to keep the company afloat. Gerald Laderman, the CFO of United, said “Before COVID, we modeled our worst-case scenarios based on the financial impact of 9/11, followed by a recession,” – “It turns out we weren’t even close.”[1] In other words, the epidemic was far worse than any company or any airline analyst could ever have predicted.

Passenger airlines saw their passenger yields cave and the CFO had to do what is necessary to survive. But the airlines that chose to maximize cargo, especially e-commerce cargo as an additional revenue stream, did far better during the pandemic. Some airlines pivoted toward cargo to drive revenue. United and American grew their cargo revenues by 77% and 32% respectively.[2] Now, the expected total sales in e-commerce globally will grow from an estimated $5 trillion sales globally this year to a projected $6.4 trillion in 2024.

Many airlines even converted passenger planes to cargo planes to generate replacement revenue. A great example of this is Emirates. They converted 10 Boeing 777-300ER planes to all-cargo airplanes.[3] Companies like Emirates employ a nimble business model that allows them to take advantage of whatever market conditions may present both the passenger and cargo business. This flexibility is what CFOs should be advocating for in the future.

Airlines need to have a model that takes full advantage of their fixed assets, given a wide variety of risks, and market scenarios. This, unfortunately, must include the next pandemic. CFOs should be able to take advantage of the tremendous growth in e-commerce shipping and delivery to ensure revenue capabilities. Whether it’s cargo utilizing excess belly capacity on passenger airlines or all-cargo flights, the business drives yields and overall margin that can help to ensure revenues and drive sustained growth.