What I learned at the Airline Strategy Awards

The Airline Strategy Awards held in London yesterday, on September 27, provided me with the good fortune to spend quality time with colleagues in the industry as we recognized outstanding leaders in air cargo leadership. Nominees were reviewed against key criteria, including network strategy, business performance, and innovative thinking during the pandemic crisis. We were so excited to sponsor the first-ever cargo award and even happier to present it to Ethiopian Airlines Cargo.

As I reflected on the past couple of years since we last met in the fall of 2019, it occurred to me that so much has changed in the industry—particularly in our air cargo space. The pandemic truly changed the world we live in, both from a societal to a business industry standpoint. We have been impressed with how adaptive airlines have been during this crisis while facing their biggest headwinds, possibly ever.

In 2020 alone, the global airline industry had to stave off a loss of $391 billion in revenue. To recapture some of that revenue loss, passenger airlines across the world had to come up with alternative strategies to make up for very low passenger volume. Many turned to implement an incremental air cargo strategy on passenger flights (both on wide-body and narrow-body planes) as a source of supplemental revenue.

Inspirational Vaccine Distribution through Air Cargo

Once there were approved vaccines beginning December 2020 for COVID-19, many in our industry stepped up quickly to aid those worldwide by distributing critical vaccines. Air cargo space was available due to lower passenger levels on passenger planes, and airlines used that vital space to get vaccines to needed locations. However, because of the nature of the vaccines (temperature-sensitive, etc.), it was a logistical feat to get these vaccines where they needed to be.

According to a study from DHL and McKinsey, at least 10 billion doses are needed worldwide (conservatively)—which would require 15,000 flights. The winner of today’s award for air cargo, Ethiopian Airlines, played an instrumental role in the distribution of vaccines in Africa. In addition, SPICEJET of India, Azul Brazilian Airlines, and many, many others are playing critical roles in transporting vaccine consignments in their regions. We attribute much success of increased vaccination distribution to the innovative solutions in logistics provided by the airline and air cargo industries.

Global Demand for Air Cargo is Approaching Double-Digit Growth

Overall, the growth trends for air cargo are improving rapidly. According to IATA, global demand increased 9.4% between May 2019 and May 2021 as measured in cargo tonne kilometers (CTKs). This incredible growth is approaching double-digits this year relative to pre-pandemic levels, and we are excited about the prospects for airlines around the world as they explore new ways to capture revenue through air cargo.

Air Cargo Solutions for E-Commerce

While the pandemic has wrought seemingly endless havoc to society in the past two years, there is one very bright spot as it pertains to the air cargo space. In addition to vaccine distribution, we are also seeing passenger and cargo airlines enhance their revenue through e-commerce parcel delivery.

E-Commerce sales are expected to grow globally at a CAGR of 6.4%, from an estimated $5 trillion in 2021 to a projected $6.4 trillion in 2024. The explosive expansion of global e-commerce presents a markedly optimistic opportunity for the air cargo industry. Airlines can now optimize unused belly space in their existing wide-body or narrow-body planes to ship these smaller e-commerce parcels—typically between 2-4 kilograms in weight.

The CAGR forecast from 2021-2025 globally is a 6.29% growth rate, promising news for airlines looking to embrace the e-commerce cargo shipping phenomena. As more and more global nations adopt e-commerce shopping habits, we expect these international e-commerce growth rates to be a substantial upcoming opportunity in cargo air transport in the coming years.

Using our estimates based on existing client outcomes, we anticipate that, should flight resume to their pre-pandemic levels by 2022, and, assuming fifty percent of their fleet is comprised of narrow-body planes, there is a global opportunity of up to $649.3 billion in potential e-commerce revenue on an annualized basis.

Again, we wish to congratulate Ethiopian Airlines on their outstanding achievement of earning the Air-Cargo Leadership Award 2021. Their immense and meaningful contributions to their region through providing critical vaccines to identified areas in Africa were critically significant in the global fight against COVID-19. As with all of our current airline partners, all of which operate in the air cargo space, we have much to be grateful for as we begin to look forward to 2022 and beyond.


The Classic Demand-Supply Curve is in Play

I was reading an article about the latest announcement by FedEx to raise rates in 2022. We all know e-commerce shipments are rising in volumes by the day, and the 3PLs will have trouble meeting the demand during the upcoming holidays. Most of us were hoping, with the vaccines, that the world would see a move to pre-pandemic activities, but that has not been the case. However, there are several factors driving the rise in 3PL costs, and there are corresponding opportunities for other players.

One of the key cost inputs is labor, and many industries are facing a shortage of labor. But last-mile has faced a unique issue. The availability of labor, especially drivers who can run the last mile, has dropped due to a variety of industries such as food delivery, pharma delivery, office supply delivery, wine delivery, and more trying to engage with any available delivery resource or service. This increased competition for resources is fierce in the labor market.

As a result, an opportunity exists for existing transportation suppliers like FedEx to take full advantage of the current scenario by increasing the prices of their products, as recently announced. This scenario will keep happening until either the demand for e-commerce shipping decreases (unlikely) or the supply of drivers increases, which is somewhat unlikely given the tight labor market and lucrative other options for an unorganized workforce. Companies like FedEx will take the opportunity to increase profit margins at the cost of the buyer. It’s a no-brainer.

Now, there is an opportunity for other players operating in adjacent spaces to enter the market, charge an attractive price, and offer comparable or better service levels. Airlines have been carrying commercial cargo for decades and now have an opportunity to use innovative technology solutions like SmartKargo to become a meaningful player in the express logistics industry. With SmartKargo, an airline can transform itself into an express logistics player in a  matter of months. Airlines already have the capacity and have flights into many cities–again, it’s a no-brainer.

There is profit to be made in an industry always looking for extra dollars. When companies like FedEx and UPS (who also announced rate increases late last year) can raise prices and demand keeps going up—the time is right to take advantage of the opportunity and drive new revenue. We have already seen this work for Azul in Brazil and many other airlines in India, Mexico, Europe, and North America. Airlines have a great opportunity in front of them!



There are 109 days until Christmas

I live about 350 miles from my mother, and last year, I got my Christmas present from my mom (a robe – a true mom gift) about three days late. Now I am a big boy, and I certainly understand the impacts of the pandemic and the issues challenging e-commerce in 2020. Unfortunately, we may be in for more of the same this holiday season, and I hate to say it, maybe even in 2022.

In 2021 we have seen so many logistics impacts. These include ocean shipping accidents, container shortages, employee shortages, and raw material shortages, just to name a few. When we add in the Delta variant, this is also hitting airlines who were just starting to see volumes increase. Moreover, the delta variant has made the need for masking and limiting exposure to very public places across the globe. Subsequently, we do not see a reduction in e-commerce many had predicted for this year, but instead, increases in demand for both e-commerce products and e-commerce shipping.

During the holiday 2021 season, the estimate tells that “7.2 million more packages will need to be shipped each day this holiday season than the system can handle.” Many logistics services will work weekend deliveries, but this will not be able to make up for the excess demand. E-commerce companies cannot afford to have their shipments delivered late or not at all during the holiday season, as one bad experience ruins their opportunities for future sales.

Airlines can drive more new revenue with Air Cargo. We know there will be a shortfall in passenger traffic in 2021 and beyond. And e-commerce is expected to grow at around 6.5% CAGR globally. There is a tremendous revenue opportunity here for airlines. One of our phenomenal airline customers, Azul, has driven new revenue with its expansion into e-commerce air cargo. And the results are impressive. Azul has an overall 20% Market share in air cargo in Brazil with a 60% market share in air cargo e-commerce distribution. And they are growing at a pace of 8%-10% per month.

Plato said, “Necessity is the mother of invention.” In today’s world, Airlines can be innovative and drive additional revenues with air cargo. E-commerce will only grow. And with more business meetings moving and staying online, airline business travel is likely to diminish. That makes e-commerce a tremendous opportunity that is also extremely important for airlines. So, help out my mom and make sure her favorite son gets his gift on time.