Author: Aditi sinha

While Q4 will bring unique challenges to the air cargo industry due to ongoing issues with the global supply chain, we remain confident that the strong growth we’ve seen over the past two years will only continue in the coming years. August 2021 numbers showed promising growth of global demand over pre-pandemic August 2019 numbers. Global demand for air cargo is up 7.7% measured in cargo tonne-kilometers (CTKs) which is 3% higher than the long-term average growth rate of 4.7%.

In a few weeks, our team will be in Dubai for the Dubai Airshow discussing the future of air cargo, and I will be highlighting SmartKargo’s significant learnings and points of view in this space. My presentation will examine how airlines can devise new strategies to adapt to the future of cargo by figuring out their role as they manage the supply chain and focusing on the things that make them most successful and profitable.

There has never been a more critical time to consider investing in a technology partner in the air cargo space. To prepare for tomorrow’s demands, airlines will need to establish means to get ahead. We maintain that to do that, airlines will need to embrace cutting-edge technology, enabling them to create new business models that are forward-looking and anticipatory. In essence, leverage technology to enforce what they want to do to grow revenue and make the most of the organic global growth, we’ve seen over the past 24 months.

And with that, airlines are now able to do one of several things with their air cargo business: keep their existing model, own part of the logistics supply chain, outsource the supply chain entirely, or conversely, own 100% of the supply chain. All can be made available to today’s airline. Airlines should not feel completely bound to their old way of operating with cargo and e-commerce. Depending on which model they choose, airlines will be able to decide how much control they want over their supply chain as they adapt to the future of air cargo. And with those decisions a corresponding revenue.

What we have seen with our partners is that there are a few key models that airlines can follow to generate critically important revenue from air cargo right now: palletized cargo, a combination of palletized and e-commerce cargo, and, most profitably, fully implemented e-commerce cargo. There is an incredible opportunity in the air for airlines who embrace e-commerce air cargo transport. Our team estimates that global airlines’ annual potential e-commerce revenue is upwards of $648.3 billion alone.

If you are searching for higher ROI with your air cargo, we suggest looking at e-commerce. The average package is smaller (2-4 kilograms) and is more profitable on a per kilogram basis than purely palletized cargo. E-Commerce packages can fit into the underutilized belly space of most narrow-body and wide-body passenger planes, and retailers can take advantage of an airline’s pre-existing flights and fleet.

While we don’t profess to have every answer of what will happen in the next few years of air cargo, one thing is certain. There is room for e-commerce, and for airlines that choose to embrace owning more of the supply chain and optimizing the trends just described, ROI will follow.

Disruption causes chaos and chaos is what logistics is in today. Some may say chaos is too extreme term, but it is the right term. We see container ships waiting 4 weeks plus to dock and a shortage in those same containers. We are seeing restrictions on e-commerce package shipments around the world and rising costs. E-commerce is in double digit growth across the globe. We all know much of this is a result of the pandemic, but it did not trigger these, it simply accelerated the changes in the market.

Where there is chaos there is great opportunity. There are VC firms that are now focusing only on logistics investments and more on the way. The overall supply chain VC investment topped $50 Billion in 2020 and is on track to exceed that number in 2021. These innovative companies are looking to disrupt the logistics market and drive revenue for airlines, ground transportation, shipping containers and a variety of new logistics services.

So, what does a person do who wants to join in the innovation and disruption; join SmartKargo.  Many of my colleagues were surprised at my decision to leave a company that I had been a part of for 18 years. UPS is 114 years old and a leader in what it does. It has processes and viewpoints that will continue to capitalize on that expertise and the future will look very similar to the past. I realized that I had done what I could do at UPS and that remaining, did not promise to actively anticipate in innovation and disruption in the logistics area. I was looking for something innovative and visionary, and SmartKargo is a leading cloud provider of logistics solutions that extend markets and enhance revenue growth for global airlines and ecommerce companies.

Global e-commerce sales accelerate from an estimated $5 trillion sales globally this year to a projected $6.4 trillion in 2024. This is the key for me to join SmartKargo – We utilize the existing space in airlines planes to ship e-commerce packages from cart to the door. This market is exploding and when I saw the pioneering solution, I knew this was the place for me. When we see companies like Azul and what they have been able to accomplish with the SmartKargo solution and transforming into a leading cargo company in Brazil. There are so many more companies in India, Canada, Norway, and the US that are driving more revenues from e-commerce than they ever envisioned.

My decision to leave my career of 18 years involved significant risk. But I wasn’t happy with the status quo and knew I would not achieve my personal goals if I remained. The only way to get where I wanted was to do something different, to try a new way, a different way. That’s where the industry is today.  If you don’t adapt and seek out new and innovative ways of achieving your goals, you may get left behind. I am on the right track but if you doubt me I would argue that when Sunday morning news programs like GPS on CNN begin show news on logistics and supply chain chaos it is a great time to join a company that is helping airlines and ground shippers increase their revenue and drive innovation.

The Dubai Air Show is coming up in a few weeks, and on November 16th, I will be moderating an exciting panel entitled “How to Capitalize on E-Commerce.” Panelists featured are Mohsen Ahmad, the CEO of Logistics for Dubai South; Abhishek Shah, Co-Founder and CEO of RSA National; and Marc Houalla, Executive Director, Paris-Charles de Gaulle Airport Managing Director, Groupe ADP. SmartKargo has been at the forefront of helping airlines figure out how to capitalize on the impressive e-commerce surge over the past few years. We know this panel will undoubtedly provide informative insights into how innovative approaches to air cargo can change the face of e-commerce delivery.

From our experience at SmartKargo, the explosive e-commerce growth we’ve seen over the past two years is both global and organic, and its spike came from the most unusual and unfortunate of sources: the global pandemic. It goes without saying that COVID-19 has impacted the entire world, and it has changed the way people view commerce transactions and engage with retailers.

The pandemic has driven a dramatic change in consumer behavior with respect to e-commerce. More than ever before, early 2020 prompted a stark need for consumers to get products into their homes and workplaces more safely—which almost always translated to much less use of brick-and-mortar retail stores. Despite more retailers re-opening their physical stores in 2021, the rise of e-commerce continues, and the opportunity for airlines to ship e-commerce packages has never been better. Here is a fact we like to share often: e-commerce growth sales are projected to grow globally at a CAGR of 6.4%, from an estimated $5 trillion this year to a projected $6.4 trillion by 2025.

We know that for airlines to capitalize on this impressive CAGR, they will have to think differently about their passenger-to-cargo relationships. With passenger revenue still underperforming relative to 2019 pre-pandemic levels, airlines need to create additional revenue. The profitability of e-commerce packages is a significant component of not only offsetting but increasing revenue. On a per-kilogram basis, e-commerce air cargo is by far the most profitable type of air cargo. By increasing air cargo through e-commerce package delivery (averaging between 2-4 kilograms each package), airlines can increase revenue now, when it’s needed the most.

Right now, as we start the fourth quarter, we need to think differently about the future. We need to think of air cargo as a demand-pull to get the most out of organic growth. Airlines already have a great deal of information about their passengers. Passenger information is rich in data points, and it will inform an airline’s foray into e-commerce. Here’s our message to our airline partners: your passengers are also e-commerce buyers. You already know their behaviors in one area in which you specialize. E-Commerce air cargo is simply a fantastic extension of that body of knowledge.

I am looking forward to our panel with these three industry experts as we discuss these and other opportunities in the exciting world of e-commerce. We will update our readers after the event to share highlights to partners and supporters who cannot attend the Dubai AirShow event. In the meantime, we hope that these exciting trends help you to consider breaking with the norm. There is much innovation happening right now in our space, and the time to act is now.

From November 14-18, 2021, SmartKargo’s CEO Milind Tavshikar and I will be attending the Dubai Airshow with the key leadership team members. We will be joining industry leaders from across the world as we contemplate and anticipate the future of air cargo. We are thrilled to be a part of this vital air cargo and global air traffic management event.

In a preview of what we’ll be discussing, we will highlight all the remarkable developments in technology in this space. I’ll be leading a panel on how to capitalize on e-commerce through the innovative use of air cargo with representatives from Dubai South, RSA National, and Group ADP. Milind will be speaking on various topics, including ways to adapt to the future of cargo and build a resilient cargo ecosystem.

Air Cargo Continues its Growth Trajectory Despite Pandemic

According to IATA, the July 2021 global air cargo demand was up 8.6% relative to 2019 as measured in cargo tonne-kilometers (CTKs). They also assert that current economic conditions support air cargo growth. Willie Walsh, IATA’s Director General, stated, “July was another solid month for global air cargo demand. Economic Conditions indicate that the strong growth trend will continue into the peak year-end demand period.”

Here at SmartKargo, we solidly believe the future of air cargo has incredible upside potential, and e-commerce parcel delivery on both narrow-body and wide-body planes will be a great source of currently untapped revenue for airlines worldwide. Pre-pandemic, there were approximately 38.9 million total global flights across domestic and international airlines. Due to the pandemic, the number of flights significantly decreased. However, we anticipate that with the acceleration of vaccinated passengers going back to air travel in 2022 and a substantial rise in e-commerce, those numbers will slowly continue their hastening back to pre-pandemic levels.

E-Commerce Revenue Potential by the Numbers

Because airlines can use existing fleets, current flight patterns, and already established security and warehousing, airlines are poised to tap into this great source of recurring revenue that will add to both top and bottom-line revenue.

Using our estimates based on existing partner outcomes, we anticipate that flights should 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 $649.3 billion in potential e-commerce revenue on an annualized basis for airlines.

We like to refer to this revenue growth potential as an “opportunity in the air.” As we have already begun to see with our current airline partners in Norway, Mexico, Canada, and India, the future of air cargo for e-commerce is one a burgeoning revenue driver and that has the potential to make up for weaker business travel and passenger sales on traditional passenger airlines due to large-scale events like the global pandemic we are currently facing. We have found a way to capture additional revenue—and that future, we believe, is e-commerce air cargo.

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.

 

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!

 

 

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.

Is increasing Revenue and Sustainability Diametrically Juxtaposed?

According to IATA, air transport is responsible for as little as 2% of global carbon emissions as of 2020. That said, there is a concerted effort across the industry to reduce net carbon emissions by an additional 50% by the year 2050. 

The past several years have resulted in significant strides toward the 2050 goal. We have witnessed the airline industry’s near-universal desire to decrease its global environmental footprint through some of the following: increased fuel economy (with some even using biofuels), reducing weight on planes, and making flight schedules more efficient. 

However, the juxtaposition of these sustainability efforts is that airlines still need to be profitable to their shareholders, deliver passengers and cargo on time, and keep expanding their domestic and international routes to satisfy growing demand. We maintain that one method in which airlines can increase sustainability efforts while still increasing revenue is through the delivery of smaller e-commerce packages.

E-Commerce packages are, on average, 2-4kg in weight—much lighter and more flexible to transport than their heavier cargo pallet counterparts. The capability of these e-commerce packages to fit on existing flights adds no significant amount of weight making the method of air cargo transport much more sustainable than traditional cargo pallets. There is no need to add to an airline’s fleet to adopt the delivery of e-commerce packages. Instead, using SmartKargo’s e-commerce platform, airlines can use their existing fleet and schedules to deliver packages domestically, and in some cases, globally in as little as a few hours.  

In addition, most airlines today take advantage of more fuel-efficient planes, and we expect this trend to continue as technology advances across the industry. These smaller packages, coupled with fuel-efficient planes, can provide the airline industry with some significant steps toward future sustainability—all while increasing the bottom-line revenue so needed by the airlines.

There’s no doubt, the dynamics in air cargo are changing. And while many will say they have heard this before, most agree that the Airline Industry has been changed permanently by the pandemic. In light of this, many airlines are looking to create additional revenue streams to mitigate losses expected to continue into the foreseeable future.

And while the traditional airline cargo business model has typically focused almost exclusively on the middle mile in the logistics chain — moving freight in containers and pallets on wide-body aircraft for the world’s freight forwarders — there is now a new opportunity to develop an e-commerce business line to run alongside the traditional model. The concept is akin to the one used in boxing, where a jab with the left hand is followed by a hard blow with the right. Known as the ‘one-two punch’. Airlines not only can but are, building enormous new revenue streams by adding that second business line, with e-commerce package transport. By implementing proven technology and processes, SmartKargo is helping airlines set up an e-commerce business line quickly to build a powerful new revenue engine that complements the traditional business.

We all know that the shipments driven by online purchases are usually around 1-10 kilograms in weight and earn notably higher rates per kilogram. The integrators have been doing this for years. But what is new is the kind of technology that they spent billions on, decades ago, is now easily accessible and adaptable for airlines. Airlines already own the primary assets (planes, routes, infrastructure, warehousing, and more) needed to run a successful e-commerce logistics business. The smaller package size facilitates bulk-loading and transport in domestic narrow-body aircraft, filling cargo space that very often is underutilized. Airlines have been loading small packages in domestic aircraft this way for years, but now, the technology and processes exist to bring it all together quickly to automate the process from the online transaction to drive large volumes to the airline.

To put this in context, as an easy example, let’s say a typical narrow-body plane uses approximately 30% of its 3,000 kilos belly space for passenger bags leaving roughly 70%, or about 2,000 kilos, of available space for e-commerce cargo packages per flight. By filling this underutilized capacity with packages, across the narrow-body fleet, the cargo contribution to total airline revenues will be substantially increased. And domestic flights are not subject to the cross-border restrictions that have restricted international flights during the pandemic. The question becomes, what is the most efficient revenue-generating model to fill that 70% capacity on domestic narrow-body flights? The answer lies with the efficient air transport of e-commerce packages.

Breaking it down a bit further, the SmartKargo e-commerce solution facilitates the essential essence of e-commerce shipping. Speed and convenience for the customer from the online transaction to their door. Many retailers need what the airlines offer to compete successfully against the likes of Amazon and the retail giants who are already doing customer service well. SmartKargo brings our deep experience and know-how in air cargo, technology, and e-commerce to establish a world-class solution. Our experts work with the airline and retailers to establish Service Level Agreements (SLAs) and rates for transport. The technology is then implemented to automate the process from the retailer’s online transaction to the airline, and then to the delivery network for ground transportation to the customer’s door. This transaction-driven model automates the process as governed by the SLAs, technology parameters, and EDI-messaging between partners.

By leveraging its powerful assets, the airline gains control of the entire e-commerce logistics process to capture high volumes at much higher rates per kilogram vs general cargo rates. The technology connections make operations seamless and fully transparent between partners to the transaction. Mobile apps make it simple for each member of the shipment chain to check on the shipment journey at each milestone. And revenue growth has defied expectations for airlines that have adopted this e-commerce business model.

With a projected $6.4 trillion in e-commerce revenue expected by 2025, there is no doubt that revenue growth can come with this process for building an e-commerce business line. In doing so, airlines are empowered to grow their cargo business more significantly, increasing their revenue contribution to the airline by double-digits.

In the e-commerce delivery logistics chain, collaboration and partnering are just as important as technology. The focus on the end customer is the primary focus and their satisfaction is really what should drive the relationships. If we take a step back and acknowledge the collaboration that has to occur to make a customer happy – it is amazing. And, all of the parts of the eco-system need to work together to make sure the customer journey does not end with a Christmas gift getting there on December 26th.

E-commerce retailers always worry about their brand. They worry about their brand because they know a late delivery will be blamed on them, not the other partners. This has tremendous importance for them in two ways – as repeat customers are the most profitable ones and in a very outspoken social media world, bad reviews hurt your brand immediately. And in a world where the customer expects their packages to arrive fast – fast can mean two days, the next day, and in some cases, the same day.

So, think about the last leg of the customer journey. Assuming that the product is not returned, the last leg is the delivery segment. Making sure that the e-commerce package gets there at the time it was promised is paramount. A delighted customer will shop again at the site. This important process requires collaboration and agreement by all partners – from the retailer to the first-mile delivery company, the airline and last-mile delivery company, to the customers’ door. All are foundational to getting the delivery right. This seamless collaboration requires an advanced, but simple, technology solution.

The piece that solidifies the chain of foundational partnerships, from the online site to the customer’s door, is seamless technology. It is the adhesive that allows for the successful collaboration of partners. Think about your own e-commerce experiences. I am sure you like to see where the package is in its journey, from origination with the retailer through to the delivery, with a picture of it at your front door. This can happen with the automated processes established between partners. And will full transparency, instant data via mobile applications, and established agreements and SLA’s driving processes behind the scenes, it can be managed by all partners quite efficiently.

By focusing on the promise to the end customer, the technology drives the processes and the partnerships become easy, driven by technology integrations with APIs and EDI messaging. The growth of e-commerce has created great opportunities for airlines and ground logistics to drive more revenue. And that revenue is generated via a great e-commerce logistics value chain.

Has covid permanently affected airlines? 

It is a very scary question and one that will not be answered completely for a few years. In the short term as countries enact their vaccination programs and enable their economies to open there will be a “sugar high” for domestic leisure and even some business air travel. Many believe that we will recover by 2024, but will air travel in 2024 get back to 2019 levels? 

We, business people, are far more optimistic than pessimistic. We all believed that travel in 2022 would be closer to 2019 levels than 2020. However, that has not been the case. International travel will be delayed in getting back to “normal” and many countries like Japan, due to covid variants, will be struggling over the next year. 

There are several other factors that airlines will be facing over the next few years. 

The first is the debt levels. Many of the airlines are burdened with a debt load that will substantially affect new investments and innovations. According to McKinsey, debt could be as large as $1.1 trillion by 2024. Another factor will be future government regulation. If governments make it too onerous to travel, many travelers will choose other options. Moreover, are travelers fearful of traveling on planes, for fears of new infections? As we have seen here in the United States there have been many instances of “issues” on flights around the requirement for masks.  

We have seen that in many of the countries doing better with the pandemic, there has been a bounce-back in air travel. That has certainly been the case with leisure travel but will it also be the case with business travelers? Airlines are hoping that there will soon be widespread fatigue with video conferencing. Again, there is fatigue, and we will see a tremendous rebound domestically for business travel. Will 2024 snap back to 2019 levels? – That question will remain open. Many companies will get their teams on the road to see their customers and prospects in person, but many organizations will not likely go back to 100% business travel, since it means adding far more to the cost of sales. 

Not all is negative, as there are tailwinds for us all to get out there and see the world again. Delta just announced a profit, the first since the pandemic started, and saw a rebound in business travel as well. As airlines get their planes back in the air, there is a fantastic opportunity that has resulted from the pandemic. The remarkable growth in e-commerce, as a result of the pandemic, has created an astonishing opportunity for airlines to generate additional revenue with low investment and tremendous ROI. By utilizing the belly space for e-commerce packages, airlines have a new way to grow revenues, be innovative and reduce debt through e-commerce package shipping.

There are many open questions as the airline industry deals with the pandemic. And not many of us believe it will be like it was in 2019 soon. Hope always springs eternal but we business people not only need to be optimistic but data-driven. Changes are coming, and with any change comes opportunities. It will be the airlines that are adaptable to change that will thrive and survive.  

The term “catalyst” is thrown around in business almost as much as “transformation.” In case you forgot from early chemistry classes, a catalyst is “an agent that provokes or speeds significant change or action.” Now, I know what you are going to say; the pandemic has been something of a catalyst for the Airline cargo industry. Well, actually, it simply sped up the global growth of e-commerce. As a result, e-commerce grew across all regions of the globe at over 20% last year and looks like there is no going back.

E-commerce growth has become a catalyst for growth and transformation, and those airlines that embrace this opportunity will flourish. That sounds like a hyperbolic statement but it may hold the truth that is key to the world’s airlines over the next 5 years. Global e-commerce is projected to grow 28% over the next three years from $5 trillion to $6.4 trillion by 2024. That sounds like a market that should get airlines’ attention. What is even more amazing is that most of the e-commerce packages are 2 kilos-to-4 kilos and can sit easily in existing belly space on airlines, regardless of size or aircraft type. While many organizations fail at transformations, a focus on e-commerce can address many of the issues that often lead to failure in business transformations. 

According to a McKinsey article about why so many transformations fail, there are 10 common weaknesses that emerge as culprits that hinder success. Now, I do not want to address all of them here, but utilizing e-commerce as your catalyst for change can be an easy antidote to transformation failure. All 10 are important to address, but if we look at a few of them you can see how airlines focusing on e-commerce are changing their company and generating a robust new source of revenue. 

The first and most important of these skills is alignment. Focusing on e-commerce forces alignment throughout your organization as well as in relationships with ground crews and logistics partners. Skill sets are another issue that often arises because workers do not have the new skills that are often required for transformative ways of doing things. This is an overriding reason to use a company that has the developed skills and experience required to build new processes and practices that create success, working alongside your teams. At SmartKargo, not only are we a complete e-commerce logistics platform but also have dedicated subject matter experts in all facets of e-commerce logistics. Finally, focusing on growth is key to being successful. There are tremendous growth opportunities globally for e-commerce as stated earlier. Moreover, many e-commerce sellers are competing with Amazon, at the glass. The option of using Amazon fulfillment services (FBA) to achieve speedy shipping of their products does not sit well with them. These shippers are looking for good alternatives that will differentiate their brand.     

For an airline looking to kick-start a transformation and kindle more revenue, e-commerce can provide an easy start, with a partner like SmartKargo. By providing a platform and expertise for change, your airline can connect with the e-commerce ecosystem. Your airline provides the differentiation needed for e-commerce companies to compete with Amazon. And it indisputably aligns your organization and the KPIs to meet aggressive revenue projections. In the process, airlines create a robust new revenue engine that can efficiently transform their organization. Many airlines are using this catalyst now to drive new revenue. After taking off on the e-commerce journey, they find that delivering on the promise of new revenues can happen quickly.

Great technology, Air Cargo, and logistics have been my business passion for some time. Trade is a phenomenal business and is the economic bedrock of the global economy. And I must say that the air cargo industry outdid itself over the past 2 years. And the Air Cargo market is estimated to be a $145.2 billion industry by 2027. But that being said, one should always assess the market they are in as well as future growth trends.

Currently, the Air cargo market has some fascinating stats. According to IATA, approximately 100,000 planes take off, 20 million parcels are sent, and $18.6 billion in cargo shipped within 24 hours period. The multiplier effect of air cargo is undeniable. The ecosystem for air cargo includes governments, freight forwarders, ground handling, technology firms, mechanics, security and so many others.  The estimate from IATA is that there are over 68 million people employed to support the aviation industry worldwide.

We understand that the covid pandemic nearly destroyed passenger airline travel over the past year and a half. We all know the reason why, but this prompted many airlines to shift more emphasis to their cargo business— converting passenger jets to cargo-only transportation to ensure revenue was being generated. Many airlines large and small have taken advantage of this trend. Additionally, the impact can be seen by the expansion of many airports to ensure more cargo capacity. In cities like Chicago, Philadelphia, Pittsburgh and so many others, airports are working to be sure they are ready to accommodate more cargo. Recently, Santo Domingo Airport in Latin America broke a monthly cargo record—and there will be even more airports setting new records. The local communities are aware of the multiplier effect that the air cargo industry provides their geographic area.

Then there is the simple proof of how so many of the airlines across the globe used their airlines and logistics expertise to support the people within their various markets. Many of the world’s airlines, including most of our customers, delivered vaccines to many, many people in local, regional, and international markets—a huge impact on restoring economic activity.

Air cargo is poised for great opportunities. The market is expanding and this is impacting the world. Given the tremendous growth in e-commerce globally, intersecting with the growth in air freight, there is no reason why air cargo cannot far exceed its current economic impact. This is especially true when you see the growth in customer expectations and demand for next-day package delivery. Air cargo is an exceptional, growing part of the overall global economy and a great place to have a career.

Wrap and Extend to Capture Critical E-Commerce Revenue

Airlines have faced some of their most challenging quarters in decades due to the global pandemic. According to ICAO, 2020 gross airline revenue fell close to $400 billion. Yet, one industry has proven to be relatively insulated from deep losses during the pandemic: e-commerce. As more and more people looked to online solutions during the pandemic, revenue shifted from retail to e-commerce worldwide. Before the pandemic, e-commerce accounted for 14% of all retail sales; however, in 2020, that number jumped to 17%. Experts anticipate that this trend will continue. Global e-commerce is projected to grow 28% over the next three years from $5 trillion to $6.4 trillion by 2024.

This surge in e-commerce will allow airlines to expand their cargo transport capabilities and grow revenue, even if passenger levels remain below the peak. E-commerce packages, usually averaging 1-10 kilos in weight, are a perfect fit for an airline’s domestic fleet. Plus, with passengers carrying less baggage due to baggage fees, more belly space is generally available today for additional cargo. These two realities, coupled with the fact that typical passenger planes only fly with about 50% of their cargo capacity utilized on any given flight, means that revenue opportunities exist and are optimized through SmartKargo’s seamless solution.

SmartKargo’s flexible and cost-effective cloud-based platform allows airlines to “wrap and extend” their current cargo solution in a turnkey fashion and start building additional revenue streams in as little as a few months—not years. Airlines in Brazil, Canada, Mexico, and Norway are early adopters of SmartKargo’s wrap and extend methodology.

This flexible approach allows airlines to “wrap” the e-commerce solution around legacy air cargo systems without starting from scratch. This innovative approach will enable airlines to add this rapidly growing e-commerce business within months, not years, as it has taken with others in the industry. In addition, SmartKargo facilitates revenue capture quickly and easily.

One of the key benefits of their solution is that implementation is seamless with existing legacy systems. SmartKargo deploys a team of the seasoned airline, technology, and e-commerce experts to integrate the method and establish business processes alongside the airline cargo team. This low-cost investment has proven to yield significant results for their customer base, mainly because airlines do not have to “rip and replace” existing legacy systems. Because SmartKargo can essentially take what airlines have in place and extend their cargo e-commerce capabilities, airlines have increased revenue from the first day of implementation.

SmartKargo supports air-to-air and door-to-door businesses with easy integration into e-commerce sites. One of SmartKargo’s key differentiators is its deep knowledge of e-commerce vendors and e-commerce logistics. Their solution, using existing APIs and EDI-enabled e-commerce technology, is disrupting the traditional air cargo business.

 

In today’s digital world, innovation is a key trait that great companies possess. Whether you’re talking about Google, Amazon, Alibaba or so many others, their ability to continually innovate and expand their vision is paramount to their success. Innovation used to be driven by necessity, with necessity being the proverbial mother of invention. We innovated to make life easier on us (washing machines) or make things easier to build (steam cranes), safer (electric lights), more efficient; and you can easily name a dozen of others. But as the digital age came upon us our innovation was guided by new principles and a series of questions, including “WHY and WHY NOT”.

Today’s innovation uses technology to challenge existing norms and markets on a variety of levels. Many of the people in those markets initially believed their status quo was safe and things would never change. For instance, whoever thought something like ride-sharing would arise to be competitive to Taxis? But now, Uber dominates in many cities and has now extended into food delivery. Uber has recently announced it will expand into the delivery of “just about everything” in an attempt to disrupt Amazon at the local level1. These mega-successful market disruptions by Uber have been enabled by technology. Uber is now one of the top 250 most valuable companies by market cap in the world. And there are so many others, namely Tesla, Amazon, Apple, etc. All have changed their markets and what it means to compete.

The keyword is disruption. And today, companies must disrupt themselves or be disrupted by someone else. Where necessity is often the catalyst for innovation, disruption, or “why not” thinking are now keys to innovation. Organizations must think critically, learning to challenge their perceptions and accepted norms as concrete. And many organizations make this mistake concerning highly regulated environments. PayPal disrupted the regulated payments market, Sofi and Robin Hood challenged investments and in the United States, even the highly regulated Healthcare industry has been changed with innovative healthcare applications and telehealth.

Air Cargo is also ripe for disruption now. It has long been fairly uninterrupted, safe, and was often an afterthought for many passenger airlines, with about 1%-3% of their revenue coming from cargo. So, why bother? Sound familiar? But now, more than ever, Airlines are looking to grow their revenues, as well as create brand new revenue streams. Our customer Azul has innovated and is now the leading e-commerce logistics company in Brazil, and growing fast. They did not wait for the competition to force their hand and be the catalyst – “why not” was the catalyst.

The expected total sales in e-commerce globally will grow from an estimated $5 trillion sales this year to a projected $6.4 trillion globally in 2024. Therefore, the entire e-Commerce logistics market should be innovating and disrupting. Airlines, 3PLS, 4PLS, freight forwarders, first and last-mile ground delivery companies, as well as warehouse operators, must innovate to gain access to the fast-growing and very profitable e-commerce logistics market. There’s a bigger piece of the pie for Airlines now if they choose to disrupt and own more parts of the e-commerce logistics market than they had before. Yet many airlines are afraid to disrupt the longstanding ecosystem. My question then is, do you still want to own a taxi in New York City?

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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.”

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.

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.