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.” 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. 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. 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.