fbpx

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.

Air Cargo the Engine of eCommerce?

The e-commerce ecosystem is massive and growing. 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. The ecosystem is vast and is comprised of services, MarTech, AdTech, e-commerce systems, shipping and logistics, payments, communications and so many other factors that support the system. And, as the issue in the Suez Canal recently demonstrated, Air Cargo may be more important to the global supply chain than you first considered.

Most e-commerce retailers are striving to keep up with Amazon and they all want to be customer-focused. Being customer-focused means maniacal attention to customer needs and responding to their desires. When taking shipping into account, there are differences in what e-commerce customers will pay for with respect to shipping, but all customers want their “packages” fast.

Now, what do we mean by fast? Anything delivered in 2 days or less is considered fast. Moreover, Gen Z, on track to be the largest consumer base by 2026, and Millennials, who are the largest consumer base today, are willing to pay more for next-day shipping. In fact, recent studies by both PwC and Accenture show that higher prices for next-day delivery would drive a decision to make a purchase.

Now, it should be very evident that Air Cargo is the best, and in many cases, the only option for getting packages to the customer in 2 days or less. Cargo ships are the cheapest, and slowest, mode of cargo transport (and in many cases the right option). Air Cargo may be more expensive, but if an e-commerce company has based the fulfillment of their brand promise on fast delivery—then Air Cargo is key to their success.

As more and more e-commerce companies adopt faster package delivery to meet customer expectations and drive repeat purchases, there will be greater demand for Air Cargo. Air Cargo can be executed by all-cargo carriers like UPS, FedEx, and DHL who also rely on the belly capacity of passenger airlines. Azul is a great example of an airline that embraced e-commerce growth by implementing the technology to operate fully integrated logistics. Thus, meeting the demand for e-commerce shipping while optimizing the utilization of the entire fleet.

Customer expectations will only become more demanding, and the need for flexibility and speed by e-commerce companies to get packages from the shopping site to the customers’ door is paramount to their success. Air Cargo may just be the engine that drives e-commerce by facilitating this need for speed that customers demand.

Will there be a Permanent Hole in Airline Revenue?

It is redundant to say that 2020 was a difficult year.  And 2021, we all know, is on the upswing.  Many of us believe that 2022 will be a complete reversion to “normal.”  I do believe on a personal level we will start to go back to normal vacations, dining out, movies, concerts and etc. Humans are social and we crave to be a part of a group and shared experiences.  However, the business traveler will not be coming back at anywhere near the previous level—meaning that airlines will need to fill the revenue gap to meet their financial projections.

If we look at the work from home movement, it has changed the way we sell, service, and interact with our peers.  Moreover, it has shown that there is no need to always be in the office and no need to always travel to meet peers, prospects, or customers. The growth in applications that use camera applications has grown tremendously, for instance, Microsoft Teams grew from “44 million active users in March to 75 million by April.”[1]  Additionally, Zoom has also experienced tremendous growth of in December 2019 they had 10 million daily users compared to today there are about 300 million daily users.[2]  Another factor pointing to the “Work from Home movement”, is during 2020 computer sales grew 11% globally, 14% in the United States, most of these were laptops suggesting these were bought in further support of working from home.[3]  All of these factors point to a change in the way business is done.

We all know the huge impact to the airlines from Covid in 2020 and 2021  In 2020, airline traffic was down 67% compared to 2019.[4]  Moreover, some experts do not think all passenger airlines will recover until 2024 or 2025.[5]  Now business traffic is about 12% of total traffic but historically has brought in double the revenue of other types of air travelers.[6]  All of that that revenue will not be coming back – business air travelers will use applications to make deals, collaborate and build relationships online.  We will certainly see the return of some business travel.  I agree with Bill Gates that only about 50% of business travel will return.[7]  If there is a 50% reduction, many airlines are going to be searching for new revenue or face permanent cuts and write-offs.

Airlines can drive more revenue by embracing the growth in e-commerce shipping. Reduced capacity of passenger airlines is an opportunity to ship cargo and drive easy alternative revenue, which will help to fill the hole in passenger revenue.  Moreover, it can be a stop-gap measure for additional revenue until leisure travelers are back in 2024 and beyond.  Whether Airlines are doing it on their own or using a leading platform like SmartKargo, there is tremendous revenue to be made from creating a balanced revenue stream for any airline.

__________________________________________

[1] https://www.businessofapps.com/data/microsoft-teams-statistics/
[2] https://www.techrepublic.com/ /watch-out-zoom- article microsoft-teams-now-has-more-than-115-million-daily-users/#:~:text=Zoom%20and%20Google%20Meet%20have,logging%20into%20meetings%20every%20day.
[3] https://qz.com/1881730/us-computer-sales-spiked-67-percent-after-switch-to-remote-work/
[4] https://www.cnbc.com/2021/01/04/21-years-of-airline-passenger-traffic-growth-erased-in-2020-travel-report.html
[5] https://www.cnbc.com/2021/01/04/21-years-of-airline-passenger-traffic-growth-erased-in-2020-travel-report.html
[6] https://4-seasonslimos.com/travel-tips/what-percentage-of-air-travel-is-for-business/
[7] https://www.cnbc.com/2020/12/17/will-business-travel-return-with-covid-vaccine-executives-are-split.html

E-COMMERCE LOGISTICS

WHAT DOES IT TAKE TO GET INTO THE GAME?

 

The huge growth of e-commerce logistics is causing many airlines to rethink their business models and make the adjustments needed to meet skyrocketing market opportunity. There’s never been a better time to open new streams of revenue on both long-haul and domestic flights, especially as airline passenger revenues are down, way down.

eCommerce cargo shipments pay big dividends in higher yields per kilogram vs general cargo—and, all of this is driven by the need for speed in transport and delivery—from the shopping site to the customer’s door.

Here are 5 things you should know:

1. Airplanes are the most important assets in cross-border e-Commerce.
More than ever, e-Commerce shipping relies on the speed and capacity that global airlines can provide and that consumers demand. Airlines have both the fleet capacity and speed capability to meet the huge, and growing, demand of e-commerce logistics.

2. Fully integrated logistics is driven by smart integrations.
By connecting your Airline Assets + Technology + Ground partners, you can deliver higher revenues to the airline bottom line. The SmartKargo e-commerce solution can be integrated into the existing technology environment of an airline. Our team facilitates the EDI-messaging integrations with all members in the logistics chain.

3. Smart technology + mobile applications automate the process.
The end-to-end EDI-enabled B2B and B2C e-Commerce integration combines with real-time data visibility and transparency via mobile applications for the shipper, driver and end customer, all the way from the shopping site to the door.

4. The solution is live and producing great results.
One of the first airlines to adopt the SmartKargo e-Commerce solution has announced amazing revenue growth. Its current market share of 60% in e-commerce logistics vs. the integrators in that country illustrates that the SmartKargo technology and process for e-commerce logistics are proven. The solution is now being adopted by other forward-looking carriers across the world.

5. The technology can be deployed quickly.
The SmartKargo e-commerce solution can be up and running in less than a year—equipping an airline to get into the game – where consumer demand for speed in delivery drives higher revenue and premium yields. And airlines can operate e-commerce alongside their traditional B2B Air Cargo business.

So, why wait? Contact us today to learn how smart airlines are maximizing air cargo revenues with the world’s first, live e-commerce integration. For more information or to set up a demo, contact sales@smartkargo.com or visit www.smartkargo.com.

Learn more

Forbes Article

On-demand Flight Global Webinar