Marketing and operating dedicated cargo airports
Posted: 12 October 2010 | DJ Ghosh (President), American Friendship World Air Cargo Corporation | No comments yet
The Random House dictionary defines ‘dedicated’ as “devoted wholly and earnestly to one single purpose.”…
The Random House dictionary defines ‘dedicated’ as “devoted wholly and earnestly to one single purpose.” In the case of ‘dedicated all cargo airports’ this dedication refers to the airport’s single minded devotion to one purpose alone; the movement of cargo by air, and the solicitation and retention of all the key players who facilitate this singular purpose.
Why do we need ‘dedicated’ cargo airports, which cater exclusively to freighter aircraft? Why can’t air cargo businesses continue to flow through mainline passenger airports? To answer this question, one needs to understand that air cargo is no longer a stepchild of the passenger business. As recently as 2008, global air cargo revenue topped USD 80 billion, and while a significant portion of this business is still carried in the bellies of passenger aircraft, dedicated freighter aircraft and freighter operators are here to stay and are rapidly increasing their share and providing the trade with more specialised ‘main deck’ offerings.
‘Dedicated Cargo’ airlines operate on a very different business model from that of their passenger counterparts. Outside of the higher priced ‘integrated’ cargo airlines like FedEx, UPS and DHL, most freighter operators transport general cargo with very little pricing power. In this business, it is the freight forwarder or cargo consolidator who dictates the terms, playing one airline against the other as the price for offering them consolidated shipments in bulk. Saddled with huge aircraft investments, general cargo airlines look for every opportunity to shave costs. In most cases, they generate revenue on only one leg of their trips, coming back empty on the return leg. Thus, when non hub airports, located far from metropolitan cities dangle incentives such as lower landing fees and ground handling charges, often half that of their mainline counterparts, the temptation to cut expenses is often too difficult to resist.
Unlike passengers who need to travel through major passenger hubs, cargo can quite easily bypass these hubs and land at remote locations. It is this phenomenon that has allowed defunct and far flung military bases in Western Europe and North America to re-invent themselves as cargo airports, thus giving them a new lease of life, and in the process providing much needed income and employment to their rural communities.
Cargo aircraft also generally arrive at night. With very few people living in the vicinity of these rural airports, they can be operated 24 hours a day, seven days a week, with no ban on night traffic and virtually none of the noise restrictions which have driven cargo flights away from airports like Brussels, and which imminently threaten airports like Frankfurt. The fact that they are in the middle of nowhere allows them to grow exponentially and inexpensively, with very little legal interference and tremendous local support.
So what do you need to be a ‘cargo friendly’ airport? For the purpose of this article, we polled four European airports; Frankfurt Hahn in Germany, Paris Vatry and Chateauroux in France, and Ostend airport in Belgium. There is a common thread that binds all of these airports. They all boast runways exceeding 3000 metres, are all capable of handling the largest freighter types, all have leading edge flight navigation systems, outstanding infrastructure, excellent road connections, dedicated cargo and ground handling capabilities, and most important, significantly lower landing, cargo handling and warehousing costs at their more rural locations. Since most of them cater to the perishables trade, including flowers, fruits and vegetables, they have invested heavily in special cold storage facilities. With strong political support from their local governments and plenty of room to grow, they look forward to a bright future.
However, despite all of this, the numbers for all cargo airports have not added up. None of them are in the big league in cargo like their passenger counterparts in Hong Kong, New York or Seoul, where cargo throughput can easily exceed one million tonnes each year.
Dedicated cargo airports would be lucky to exceed a throughput of 100,000 tonnes a year, with most operating in the 40-100,000 tonnes per annum range. Their business model is still shaky, and the entry or departure of even one cargo carrier can make or break them. Paris Vatry Airport, which clocked 41,203 tonnes of cargo in 2008, saw this figure drop to 23,000 tonnes in 2009 with the departure of a major African based airline. While cargo airports have had notched up some successes with the perishables trade, most other general cargoes have stayed away. Many survive by leasing out warehousing space or positioning themselves as logistics hubs, which have not really generated any significant air cargo traffic. Others are actually soliciting passenger traffic to stay afloat and have opened their doors to ‘low cost’ passenger services.
There is still no overarching template for a traditional cargo airline to abandon a hub airport in favour of a more rural cargo airport, notwithstanding lower landing and ground handling fees and plenty of cheap real estate to grow a business. Conventional carriers, transporting general cargo, still need to be in airports where they can benefit from other carriers, using the network to move cargo, as well as a pool of surface transportation providers with national connections.
The dilemma for cargo airports is that to attract a commercial carrier, they need a strong forwarder community. Conversely, to bring in the forwarder community, you need commercial air service; the classic chicken and egg scenario. Forwarders, who grew big at hub airports when all cargo moved in passenger bellies, have already committed major investments in manpower, warehousing space and equipment at these gateway airports and are very reluctant to move, even though more and more cargo now moves on dedicated freighters. Since over 80% of all world air cargo is controlled by the 20 top freight forwarders, they are the ones that hold the power to unleash the new dynamics for this business. Unless they are incentivised to move to cargo airports, this game will never change.
This challenge has many cargo airport executives scratching their heads for a way to get the first big forwarder to move. One notable success story is Huntsville, a U.S. airport located in Huntsville, Alabama, which boasts of regular B747 freighter flights operated by Atlas Air on behalf of global forwarder Panalpina, as part of their owner controlled network. However, even though Panalpina has persevered with this operation at Huntsville, the airport does not seem to have been successful in attracting any other major forwarders or cargo operators.
So what will it take to put dedicated cargo airports on the global map of the air cargo world? We believe that the answer is ‘niche marketing.’ Since large forwarders are reluctant to move, cargo airports need to set their sights a little lower and target smaller forwarders who deal in specialised products that need to move on special ‘purpose built’ freighter aircraft.
They need to customise all their offerings, including ground handling, temperature controlled warehousing and airport access, to cater to these specialised trades.
Rather than adopting a general approach to cargo, they need to concentrate on specific products and industries and develop ‘core competencies’ in each of them. They then need to promote branding and product differentiation to achieve market domination in these sectors. One such category is pharmaceuticals and life sciences, which requires major investments in both training and infrastructure to ensure 100% integrity of the final product. Similarly, we believe that there are many other products that lend themselves to very specialised treatment and procedures that cargo airports can become proficient in.
Cargo airports will thus have to concentrate on quality rather than quantity till such time as they gain the critical mass to attract the attention of the large forwarders. The persistence and stamina that it will take to prove the business case for such airports will separate the men from the boys. During this time, they must educate themselves and become proficient in the dynamics and unique characteristics of each and every type of cargo by attending trade and industry forums dedicated to them. Specialisation and product differentiation must become their new mantra. The world must learn that every type of cargo deserves special treatment, and new benchmarks need to be developed to cater to each of them.
While all of this happens, more stringent bans on night flying and tighter security regulations for cargo products will drive more cargo flights from passenger hubs to dedicated cargo airports. Indeed as Joerg Schumacher, Managing Director of Frankfurt Hahn Airport (a cargo airport 75 miles from Frankfurt) observes: “With the discussion on the ban of night flights at Frankfurt Main in full swing, international interest in our flight capacities is growing.”
Indeed, history is replete with examples of opportunity being created out of adversity. While cargo airports work at perfecting their own game plans, excessive regulation at passenger airports might become the new tipping point for revival in the fortunes of dedicated cargo airports.
About the author
Since 1993, D.J. Ghosh has been an entrepreneur in creating new air cargo market opportunities. He is a graduate of the New York School of Aircraft Finance and has attended the Air Cargo Workshop organised by Cargo Facts.
In 2004, he was invited by the Boeing Company to attend their one-week Airline Planning Seminar in Seattle, WA, with other senior airline executives.
He is a regular attendee at air cargo and air finance conferences worldwide, including TIACA, Cargo Facts, ISTAT, Air Finance Conference, Freighters World Conference, Payload Asia, Commercial Aviation Events and Air Cargo Americas.
An expert in the air cargo industry, he meets on a regular basis with industry leaders, including banks, operating lessors and heads of cargo. He has been profiled in the Tacoma News Tribune in the state of Washington and has lectured at several universities in the Pacific Northwest. As a 25-year veteran of New York City, he is well known in the Wall Street community. More recently he was featured in Air Finance Journal.
He foresees tremendous opportunities for cargo carriers in the expanding world market. His startup airline, AMERICAN FRIENDSHIP WORLD AIR CARGO CORPORATION addresses these opportunities by supporting traditional airlines with additional freighter capacity on long-term leases.