December 2008 Newsletter
Let’s Have A Moratorium On Cargo Conferences
The recent TIACA Air Cargo Forum, held in the Malaysian
capital of Kuala Lumpur, was a complete fiasco. The
number of attendees was down considerably and the amount
of display booths was far less than the sponsors had
hoped. The entire tone of the conference was, as one
attendee expressed it, like the night of the living
dead. Attendees spent far more time commiserating with
each other on the sad state of affairs in air cargo than
listening to the banal and boring speeches by the
invited speakers.
The TIACA failure highlights the fact that air cargo
conferences have lost any relevancy they might have had
in the past. Oblivious to the worldwide economic
slowdown with concurrent weakness in air cargo traffic,
dozens of conferences are scheduled for 2009 sponsored
by trade journals and various cargo trade associations.
The vast majority of these conferences will sink under
their own weight. What are the speakers going to talk
about; how tough it is in today’s cargo environment? Why
pay good money in transportation and lodging expenses to
listen to speakers who haven’t had a fresh idea in
decades? Why spend hard earned money on exhibition
booths when most of your visitors will be exhibitors
from other booths? As one veteran attendee put it, “when
I hear one more speaker call his hi-tech system
revolutionary, my eyes automatically glaze over.”
"Why spend hard earned
money on exhibition booths
when most of your visitors
will be exhibitors from other
booths?"
Let’s call a halt to these useless cargo conferences
which do not advance our industry one iota. Why line the
pockets of conference sponsors without receiving any
value at these meetings? Perhaps these forums made sense
in flush times when cargo people could afford the time
and expense to mingle with their peers while networking
over lunch or the cocktail hour. These are not flush
times, however, but survival times. Forwarders should
spend their time at their home offices or on the road
making sales calls to hold onto current customers or to
find new ones. There is no point in traveling often half
way around the world to attend a needless conference.
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While U.S. Flounders With Bailouts; China Forges Ahead
The current floundering by U.S. officials as to just how the
$750 billion bailout should be spent is another indication of
the total lack of their direction and control in guiding our
economy. These supposedly sophisticated financial types, led by
Treasury Secretary Paulson, is showing no more acumen than a
high school economics class. Directives emanating from the
Treasury and Congressional leaders are confusing at best and
destructive at worst. If conditions weren’t so tragic, it would
be funny watching officials from the Treasury Secretary on down
contradicting themselves from day to day.
With confusion reigning supreme, the bailout to stimulate our
economy is going nowhere. Sub-prime mortgages are not being paid
off, banks aren’t lending either to business or consumers even
if their credit is Triple A, and the stock market is like a
roller coaster—up sharply one day or down even more steeply the
next.
The Chinese also have announced a stimulus package and the
contrast between its clear, carefully planned objectives and the
U.S.’ floundering efforts couldn’t be greater. The Chinese are
allocating $500 billion for the nation’s infrastructure. The
upgrading of the nation’s ports, roads, airports, communications
facilities will take top priority in that nation’s efforts to
become an even greater industrial power. The Chinese realize
that without an efficient transportation system, its enormous
productive output literally will go nowhere. For the past
decade, the U.S has been trying to teach China how to produce
more goods more efficiently. Perhaps we can become their
students and they the teacher.
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Another Case Of Exquisite Airline Mistiming; Deluxe Seating At Deluxe Fares
Leave it to the airlines to concentrate on the past, not the
present. The airlines jumped on the jet fuel hedging bandwagon
just when oil prices hit record highs of almost $150 a barrel.
Frightened at paying even more for jet fuel, the carriers
followed Southwest Airlines’ example and hedged against higher
oil costs. They hedged at almost the exact moment when oil
prices began to fall. Result; today’s oil price is less than $60
a barrel with airlines reporting losses in the billions of
dollars primarily due to hedging costs. It is the major reason
why the carriers still are showing red ink on their books.
"If airline execs would
spend a fiftieth of their
time improving freight
operations at their airlines
rather than attempting to
create bedrooms in the
sky, the carriers would be
in much better shape."
A similar spectacular mistiming is the decision by most
of the major international carriers to upgrade their first class
and business cabins into some kind of flying bedrooms—with sky
high fares. British Airways had led the way with its board
chairman declaring, “we don’t want backpacker passengers on our
aircraft, only business and first class people.”
After spending close to $1 billion on making over all of the
airline’s cabins and scheduling new all business class flights
between the U.K.. and the U.S., what does BA have to show for
it? Very little as passengers and their companies are balking at
the $10,000 round trip air fares from Heathrow to JFK.
Investment bankers, hedge fund managers, mutual fund executives
and other financial types who made up most of BA’s first class
passenger list either have been fired or are sticking close to
home trying to drum up new business. Other airlines upgrading to
serve this once free spending group are feeling the pain.
Suddenly, backpackers are in vogue again. They may be the only
passengers who haven’t seen their financial assets shrink to
almost nothing. BA executives aren’t the only ones who rolled
the dice for super luxury passengers and have come up snake
eyes. In true carrier fashion, all the other major carriers,
like lemmings, followed suit—and are paying the price.
If airline execs would spend a fiftieth of their time improving
freight operations at their airlines rather than attempting to
create bedrooms in the sky, the carriers would be in much better
shape. Forwarders could sell cargo more successfully. A full
belly load of freight is far more profitable than empty first
class cabins.
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The Strange Case of Geoff Dixon; Retiring Head Of Qantas
Geoff Dixon, who retired as CEO at Qantas at the end of
November after seven years in the top spot, leaves
behind a very mixed record of accomplishments and
failures.
On the positive side, Qantas has doubled in size during
Dixon’s watch and has scored record profits in a very
challenging environment for all airlines. The company
also has launched successfully its jumbo 380 flights
(although Qantas’ orders for 20 more of these aircraft
seem grossly excessive in a recessionary era of
diminished demand).
Weighed against these accomplishments is no lack of
operational failures, very poor labor relations with the
Qantas staff, and the conviction by many in Australia
that Dixon placed his own financial interests ahead of
the airline’s well being. Questions have been raised
about Qantas’ once matchless maintenance standards,
highlighted by the explosion in a cargo hold of a Qantas
flight over the Pacific a few months ago. Fortunately, a
safe landing was made in Manila thanks to the skill of
its flying crew. The incident revealed a number of
maintenance flaws at Qantas and also made plain the
fallacy of “outsourcing” much of the airline’s
maintenance to MRO (maintenance, repair and overhaul)
companies in Asia with questionable records of service
and dependability, Employees, particularly in the
carrier’s cargo division, bitterly resented Dixon
allowing Cargo VP Americas, Bruce McCaffrey, to take the
rap in the cargo price fixing case brought by the U.S.
Department of Justice and the European Union. McCaffrey,
an ill and physically disabled 25-year veteran of
Qantas, is languishing in jail while senior executives
including Dixon, who must have known about the
conspiracy, go scot free. Dixon also hardly covered
himself with glory earlier this year when he led a group
of outside investors to attempt a take over of Qantas.
He had far more regard for his pocketbook than the
welfare of the airline. Fortunately, a public outcry and
decisions by a number of Qantas shareholders to vote
against the take over stopped the Dixon cabal cold.
Dixon has left a financially strong airline but a
carrier whose employee morale is at a record low. His
legacy is decidedly a mixed one. How Qantas will fare in
a drastically changed airline environment remains an
open question.
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JAL Eliminates Cargo Service to JFK; All Is Not Well In Japan
The recent announcement by Japan Air Lines that it is
eliminating all cargo flights between Japan and JFK
after more than thirty years of service to that key New
York destination, highlights the tough economic state of
affairs both in that nation and the U.S.. While China
seems to receive all the attention in international
trade, Japan, which is the world’s second largest
economic power after the U.S., scarcely rates a mention
in the trade and business press. Yet, Japan engages in a
huge amount of trade with the U.S.A. both in ocean and
air.
"...eliminating all cargo
flights between Japan and
JFK after more than thirty
years of service to that key
New York destination,
highlights the tough
economic state of affairs both
in that nation and the U.S.."
An industrious nation of 96 million souls, Japan has
been flirting with recession for the past decade. That
recession has intensified during the past year when its
vaunted export trade, upon which so much of Japan’s
health depends, kept declining at an accelerated pace.
Its trade surplus this past September simply evaporated,
plunging a staggering 95 per cent. It was the 13th
consecutive month in which its surplus decreased.
Americans no longer are snapping up Japanese cars and
electronic products as they did in the past. The country
is one of the very few in the industrialized world where
deflation and not inflation is a major problem. It’s not
a pretty sight. As lower prices take hold, Japanese
consumers keep waiting for further declines and hold off
buying anything except for the most vital necessities.
The Japanese savings rate is close to an incredible 46
per cent of their gross national income (U.S. savings
rate is close to zero) with the government urging its
people to spend more.
Is Japan a harbinger of what may happen to other
nations, particularly the U.S.? While few economists
here are predicting outright deflation, most believe a
sustained rise in prices is not feasible given the
unprecedented weakness of the U.S. economy. Air freight
is already in a deflationary spiral with U.S.-Asia
shipments dropping by about 10 per cent, its greatest
decline since 9/11.
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The Boeing 747 Celebrates Its 40th Anniversary
A few months ago, the
Boeing 747 celebrated its 40th anniversary. It is hard
to believe this aircraft, which changed civil aviation,
is four decades old. It also is hard to believe the
enormous differences between the Boeing company of 40
years ago and today. Back in the 1960s, Boeing was a
risk taker and the huge 747, more than double the size
of its 707, was its biggest risk. Aviation “experts”
derided the idea of such a large aircraft; it never
would be filled with passengers or freight, they said.
How wrong they were. Pan Am gave Boeing its initial
order for 25 747s and Boeing never looked back. The 747
then cost $25 million in development costs and the
aircraft was delivered to Pan Am on schedule and under
cost. What a difference today! Boeing’s newest aircraft,
the 787 “Dreamliner,” cost $2 billion to develop and is
hopelessly behind schedule. Boeing’s newest version of
the 747, called the 747-8, also is about a year behind
schedule in delivery to airline customers. What a sorry
record for a once great company. As the only U.S. maker
of large commercial aircraft and one of the biggest in
military planes, Boeing has an obligation to the nation,
its employees and shareholders to shake off its lethargy
and confusion and become once again one of the iconic
companies in the U.S.
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Christmas; A Time Of Hope In A Climate Of Fear
How quickly the year has sped by with the nation and the
world experiencing a veritable tsunami of bad news. No
end seems to be in sight. Christmas is a time of hope,
not despair. It is a season when in years past, we
thought far more of the gifts we will buy and receive
than what the Holiday really means. Today, many of us
see Christmas as time of reawakening, of evaluating our
lives in moral and ethical terms. Perhaps the realistic
world of today, not the fantasies of yesteryear, will
teach us what is important. Hopefully, we will learn
once again the true meaning of Christmas to help us live
a better life.
To one and all; a merry and satisfying Christmas.
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Julian
Keeling
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