July 2007 Newsletter

Corporate Euphemisms Hide Air Freight Weakness

This past May, the new CEO at Panalpina, Monika Ribar, gave the keynote speech at the annual Cargo Network Services Partnership Conference held in San Diego. Ms. Ribar, although a seeming improvement over Panalpina’s past president, Bruno Sidler, whose disastrous appointment of Dave Beatson as head of the forwarder’s North American division plunged the company into almost total chaos, is not averse to using euphemisms when plain English will do.

Ms. Ribar kept talking about the air freight business in pure corporatese calling for “highly engineered, technology driven distribution networks.” She added that it was vital to work with “logistics concepts.” This almost incomprehensible language was putting her audience to sleep until she came to the guts of her talk, when she suddenly started addressing the audience in plain English. As she stated, “Panalpina, always known as an air freight forwarder, has watched its volume in air cargo decrease from to 50 to 48 per cent of its business.”

"As surely as night follows day, overcapacity leads to
softening of rates. The unvarnished truth is that
ocean shipping, although facing overcapacity problems
of its own, is eating air freight’s lunch"

Ms. Ribar’s admission that Panalpina’s air freight volume is declining, is but another sign that all is not well in air cargoland. Overcapacity on just about every international route is the rule rather than the exception. Both the new cargo airlines and the legacy carriers are reeling under the impact of too many airplanes and too few freight. As surely as night follows day, overcapacity leads to softening of rates. The unvarnished truth is that ocean shipping, although facing overcapacity problems of its own, is eating air freight’s lunch. The growth in ex-Asia-U.S. west coast ports’ traffic has been little short of explosive. The ports of Long Beach & Los Angeles are running out of room to store their TEUs.

A little old fashioned shoe leather in pursuing new air freight customers would be far more effective than all the speeches about “logistics concepts” and making “supply chain management” a supposed top priority among forwarders. Unlike Ms. Ribar who derided “old fashioned,” single minded concepts like moving cargo from Point A to Point B on time and in good condition, that is exactly what shippers want. I find it remarkable that the only people talking about supply chain management in high flown rhetoric are the consultants and big forwarder executives who haven’t been on a loading dock in years. Shippers never waste their time orating about these theoretical issues.

Ever attend a shipper’s conference? Their time is spent discussing such bread & butter matters as rates, claims and how they can “goose” their forwarders to do a better job.

We should listen to our customers and not to people who seem to forget why we are in business.

"We should listen to our customers and not to people
who seem to forget why we are in business."

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Ryanair’s Success In Europe Cannot Be Duplicated Across Atlantic

A few months ago, Michael O’Leary, CEO at Ryanair, the highly successful intra-European airline, stated that he plans to launch a low fare, trans-Atlantic airline within the next three to four years. He thought start-up costs would reach the $300 million mark. In his remarks, he talked about $50 fares across the Atlantic.

O’Leary must have been conferring with the leprechans in his native country. Flying short hops in Europe with no frills service and crossing the Atlantic where travelers even in coach expect reasonably decent service, are two completely different businesses. Ryanair is enormously profitable because Europeans seem willing to put up with an almost complete lack of service for their short flights and to fly between obscure cities in order to take advantage of extremely low fares. Will spoiled American travelers accept the draconian Ryanair philosophy for eight-ten hour flights? I doubt it. Even if travelers accept the trade-off between almost no service for ultra-low fares, profits come from the front of the airplane in business and first class. All of the trans-Atlantic airlines agree that the real money is made with its business and first class passengers, plus cargo. Ryanair wouldn’t recognize a first class seat if they stumbled across it. Also, crew scheduling to comply with stringent FAA regulations regarding maximum flight hours means “lay over” costs that rapidly eat into profits. There’s also a little matter of competition. At last count, some 49 carriers offer trans-Atlantic service.

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A License To Print Money?

As a New Zealander born and bred, and with CII doing substantial business in my place of birth, I naturally am interested in any development at that nation’s principal airport in Auckland. What is occurring at Auckland International Airport (AKL) may be a harbinger of things to come at other major international airports with subsequent negative consequences for the world’s airlines and their freight forwarder customers.

The basic issue is privatization. From almost the first days of commercial aviation, airports always were conceived, built and operated by government or quasi-government organizations generally known as airport authorities. Auckland International was no exception. However, a few years ago, the New Zealand government decided to sell it to private investors. The airport now is listed on the New Zealand Stock Exchange. Such major airports as London’s Heathrow, Paris’ Charles de Gaulle and Amsterdam’s Schiphol also have been partially privatized or about to go the privatization route.

Why is far-away Auckland’s International Airport a bellweather for airports around the world? Why should air freight people be concerned what is happening there? Simply because the Auckland Airport Authority which runs the facility, is seeking a 30 per cent increase in airline fees starting September 1. Other airport authorities are closely watching the outcome. Carriers serving New Zealand, particularly Air New Zealand with the largest number of flights at AKL, are crying foul. Even at present fees, the airport is hugely profitable. Opponents of airport privatization say if the Auckland Authority is successful in its efforts, other privately owned airports around the world will take heart and start agitating for higher fees. Higher fees for airline users will result in only one outcome; increased passenger fares and raised cargo rates to cover carriers’ increased costs.

Do airports exist for public good or private profit? Is an airport an important part of its community serving regional commerce and industry, or is it an engine for making money? Free market idealogues say there is only one objective in any enterprise—maximizing profits. I say those free marketeers are wearing blinders. In my opinion, public good is far more important than private greed.

A well run airport with fair and reasonable rates for airlines serving it is more than just a collection of runways and restaurants. It is a major factor in the economic health of a community. Let’s hope the greed and avarice shown by AKL’s management will not be shared by other airports.

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Julian Keeling