CARGO OPERATIONS REPORT
Arizona State University
Airline Pricing &
Yield Management Team
Jonathan Kurant
Futoshi Nakagawa
Marguerite O’Driscoll
Milos Pavicevich
Jonathon Nield
The Arizona State University Airline Yield Management
graduate students performed a SWOT analysis of US Airways’
cargo operations against major passenger airline cargo
operations. The methods of the analysis include:
• Literature reviews of past research
• Analysis and comparison of competing airline cargo
products
• Analysis of current state of competitor cargo airline
management
• Forecasting future trends using historical data
The objective of this analysis is to provide a high level
snapshot of how US Airways cargo operations are positioned
relative to its competitors.
SWOT
STRENGTHS
WEAKNESSES
Airline Cargo Products
Cargo Stats
Future Forecasts
Technology & Sustainability
Marketing & Sales Strategies
Airline Cargo Products
Cargo Stats
Future Forecasts
Technology & Sustainability
Marketing & Sales Strategies
OPPORTUNITIES
THREATS
Airline Cargo Products
Cargo Stats
Future Forecasts
Technology & Sustainability
Marketing & Sales Strategies
Airline Cargo Products
Cargo Stats
Future Forecasts
Technology & Sustainability
Marketing & Sales Strategies
Jonathan Kurant
Domestic Products
High Tier
Middle Tier
Lower Tier
Delta
Dash
$65-$124/Shp
DASH Heavy
$.88 - $1.43/lb
Standard
$.52-$.84/lb
US Airways
Premier
$42.35-$112.94/Shp
Priority
$.53-$.67/lb
General
$.32-$.44/lb
Southwest
Next Flight Gtd.
$60.00-$120.00/Shp
Rush Priority
$.68-$1.01/lb
Freight
$.51-$.93/lb
International Products
High Tier
Middle Tier
Delta
Equation
$1.70-3.15/kg
Dimension
$1.00-$1.85/kg
US Airways
Premier
$4.15/kg
Priority
$2.15/kg
Lower Tier
General
$1.95/kg
Lufthansa Cargo
Products
 Td.flash and Td.pro
Performance
 1.5 million tons of freight in 2009 with 7.4 billion RTK
 830,000 tons of freight and mail carried in first six
months of 2010 – around 20% more than in 2009
 Volume up 24.6% in Asia/Pacific and 31.1% to Americas
 Capacity up 2.3%, sales up 24.9% and load factor up to
72.3%
British Airways
Products
 Prioritize and Perform
Performance
 Commercial Revenue £550.3 million –
down 18.2%
 Volume down 2.2%
 Capacity down 4.2%
(4/09 – 3/10 figures)
Singapore Airlines Cargo
Products
 Swiftrider – 100% guarantee uplifted as confirmed
 Dedicated cargo timetable
 Eight NA gateways: ATL, ORD, DFW, EWR, IAH, JFK, LAX,
SFO
 European destinations: AMS, BRU, CPH, FRA, MOW
Performance (June 2010 vs 2009)
 Freight carried 87.9% - up 6.8%
 Capacity up 12.4%
 Load factor up to 63.9%
Futoshi Nakagawa
Value of US Merchandise Trade by Land, Water, and Air
Gateways: 1990 and 2008
1990 (%)
2008 (%)
US Total Land Trade
22.9
24.4
US Total Water Trade
48.9
47.8
US Total Air Trade
22.7
23.7
Other and Unknown
60
5.6
4.2
50
40
30
1990
20
2008
10
0
Total Land Trade Total Water Trade Total Air Trade
Other and
Unknown
Top 10 US Air Gateways for International Freight, Ranked by
Weight: 1990, 2000, and 2008 (Tons)
Rank in
1990
Rank in
2000
Rank in
2008
US Airport
1990
2000
2008
Average
annual
growth rate
1990-2008
1
1
1
Anchorage,
AK
908,188
1,968,75
2,487,270
5.8
3
2
2
Miami, FL
742,709
1,250,482
1,652,356
4.5
2
3
3
JFK, NY
899,328
1,021,028
908,183
0.1
4
4
4
Los Angeles,
CA
348,739
643,243
771,710
4.5
5
5
5
Chicago, IL
272,037
556,049
625,339
4.7
107
9
6
Memphis,
TN
14
198,624
383,692
76.3
9
8
7
Atlanta, GA
85,719
249,733
292,590
7.1
11
7
8
Newark, NJ
74,633
353,072
275,313
7.5
6
6
9
San
Francisco,
CA
185,355
367,690
259,126
1.9
10
15
10
Houston, TX
82,152
121,155
192,674
4.8
Commodity breakdown of global air freight markets, 2007
Product Name
Share of FEU-kms%
High-Tech Products
27
Capital Equipment
19
Apparel, Textiles, Footwear
17
Consumer Products
16
Intermediate Materials
12
Food: Refrigerated/Non-Refrigerated
6
Primary Products
2
All Commodities
100
Air Freight via JFK, NY: 2000-2008
RITA Bureau of Transportation Statistics (Tons)
2000
2005
2006
2007
2008
Import
598
533
540
529
472
Export
423
393
402
445
436
Total
1,021
926
941
974
908
Air Freight Rankings by Country
Rank
Export
Destination
Tons
Rank
Import
Origin
Tons
1
United
Kingdom
74
1
United
Kingdom
80
2
Belgium
70
2
Belgium
49
3
Germany
52
3
Germany
41
Air Freight Rankings by City
Rank
Export
Destination
Tons
Rank
Import
Origin
Tons
1
London
63
1
London
63
2
Brussels
49
2
Luxembourg
35
3
Paris
28
3
Paris
28
Air Freight Rankings by Airline
Rank
Export
Carrier
Tons
Rank
Import
Carrier
38
1
American
Airlines Inc.
52
40
32
1
American
Airlines Inc.
2
World
Airways Inc.
37
2
Cargolux
Airlines Intl.
S.A.
3
British
Airways Plc.
30
3
World
Airways Inc.
Tons
Purchasing Managers Index (PMI)
Based on five major indicators:
 Production level
 New orders (from customers)
 Frequency of supplier deliveries
 Inventories
 Employment level
PMI Summary
NEW ORDERS
PRODUCTION
EMPLOYMENT
DELIVERIES
INVENTORIES
PMI
Better Same Worse Index* Better Same Worse Index* Higher Same Lower Index* Slower Same Faster Index* Higher Same Lower Index* Index
Mar-10
41
48
11
61.5
36
53
11
61.1
21
69
10
55.1
27
73
0
64.9
26
61
13
55.3
59.6
Apr-10
52
40
8
65.7
49
44
7
66.9
26
68
6
58.5
22
76
2
61.3
20
61
19
49.4
60.4
May-10
50
38
12
65.7
51
37
12
66.6
28
66
6
59.8
29
66
5
61.0
13
66
21
45.6
59.7
Jun-10
36
50
14
58.5
40
47
13
61.4
26
63
11
57.8
23
71
6
57.3
13
66
21
45.8
56.2
*Most recent four month snapshot of PMI
US Airways
US Airways Cargo Operating Revenue (Millions)
160
140
120
100
US Airways Cargo
Operating Revenue
(Millions)
80
60
40
20
0
2008
2009
Q1 2009
Q1 2010
Milos Pavicevich
Actual Performance Data
World Air Cargo Traffic (% Growth)
6.0%
5.0%
4.0%
3.0%
World Air Cargo Traffic
(% Growth)
2.0%
1.0%
0.0%
2005
2006
2007
Slow Growth to Historic Growth
 High fuel prices from late 2003-July 2008
 Q1-Q2 2008 prices rose nearly 50% over Q4 2007
 A long-term economic growth rate of roughly 3%
 Inventory-reduction strategies and operating cost
reductions in the freighter fleet
The Next Twenty Years
 World air cargo traffic will expand 5.8%
 Current traffic rates will triple
World Outlook
• World FTK 5-Year forecast: 4.7% CAGR
• Intercontinental average: 4.9%
• Regional average: 4.2%
• World FTK 10-year forecast: 5.3% CAGR
(compound annual growth rate)
• Intercontinental average: 5.5%
• Regional average: 4.6%
Key Factors
 Trade with the US accounts for over 60% of global air cargo
FTKs
 A rebound in the US is vital for cargo market recovery
 Housing Crisis
 Credit Crisis
 Foreign Currency Exchange Fluctuations
 Corporate Profitability
 Interest Rates
 Oil and Jet Fuel Prices
 Chinese Economy
Regional Outlook
Intra-NA
 10-year forecast: 3.7% CAGR
 Key Factors: A Mature Market
 Competitive against overnight and LTL trucking networks
Regional Outlook
NA–Western Europe
 10-year forecast: 3.3% CAGR
 NA-W. Europe – 3.3% CAGR
 W. Europe-NA – 3.3% CAGR
 UK, Germany, France, Italy and the Netherlands account
for 70% of traffic
 UK, Germany and France account for over 50%
 Key Commodities:
 Machinery
 Medical instruments
 Jewelry/valuables
 Pharmaceutical products
 Key Factor: exchange rates
Regional Outlook
NA – Latin America
 10-year forecast: 4.6% CAGR
 NA-LA – 4.1% CAGR
 LA-NA – 4.7% CAGR
 Major trade lanes
 Colombia (cut flower imports into US)
 Brazil (exports industrial machinery to US)
 Venezuela (oil)
 Mexico (largest trade partner with US)
Regional Outlook
NA – Latin America
 Key commodities northbound
 Perishables (fruit and flowers)
 Consumables (liquid beverages)
 Precious stones
 Chemicals
 Live plants
 Key commodities southbound
 Chemicals
 Intermediary goods (metals, rubber and pulp)
 Machinery
 Key Factors: Growth between bordering economies, strong
perishable exports, and high-tech export and intermediate
goods traded
Regional Outlook
NA-China
 10-year forecast: 8.0% CAGR
 NA-China – 7.8% CAGR
 China-NA – 8.1% CAGR
 85%+ westbound commodities to China are manufacturing
related:
 Machinery and chemicals
 Intermediary goods (fabrics, leathers and oils)
 Other 15% Printed matter and consumer products
 Nearly 90% of all exports from China to NA are consumerproduct related
 Electronics, apparel, footwear, toys and consumer
appliances
 Key Factors: China’s GDP growth
Regional Outlook
NA–Asia (excluding China)
 10-year forecast: 5.4% CAGR
 NA-Asia – 5.7% CAGR
 Asia-NA – 5.2% CAGR
 Key Trade Partners: Japan, Singapore, Taiwan, and Korea
 Exports from US:
 Manufacturing Machinery/Instrumentation (20%)
 Commercial Machinery (10%)
 Perishables/Live Animals (15%)
 Intermediary Production Materials (25%)
 Imports to US: 75% of imports are consumer products
 Key Factors: exchange rate
Projections
 Weak economy and fuel prices may hamper the cargo
industry
 Good News! Cargo traffic will triple over the next 20
years
 The US and Chinese markets are expected to prosper
the most
 The Latin American market is projected to be
profitable
Marguerite O’Driscoll
Technology & Sustainability
 Established route networks
 US domestic
 Transatlantic
 Israel market PHL-TLV
 Caribbean and Mexico
 Name recognition as a US Legacy carrier
 Cargo vendor network
Technology & Sustainability
 Ineffective website to promote Cargo
 Cargo information is buried on website; not a selling
point under “Travel Tools”?
 Cargo website has information, but little detail
 Instead of advertising Cargo, there is an ad for US
Airways Vacations
 Airline driven by passengers sales not cargo
 Extent of company’s commitment to cargo
Technology & Sustainability
 Cargo is limited by what can be done on US Airways
Website
 Consider the possibility of a hyperlink to website
content controlled by Cargo
 Interactive features for select large shippers
 Integrate barcode data to lock in delivery schedules for
the shipper
 Shipments arrive to Cargo ready to screen and verify
Technology & Sustainability
 Price breaks to shippers looking for space to shift loads to
less premium flights
 Minimize carbon footprints
 Offer Cargo Carbon Calculator and allow to purchase
an offset for shipment
 Highlight fuel-efficient Airbus fleet
 Bank of America is looking to integrate US Airways into
their supply chain
Technology & Sustainability
 Zero emission electric trucks in local markets when
feasible
 Supply chain “green accountability” works both
directions
 Building sustainability into the operation saves
money, the environment and can be a great
marketing tool
 Higher cost structure can be reduced with technology
and sustainability initiatives
Technology & Sustainability Overview
 Development of an integrated website will not be
cheap, but in comparison to lost market share it will be
a strategic, long-term investment that pays off
 Sales team could have added tools to increase cargo
revenue; provide a complete solution to client cargo
needs from load planning to arrival
 Sustainability in supply chain and cargo shipping is
here-make it a sales tool instead of an obstacle
Jonathon Nield
Marketing & Sales Strategies
•Competitive Environment
•FedEx, UPS, Cargolux
•Efficiencies of cargo-rail transportation
•LTL Trucking
•Water transport
Marketing & Sales Strategies
•Leads and Opportunities
•Supply chain integration
•Increasing value of time
•Increasingly high value/ounce shipments
•Just-In-Time
•Diverse knowledge of east and west coast
•Internationally: Get into Asia!
Marketing & Sales Strategies
 Integrate US Airways cargo operations into company
supply chains
 Offer integrated total logistic solutions with either
homegrown services or via third party vendors
 Tailor the need of the company with a total product
solution meeting the needs of the organization
Looking Forward





Airline Cargo Products
Cargo Stats
Future Forecasts
Technology & Sustainability
Marketing & Sales Strategies
 US Airways has a lot of strengths and opportunities in
which resources should continue to be invested
 The weaknesses and threats found in this investigation
open the door to future strengths and opportunities with
additional effort
 US Airways is poised to ride the rising demand in cargo
over the next 20 years