LectureOutline

TheAirCargoSystem
CargoesusingAirTransport
TheEconomicsofAirCargo
AirCargoTrafficFlows
Conclusions
Airtransportation

Week7Cargoairlineoperations
Dr. POLINLAI

Freighttonne kilometers(FTKs)

Freighttonne kilometers(FTKs)

FTKsmeasuresactualfreighttraffic.
SomeairlinesdiscloseCargoTonne Kilometres (CTK)
whichexplicitlyincludesunaccompaniedbaggageand
mail,avoidingambiguity.
Itistheequivalentof RPK forfreight.
OneFTKisonemetrictonne ofrevenueloadcarried
onekilometer.ThesumofFTKsforeveryflightstage
flownbyeveryaircraftoveraperiodistheFTKofan
airlineovertheperiod.

FTKsisameasureofhowmuchfreightbusinessan
airlinegets.Weightcarriedisnotadequatemeasure
becausedistancematters:carryingatonne 10,000km
isclearlyagreatersupplyoftransportservicesthan
carryingthesametonne 100km.
FTKsareobtainedbymultiplyingthetonnes offreight
upliftedbythesectordistanceoverwhichtheyhave
beenflown.

Revenuetonne kilometers(RTKs)

AirCargo Generalknowledge

RTKsmeasuretheoutputactuallysold.Theyare
obtainedbymultiplyingthetotalnumberoftonnes
ofpassengersandcargocarriedoneachflight
stagedistance.

Roughly150to180billionRTK
Shipping,incomparison,53.4trillionRTK(16.2trillion
withoutbulk)
Nonexpressitemsincludeperishables,highvalue
electricgoodsneedingrapidconsumermarkets
access
Anecdotally,above$3.00perkilograminvaluemay
justifyshippingbyairiftimerequirementsodemand.

AirCargo Generalknowledge

AirCargo Generalknowledge
Strongoverall
statisticalrelationship
betweenairfreightand
GDP
NotonlyGDPbutalso
Fuelpricealsoaffectair
freightinrecentlyyears

TypeofCargoCarrier
Combinationcarrier
Conventionalscheduledairlineswhichcarryboth
passengersandcargo
Cargocarriedintheholdsofscheduledpassenger
flights(Over50%ofallairfreight)

Allcargocarrier
Theseoperatecargoonlyflights
Bothscheduledandadhoc(pointtopoint)charters
Oftenspecialisttypesofaircraft

Integrator

MajorAirlines(2012)

TypeofCargoCarrier
Integrators
Provideadoortodoorservice
Alsooperateroadvehiclesforthedeliveryand
collectionoffreight

Contractfreighter
Aircraft,crew,maintenance,insurance(ACMI)leases
Carryfreightonbehalfofotherairlines
Offerflexibility

FreightForwarders

Integrator

Provideaninterfacebetweenshipperandcarrier
Expertsinthecomplexityofaircargomovements
Packaging,documents,insurance,customs,etc.

Buycapacityinbulkfromairlinesandsellinsmaller
quantitiestoshippers
Impactonairlines
Separatetransportproviderfromthecustomer
Reduceyieldsasforwardersusemarketpower

Sectorisnowbeingenteredbythelarge3PLs

Passengervs CargoOperations
Passenger

Cargo

Traffic flow

Round trips
Lowconcentration

Often imbalances
Keytradeflows

Airlinechoice

Manydecisionmakers
Subjectiveassessment

Fewdecisionmakers
Objectiveassessment

Service
offering

Deliverytimeimportant
Minimumchanges
Dayflightsoftenpreferred

Durationimportant
Routingnotimportant
Night flightspreferred

Airlinefactors Greater revenue

Globalalliances

Lessrevenue
Marketspecificalliances

Policy

Increasingly deregulated
forinternationaland
cabotage

Increasingly deregulated
forinternationalonly

Ratecomparison

Doganis (2010); Zhang and Zhang (2002)

Shippersuseaircargoonlywhen

Characteristics
Routine (High

Occasional

Perishability(e.g.food,fashion)
Opportunitycost(e.g.capitaltiedupinhighvalue
product:Iphone)
Inventoryrelatedcost(justintime)
Timedefiniterequirement(express)

Value-Density)

Emergency
Shipments

Ultra-high
value density

Time critical

Perishable

Nonperishable

Medicines
Aid
Documents

Gold
Diamonds
Works of art

Horses
F1 Cars

Newspapers
Fruit
Fish

Electrical
goods
Microchips

Speed
Surface modes
disrupted

Security

Speed and
security

Short product
life

Total logistics
cost reduced
JIT

Adapted from Doganis (2002)

CostIssues
Aparticularproblemishowcombinationcarriers
shouldallocatejointcosts
Jointcosts:
Occurwhentheoperationofoneservicecannotbe
separatedfromtheoperationofanotherservice
Cannotbeallocatedtoaspecificservice
Negligiblereductionincostsifonepartisdiscontinued

How should costs be split between

passengers and freight?

CostIssues

IATArecommendsthefollowingapproachtocost
allocation
1. Directoperatingcosts apportionedonthebasisof
theusablevolumeoftheaircraftallocatedtoeach
2. Cargospecificcosts shouldbeidentified examples
includesalesandmarketing,groundhandling,land
transport
3. Administrationandindirectcosts splitinproportion
tothesumofalltheothercosts

Not all airlines use this approach, as many see cargo as a

profitable by-product of operating passenger services

CostIssues

PricingTariffs
Generalcargorate

Combiaircraft

Expressedperkilogram,mayhaveminimumweight
Mayreducewithincreaseddistance
Candifferdependingupondirectionoftravel

Allocatejointcostsonthebasisofvolume
Cargooccupiesboththebellyholdandpartofthe
passengerdeck

Quantitygeneralcargorate
Ratedecreasesasconsignmentsizeincreases

Specificcommodityrates

Allcargoaircraft
Greaterpayloadthanpassengeraircraft
Issuewithoversupplyofcapacitywhichcanaffectyields

PricingTariffs

Classrates

Encouragethecarriageofcertaincargoes

Unitloaddevice(ULD)rates
Chargeperunitload
Encourageshippers/forwarderstouseandfillunitloads

IssueswithRevenueManagement

Reduction/surchargeongeneralcommodityratewherecargo
requiresspecialtreatment

Accountholdertariffs
Availabletofreightforwarderswhogeneratesufficientbusiness

Capacity

Contractrates

Passenger

Freight

Fixed number of
seats

Weight/volume available
affected by many factors
Three dimensional capacity
(weight, volume, fixing
positions)

Negotiateddirectwithcustomers
Guaranteeminimumvolumeoveragivenperiod

Spotrates
Usedtofillsparecapacity

Timedefiniterates
Doortodoorservicewithguaranteeddeliverytime

Itinerary control Prefer to travel as

planned

Can follow any route,

providing delivery date is met

Allotments
space for major
customers

Contractual obligations
affecting available space

Kasilingam (1996)

OverallMarketTrends

Majoraircargotradelanes

Boeing (2010)

Majoraircargoformodern
economies

FactorsAffectingDemand

Boeing (2010)

MainAirCargoLocations

TransshipmentPoints

Million Tonnes (2012)

4,500,000

N.America Asia

4,000,000

Europe Asia

3,500,000

Direct

3,000,000

ANC

Direct
PEK
KIX
ICN
NRT
PVG

KIX

2,500,000

ICN

2,000,000
1,500,000

Asia N.America

1,000,000

Asia Europe
Direct

500,000

ANC

KIX
ICN
ACI (2012)

Direct
PEK
KIX
ICN
NRT
PVG

Ohashi et al. (2005)

Conclusions
Aircargoisakeycomponentofworldtrade
Playinganincreasingroleinsupplychainsas
companieslooktoreducetheleadtime
Whilesomeairlinesseecargoasaprofitcentre,itis
actuallyajointproductfromoperatinganaircraft
Thismakescostallocationandrevenue
managementmorechallenging