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CARGO OPERATIONS REPORT

CARGO OPERATIONS REPORT. Arizona State University Airline Pricing & Yield Management Team. Jonathan Kurant Futoshi Nakagawa Marguerite O’Driscoll Milos Pavicevich Jonathon Nield.

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CARGO OPERATIONS REPORT

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  1. CARGO OPERATIONS REPORT

  2. Arizona State University Airline Pricing & Yield Management Team Jonathan Kurant Futoshi Nakagawa Marguerite O’Driscoll MilosPavicevich Jonathon Nield

  3. 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.

  4. SWOT

  5. Airline Cargo Products Jonathan Kurant

  6. Domestic Products

  7. International Products

  8. 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%

  9. 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)

  10. 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 vs2009) • Freight carried 87.9% - up 6.8% • Capacity up 12.4% • Load factor up to 63.9%

  11. Cargo Statistics Futoshi Nakagawa

  12. Value of US Merchandise Trade by Land, Water, and Air Gateways: 1990 and 2008

  13. Top 10 US Air Gateways for International Freight, Ranked by Weight: 1990, 2000, and 2008 (Tons)

  14. Commodity breakdown of global air freight markets, 2007

  15. Air Freight via JFK, NY: 2000-2008 RITA Bureau of Transportation Statistics (Tons) Air Freight Rankings by Country

  16. Air Freight Rankings by City Air Freight Rankings by Airline

  17. Purchasing Managers Index (PMI) Based on five major indicators: • Production level • New orders (from customers) • Frequency of supplier deliveries • Inventories • Employment level

  18. PMI Summary *Most recent four month snapshot of PMI

  19. US Airways

  20. FutureForecasts MilosPavicevich

  21. Actual Performance Data

  22. 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

  23. The Next Twenty Years • World air cargo traffic will expand 5.8% • Current traffic rates will triple

  24. 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%

  25. 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

  26. Regional Outlook Intra-NA • 10-year forecast: 3.7% CAGR • Key Factors: A Mature Market • Competitive against overnight and LTL trucking networks

  27. 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

  28. 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)

  29. 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

  30. 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 consumer-product related • Electronics, apparel, footwear, toys and consumer appliances • Key Factors: China’s GDP growth

  31. 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

  32. 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

  33. New Technologies & Sustainability Marguerite O’Driscoll

  34. 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

  35. 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

  36. 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

  37. 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

  38. 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

  39. 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

  40. Marketing & Sales Strategies Jonathon Nield

  41. Marketing & Sales Strategies • Competitive Environment • FedEx, UPS, Cargolux • Efficiencies of cargo-rail transportation • LTL Trucking • Water transport

  42. 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!

  43. 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

  44. 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

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