Transportation is one of the largest and most vital industries in the world. While most people know the large transportation providers like UPS and FedEx, there are hundreds of smaller companies brokering trucks and sending cargo on commercial airlines. More often than not, the airlines have been a dynamic asset to the expedited transportation industry, taking cargo from airport-to-airport right along with passenger luggage.
Due to several key factors, US domestic airline “belly cargo” capacity has decreased significantly in the last five years. The economic anemia that began in 2008 forced airlines to reconsider the use of wide-body aircraft domestically, which in turn affected the passenger load factor negatively as available seat miles (ASMs) increased relative to revenue passenger miles (RPMs).
The same was true for domestic air cargo between 2008 and 2013. Cargo load factors decreased as struggling companies failed to consume available ton kilometers. And while vast improvements in the efficiency of jet turbines have increased the ability of smaller aircraft to travel further, it is because of these factors that lead airlines to one conclusion: downgrading the size of aircraft used for domestic routes was critical, if not essential.
Like most industries, the cost of doing business has constrained budgets and airlines have had to re-evaluate costs and begin to downsize. This recent trend in downsizing has caught the attention of at lease one major publication. On April 15, 2015, the Wall Street Journal said, “U.S. airlines have been on a diet, shedding fat, double-aisle jets on many routes in favor of skinnier single-aisle planes. There’s hardly a wide-body in domestic skies anymore. The downsizing means fewer coach seats—and fewer cheap fares—available for travelers, as airlines emphasize higher-priced business- and first-class seats. And there are more flights on planes that many fliers consider less comfortable.”
This begs the question, is there any hope for future increases of domestic cargo capacity? While we don’t have a crystal ball, it is difficult to envision a resurgence of larger aircraft used for domestic routes. Airlines have figured out how to make more money with less. When companies reach new efficiencies through downsizing, they tend not to get fat again.
For the largest airlines, air cargo revenue represents only 1 – 5% of total revenue. There is a tremendous amount of infrastructure required for air cargo including a TSA 100% screening mandate, ramp and cargo handler union requirements, equipment, and personnel.
Union Pressure continues to lower the per piece maximum weight permitted on narrow-body aircraft. In addition, TSA screening requirements continue to force air carriers into new capital investments.
Ultimately, airlines are asking themselves whether the investment is worth the 1-5% return. In fact, in 2013 Frontier Airlines, a well-respected domestic air cargo carrier discontinued its air cargo service. Whether or not larger airlines will follow in Frontier’s footsteps is difficult to know. During CAP Logistics’ recent annual meetings with several mid-level airline managers, we were told that domestic air cargo is not a part of the larger strategic plan.
With respect to the long-term viability of current Midwest air routing, there are some other considerations that should be paid. The overall decrease in available air capacity magnifies delays and cancellations. Backlogged cargo compounds, and can take days to clear up when a severe event occurs.
While airlines continue to downsize, business will continue to operate and transportation will still be a necessity, especially expedited services. So how complicated have businesses next day availability matrix become? What options are available for the customers who need shipments larger than 300 lbs. overnight? Are customer’s tired or paying for dedicated transportation for those shipments? Are domestic all-cargo carriers a solution? Our experience is that all suffer from the telltale signs of coercive monopolies: there are no incentives to keep prices low, and poor service is met with an unapologetic response.