In prior discussions with Morey, he expressed his enthusiasm and patience required for the delivery of the Boeing 787 “Dreamliner.”  Service for the Dreamliner at Air Canada has been delayed for 2 years and is currently scheduled for the second half of 2013 with all operating logistics already in place.

With all cargo operators focusing on the bottom line, Air Canada’s strategy has been evolving from its traditional point to point strategy to transiting freight through Canada.  Addressing the question of how Air Canada analyzes the financial standpoint of the strategy shift, Morey stated the need to meet Air Canada’s entry requirements and performing a cost to benefit analysis.  All operational logistics including handling fee, fuel burn, commission fee, landing fee, and processing time are considered.

Morey’s message to airport members was clear; an airline’s cargo operations determines the validly of an airline flight segment.  With that said, airliners and airports need to continue to collaborate to address issues and be involved in the decision making process.  A new cargo handling facility serves no purpose if it is not easily accessible by cargo operators; and conversely, an airport limited by the information provided, cannot offer adequate level of customer satisfaction.

Michael Morey’s presentation along with the audio recording of the call is available to our members.  For the audio recording dial-in instructions please contact ACI-NA’s Nelson Lam.

Hiran Perera; Picture courtesy of Emirates SkyCargo

By Aneil Patel

The breakfast keynote speaker at the ACI-NA Air Cargo Conference was Hiran Perera, Senior Vice President Cargo Planning and Freighters of Emirates Airlines. Perera travelled all the way from Dubai and was in Washington D.C. for less than 24 hours to address the air cargo conference attendees.

He briefly highlighted the importance that air freight contributes to the airline industry and the wider global economy. Air freight currently accounts for over 40 percent of global merchandise trade by value and provides estimated annual revenue of almost $55 billion worldwide.

The cargo industry plays a critical role as it is involved from the procurement cycle to the delivery of the finished product. Liberal and open sky policies are great catalysts and can trigger unconstrained growth capability, which is important for any developing economy.

Fuel prices are the number one threat for any airline and are doing the greatest damage to the aviation industry. High fuel prices and increased currency volatility could threaten the longstanding relationship between GDP growth and the increase in air cargo volumes.

In 2009, Emirates took delivery of two Boeing 777’s. Perera explained this was the worst time to receive new aircraft; however, he described them as “recession friendly aircraft.”  This was because Emirates successfully managed to fully utilize both 777’s. With the help of passenger and freighter aircraft, cargo revenue currently contributes for 18 percent of Emirates total airline revenue.

Emirates Airlines is proud to have accomplished their environmental commitments.  In their short history, they have managed to operate the world’s largest fleet of Boeing’s eco-efficient 777’s pioneered by Emirates through use of innovative navigational technology and journey management, and created new routes across the skies to save precious time, fuel and emissions.

In keeping with the environmental commitments, Perera referred to the need to push for e-freight “Vision to Reality.” This involves replacing the paper trail associated with the cargo supply chain with electronic messaging. E-freight can eliminate an estimated 7,800 tons of cargo weight allowing increased cargo capacity for the customer and give a massive saving of $4.9 billion dollars worldwide. Eliminating 7,800 tons of paper will allow the Air Cargo Industry to contribute to conserving the environment and reducing the carbon footprint.

For the first time, the ACI-NA Air Cargo Conference is being held in the nation’s capital from June 1-2, 2011. It attracted over 100 pre-registered attendees, including airport cargo managers, cargo airlines, freight forwarders, ground handlers, and air cargo industry experts.

Lynn Hampton, President and CEO of the Metropolitan Washington Airports Authority (MWAA) opened the conference Wednesday by welcoming everybody to the D.C. area. She immediately drew the attention of the audience to the cargo business opportunities at the Dulles International Airport (IAD). According to the Boeing cargo forecast, cargo will grow at an average annual rate of 5.2-6.6 percent in the next 20 years.

The Washington metro area is the fourth largest city by population with 8.5 million residents. The area ranks first in median household income at $85,200. There is a large public and private sector corporate presence. All these lay a solid foundation for the growth of cargo business at IAD.

Hampton further explained the advantage of IAD being ideally situated as a gateway for both passengers and cargo. The IAD airport is strategically located at the heart of the east coast air cargo market. It has overnight access to all eastern, mid-western, and Canadian markets. Approximately 56 percent of the US population resides in areas within overnight delivery from Dulles.

Increased airfreight at IAD has a significant impact on local economy. Washington airports carried more than $13.4 billion in air exports. Virginia, D.C., and Maryland account for 40 percent of total exports.

Dulles is the only east coast gateway with the infrastructure and significant room for expansion.  Hampton encouraged conference attendees to share their ideas on how to grow cargo business at IAD.

MWAA will also be hosting an evening event at the historic Terminal A of the Reagan National Airport.

According to recent data released by Airports Council International (ACI), based in Montreal, nearly 1.48 billion passengers arrived and departed from North American airports in 2010, a 2.5 percent increase from the previous year. Cargo increased by 11.2 percent while total operations decreased by 1.5 percent.

“Airports are optimistic that traffic will continue to increase as the economy recovers,” said ACI-NA President Greg Principato. “Industry forecasts indicate that demand for both business and leisure air travel will grow and airports need to invest in infrastructure projects to meet that future demand.”

The four busiest airports were Atlanta’s Hartsfield Jackson with more than 89 million passengers, followed by Chicago’s O’Hare International Airport (66.8 million), Los Angeles International Airport (59.1 million), and Dallas/Ft. Worth International Airport (56.9 million).

Memphis International Airport remained the largest cargo airport in North America, handling about 3.9 million metric tons, an increase of almost 6 percent. Anchorage International Airport ranked second in North America with a 36.6 percent increase in its cargo movements to over 2.6 million metric tons.

Canada’s busiest airport, once again, is Toronto’s Lester B. Pearson International Airport, ranked 17th in North America for passengers with 31.9 million, an increase of 5.2 percent from 2009. It ranked 13 in total cargo with 482,486 metric tons, an 11.8 percent increase, and 13 in total movements with 418,298, an increase of 2.6 percent.

The ACI 2010 Traffic Report contains passenger, freight/mail and aircraft operations data for 198 North American airport members. Total passengers represent the sum of passengers enplaned and deplaned in all commercial services but not passengers who travel in business or general aviation modes of transportation. Total freight/mail figures represent the sum of the total freight and mail—both loaded and unloaded—at the reporting airport. Total aircraft operations reflect the sum total of all domestic commercial, international commercial, commuter, general aviation and military operations. The final 2010 North American traffic summary data is available on ACI-NA’s website.

*Passenger traffic is defined as the aggregate total of arriving (deplanement) and departing (enplanement) passengers. Transfer passengers are only counted once.

This year’s expert panel features Dan Muscatello, managing director, cargo and logistics of Landrum & Brown, who presented on the state of the industry.  According to Muscatello, 2008 and 2009 period was the first time air cargo traffic declined for two consecutive years. However, cargo volumes in 2010 were up significantly thanks to economic recovery. Asia is still expanding. Dubai, O’Hare, Ontario and Mumbai all reported cargo expansion projects. In the longer run, both Boeing and Airbus estimated 5.9 percent average annual growth over the next 20 years.

Changing distribution systems, repatriation of manufacturing, re-evaluating inventory controls, shortfalls in airport revenues, expanded airport land use, create partnerships, realistic fleet utilization and truck substitution are driving the changes in business models. The challenges remain as global manufacturing and consumption are down, inventory supplies have stabilized reducing air cargo demand, and manufacturers are considering modal shifts. Airport cargo facilities have high vacancy rates and are facing increasing competition coupled with rising fuel prices and stringent 100 percent cargo screening requirements.

Muscatello pointed out that real yield declined during the 20-year period from 1990 to 2009. The U.S. domestic air freight suffered the most with 38.19 percent decrease followed by 21.43 percent decrease in Atlantic route. For the Port Authority airports, air cargo tonnage recovered in 2010 for Newark and JFK combined. However, the volume has not returned to the previous peak set in 2000.

Muscatello suggested that airports make full use of the total airport land envelop, preserve the aeronautical infrastructure and growth potential, have partnership discussions with tenants and users, create the development vision, integrate commercial concepts on to the airport, and coordinate with off-airport community.

Bruce Campbell, chairman, president and CEO of Forward Air, spoke on the good news and bad news of the trucking industry. According to Campbell, some shifts are permanent, such as shifting to truck load for short/medium-haul route, and the disappearing heavy lift. He believes five critical factors cause the modal shift – economy, available capacity, distribution patterns, supply chain expertise, and emergencies. He foresees many challenges ahead: by fall 2011 – trucking will experience severe capacity shortage; more carriers will shut down; trucking rates will increase perhaps at double digit, and driver shortage will worsen. Campbell also questioned if we need that many gateway cargo airports. He believes that gateway cities are driven primarily by the passenger side. Gateways can reduce costs and have more frequencies.

Doug Britten, head of cargo security of TSA, admitted that while things moved smoothly last year with the August deadline for 100 percent cargo screening, challenges remain significant on the international side as not every country implements standards in the same way. A lot depends on good data and how things are tracked and reported, he said.

This month’s guest speaker was Rene Espinet, Vice President of Global Partnerships, Forward Air, Inc. who presented on “How important are trucking companies to your Airport’s future ‘Air Cargo’ growth?”

Forward Air is a leading provider of time-definite surface transportation and related logistics services to the North American deferred air freight market. The company has a network of terminals located on or near airports in the United States and Canada. To serve this market, they offer customers a very high level of service with a focus on on-time, damage-free deliveries.

The majority of freight moves by four different modes: sea, rail, air and truck. But most importantly it all starts and ends in a truck! Consequently airports and truckers have a common interest of airfreight.

The three main road feeder segments that cargo operates in and out of include:

• The Integrated Service Provider: This segment is time definite and guaranteed and fits express carriers.
• The Common Carrier: This segment is more cost sensitive, not guaranteed, more deferred and fits ocean and rail.
• The Expedited Service Provider: This segment is time definite, not guaranteed and meets the growing airfreight market.

Airports need the cargo volume to generate revenue. Cargo revenue can come from multiple sources which include: landing & take off fees, facilities, parking, and port fees. The next question airports should ask themselves is what drives Air Carriers to a specific airport? According to Espinet, passenger demand, freight shifts, strategic hubs and more recently economic considerations are playing an important factor when air carriers choose their location and airport.

To increase cargo volumes, airports need to differentiate and create their own demand. This can be achieved through attracting people to live in the surrounding areas, attracting manufacturing and distribution centers, and using economic considerations to the airport’s competitive advantage.

To attract freight forwarders, airports again need to differentiate to ensure airport facilities are more user-friendly to truck drivers. Drivers do not like to wait for cargo facilities as they get paid by the mile! Providing roadways with easy access and limited congestion helps to attract more freight forwarders.

Currently, trucking companies are doing business off airports because it is cost-prohibited to rent some of the facilities on airports. It would be cost effective to companies if airports can look at offering some kind of subsidy or solution in attracting these companies. Trucking companies have already teamed up with airlines and freight forwarders to provide a seamless product and this allows increasing business out of specific origins throughout North America.

Contact ACI-NA’s Aneil Patel for more information.

Russell Tom, Regional Director from The Boeing Company gave a presentation on the 2010-2011 World Air Cargo Forecast. The presentation focused on the current state of the world air cargo market, cargo outlook and long-term freighter fleet forecast. Brief summary highlights:

• World air cargo traffic continues recovering after high fuel prices and the world economic slowdown.
• World air cargo traffic has been averaging 6.1% per year since 1970.
• In 2009, world air cargo traffic declined 11.3%, after declining 1.8% in 2008 and growing 3.3% in 2007. The 2008–2009 period marked the first time that air cargo traffic has contracted in two consecutive years.
• World air cargo traffic will triple over the next 20 years, compared to 2009 levels, averaging 5.9% annual growth and this will be led by Asia cargo markets.
• Express carriers continue to dominate the U.S. domestic air cargo market.
• Canada & U.S. domestic market will grow 2.9% per year through to 2029.
• U.S. and Canada transborder air cargo traffic is forecasted to grow 5.8% per year through to 2029.
• Over the next 20 years, the number of airplanes in the freighter fleet is forecast to expand by more than two-thirds, with North America leading the way in total deliveries and larger freighters in Asia.

In addition, Christopher Bidwell, Vice President of Security and Facilitation from ACI-NA provided a cargo security update.  In mid-January, TSA issued a proposed change to carriers’ security programs to move the date for 100% screening of international inbound cargo to Dec.31 of this year. The carriers are currently drafting comments, which must be submitted to TSA by Feb.24. Bidwell said that one of the things that was interesting when talking with carriers and TSA, is that the carriers are further along in getting to 100% screening of inbound international cargo on passenger carriers then TSA thought. However, there will be some significant challenges for carriers in meeting the new deadline because the mandate for screening international inbound cargo is the same as for domestic originating cargo, in that it has to be screened at piece level, using the approved technology. And, TSA since has yet to approve the application of host country security programs under which aircraft operators could leverage programs – like the TSA Certified Cargo Screening Program – which drives screening further up the supply chain, a greater amount of unscreened cargo may arrive at airports.

Contact ACI-NA’s Aneil Patel for more information.

Focusing first on the international side, the cargo markets in Asia, Africa and Latin America have shown tremendous progress in terms of recovery, with returns nearing their original volumes.  Africa and Latin America, especially, have demonstrated significant volume increases with 48.8 percent and 60.2 percent growth respectively.  Much of the Asian market continues to do well, but much of this growth is attributed to intra-Asia cargo rather than trans-Pacific.

Turning to the domestic side, North America continues to struggle with just 9.3 percent growth.  Although this is an improvement over recent years, it is still not enough to get the industry back to where it was, and is not evidence of a true industry recovery.

Webber also provided an overview of the Canadian airport industry.  At the time that the industry started to decline, Canada had not peaked in the way that the U.S. had, so the impact was not as hard, although some places did struggle.  Vancouver was the hardest hit, experience a 30 percent decline, which is comparable to cities in the U.S. more so than in Canada.  Calgary, too, struggled, but was helped along by the energy crisis.

In summary, although there has been some recovery this year, there is still quite a long way to go to achieve pre-collapse levels of market growth.  North America continues to struggle, while the rest of the world – Asia, Africa and Latin America – are making significant strides in their markets.

“The economic downturn that plagued many industries in the past two years has not spared aviation. Airports, however, are optimistic about an increase in traffic as the economy begins to show signs of recovery,” said ACI-NA President Greg Principato.

“Industry forecasts indicate that, despite a sluggish recovery, demand for air travel will grow. There is still a critical need for airports to invest in infrastructure projects to meet future demand. The system nearly bogged down three years ago and current traffic is not far below that level. We know what the breaking point is and we must not wait to get to work.”

Click here to view the highlights.
Click here to view the final 2009 North American traffic summary data.

“There are not going to be any changes,” Doug Brittin said during a panel session on air cargo screening.

Though challenges are inevitable, Brittin said TSA’s Certified Cargo Screening Program will help by enabling freight forwarders and shippers to pre-screen cargo before it reaches carriers.

In addition, Barbara Vatier, managing director of cargo services, Air Transport Association, said the most important thing airports can do is schedule K-9 screenings with carriers before they build up palettes.

“K-9s were—and continue to be—the only solution for large cargo without breaking it down,” she said.

Yvette Rose, senior vice president of the Cargo Airline Association, said that while CAA does not support the mandate, they do support TSA.

“There is going to be a spotlight on TSA over the next few months,” she said.

For more information on the mandate and CCSP, visit www.tsa.gov/ccsp.

There is growth down the road for the air cargo business and the new, tighter security rules may give a forward-thinking small airport an opportunity to land new business.

At the second day of the annual ACI-NA Air Cargo Conference, held last week in Seattle, Dave Brooks, American Airlines’ president of its cargo division, talked about state of the industry, the near-term outlook and his airlines’ long-term strategy.

Brooks sees a 5 to 7 percent growth down the road. IATA last week also issued an optimistic forecast. Growth in 2010 follows a 20 to 40 percent drop in cargo volume during 2009. Because of excess capacity in the market, cargo yields collapsed.

Facing the downturn in 2008 and 2009, Brooks said air freight carriers fell into two camps: those who panic would let the shipping rates drop to close to zero and put long-term strategy on ice; and those who do not panic choose to stay in the course on long-term strategy. Those who panicked are not the smaller player, but rather some substantial companies, he noted.

Brooks still sees too many planes chasing too few shipments.

To cut costs, cargo carriers have moved their cargo operation to off-airport in a number of airports. Brooks’ advice to airports is that airports should ensure visibility: “Don’t just show up at the lease meeting. Engage with various local cargo associations and communicate your priorities.”

Carriers and shippers are working to meet an August deadline to have 100 percent air cargo screened. Brooks sees some periodic delays and backups; however, he is confident that major players have done enough preparation to meet the mandate. He said airports should allow third-parties to set up screening facilities.

The approaching screening deadline can present an opportunity to smaller airports, Brooks said. If there are delays and backups at major gateway airports, Brooks said shippers may divert some cargo business to the smaller airports that are ready to step up to provide the security screening.

In the next few years, American Airlines intends to focus on business re-engineering and process improvement, and attracting market share by focusing on rewards program. The airline recently opened two cargo facilities, one in JFK and one in LAX. Brooks said they firmly believe that these investments will pay off in the next few years. Carriers will coordinate their network to compete.

In his message to airports, Brooks urged them make sure the legislators aware of the value of cargo to the local community and to emphasize the jobs created and maintained by the cargo operations.

Passenger
The domestic traffic results in China, Brazil and India are leading the global upswing, and the Asia-Pacific and Latin America-Caribbean regions dominate September traffic results with increases in domestic traffic of 12.5 and 16.2 percent respectively.  A number of major and emerging economies expanded or returned to GDP growth in the 3rd quarter, which is driving the improved results. Economic stimulus programs, stiff domestic competition and low fares are contributing to the strong results in Brazil and China. North America, Europe and Africa remained virtually flat in terms of domestic traffic change.  All regions are clearly up from reported lows earlier in the year for international traffic; however, Europe seems to lag slightly behind the recovery trend. The significant -5 percent reduction of traffic in Europe was only partially offset by a 6 percent increase in Asia-Pacific traffic. North America has delivered promising results as domestic traffic increased marginally by 0.5 percent and international only shrank by 3 percent. Worldwide, international traffic was 1 percent below 2008 results for September.

Freight
Turning to the freight results, global freight in September 2009 was 3 percent below traffic in September 2008. This represents an accelerating upward trend, again driven by domestic results which rose by 4 percent as compared to a 6 percent decline in international freight. The year-to-date slump in freight has been much deeper than the passenger decline, so seeing these moderate declines comes as a pleasant surprise and may point to a quicker recovery in the freight sector than previously thought. Drivers again are Asia-Pacific and Latin America-Caribbean regions.  Asia-Pacific performance shows a stunning recovery from -28 percent to an increase of 1.3 percent in September.

Ian Morgan, Vice President of The Americas for Cargolux Airlines International S.A., began the discussion with an overview of the current cargo industry and how the carrier segment is coping.  Peter Wallis, Chairman of the Board of Calgary Airport Authority, described how YYC has worked on successfully developing their business and commercial objectives.  Finally, Alex Brown, Vice President of Global Supply Management for Advanced Micro Devices, discussed how, as a shipper, his company is responding to the changes in the supply chain.
-Liying Gu

(from left to right)

Wayne Duzita, Vice President, IAT Management LP
Louis Beauchemin, Chief Operating Officer, Aeroterm
Frank Chambers, Chairman, Aviation Facilities Company, Inc.
Robert Caton, Vice President, AMB Property Corporation