therefore, in May 2013, at 60% profit margin, other costs would have been (2200-60%-350)=~$530, at 30% margin (2200-30%-350)=~$1190
Thanks for getting into some actual arithmetic. I have a potential exception to the fuel burn figure used* but this seems good enough to draw out the important issues - you know well that I appreciate sketched modelling and won't make a row over an approximation that gets to the core issues.
*You say A380 at "max range." Do you mean from the payload-range chart with 1t payload? Or do you mean max pax+bags range? The fuel burn figure seems a bit low.
The thing that jumps out at me about your analysis: "Other costs" costs vary between a low of ~$310/t (using the 70% profit margin quoted in another of my linked articles from 2014) to ~$1300 (using your calculation from 30% profit margin in 2013 plus 10% increase since 2013).
That's a huge range and would create all kinds of uncertainty for us data-starved forumers, but I'm not ready to give up on analysis yet.
A full LD3 at 11 lb/ft3 weighs ~.68 tonnes, thus its high-range "other costs" would be ~$890. Does $890 make sense for simply accepting and loading an LD3? If baggage LD3's carried similar loading/handling costs, that would imply that filling a 77W's belly costs ~$43,000 before the plane leaves the gate. That's ~30% of Leeham's modeled 6000nm trip cost for a 77W at current gas prices. That seems way too high, right? Even if the airline is warehousing LD3's, a couple nights in a warehouse can't cost nearly a thousand dollars.
Loading and handling at the airfield have to be a very small fraction of the potential "other" costs for belly freight - at least the high scenario.
Here's a theory about those high-range "other" costs: this would include the airline acting like an integrated shipper - instead of relying on freight forwarders and other middlemen to aggregate and prepare containers and pallets for delivery, the airline would take on more of that work itself. In doing so, however, the airline would presumably capture whatever value traditionally goes to a forwarder/aggregator earlier in the supply chain. I don't imagine that freight forwarding has huge margins, so the overall margin picture for the airline would decrease even if its total profit went up compared to a shipment that lost revenue to more middlemen along the supply chain.
So we should probably narrow even further the scope of the question we're asking: what is the profit margin of shipping belly freight from the point of aggregation/collection to point of delivery? Framing the question this way emphasizes transportation costs (mostly fuel), airfield handling/storage costs, and some overhead for the cargo division.
I would argue that an operator needs to look at the spread between incremental revenue and incremental costs. In addition to fuel I would agree that the increased TOW's need to be evaluated for engine , tire and brake wear.
I generally agree. Per my response to speedbored, we should probably have two concepts of belly profit margin:
(1) The "airport to airport" cost. This concept is similar to how passenger DOC is usually modeled to the exclusion of corporate overhead, marketing, and other costs.
(2) The "cargo division" cost. This would include marketing, aggregation, and corporate overhead.
Concept (2) would always be lower than (1), and would vary greatly depending on the intensity of the airline's efforts to market and conduct its cargo business in-house. This is the same with pax ops, where it's useful to consider a plane's DOC but we have to remember that there's another level of the business occurring before/after those pax get onboard. Just as it would be possible to have a higher-margin DOC pax operation within a money-losing airline, it would also be possible to have a high-margin belly freight operation within a lower-margin cargo division.
I remain committed to seeing (1) as high-margin. There's simply not enough cost beyond fuel to make airport-airport belly cargo low margin even at $4 gas and lower yields than today.
It may be, however, that airline efforts to fill more of the belly cost more than they gain in revenue. Wraight remarks that airlines don't recognize the potential of their belly freight ops, but maybe airlines just aren't good - yet or ever - at being freight aggregators.
EDITED for an arithmetic mistake.
Last edited by Matt6461
on Fri Jun 17, 2016 8:36 am, edited 2 times in total.