Moderators: jsumali2, richierich, ua900, PanAm_DC10, hOMSaR

 
User avatar
Matt6461
Topic Author
Posts: 2989
Joined: Wed Oct 16, 2013 9:36 pm

Re: Belly cargo: highly profitable or not?

Mon Jun 20, 2016 9:28 pm

enzo011 wrote:
I still see a lot of statements still that belly cargo is "highly profitable" and no facts or links are given. So I would conclude that this is merely opinions that aren't backed by facts


Did you read this:

Matt6461 wrote:
rom 2014:
This can lead to a 60%-70% profit margin on belly freight, according to Aspire Aviation‘s understanding and Cathay’s executives have lamented during the cargo doldrum since 2010 that dedicated freighters can often cover only their cash costs, but not capital costs.

http://www.aspireaviation.com/2014/10/0 ... ke-flight/

Notice the distinction here: Dedicated freighters are operating at a loss; belly freight is operating at a huge profit margin. The cargo market was bad in 2014 too, but belly cargo was still profitable.

Also from 2014:
What is the impact for the freighter business – new builds and conversions? Old fuel inefficient platforms are out and what Fred Smith described as ‘low cost belly space’ is in. Airline cargo managers are moving out of main deck freighters (IAG, JAL, United, American, Delta to name a few) and befriending their passenger colleagues for space below the main deck to accommodate their cargo which they can sell at rates and profit margins not dreamed of before.

https://leehamnews.com/2014/04/13/the-d ... reighters/

Again from 2014:
Roslyn Wilson, author of the annual "State of Logistics Report," whose silver anniversary edition is released today, estimates that airlines generate margins of around 65 percent on their belly cargo.

http://dcvelocity.com/articles/20140616 ... argo-unit/


So we have copious evidence that belly cargo was highly profitable as of 2014.
Regarding today, we have two facts that produce an ambiguous outcome: Yields have fallen but costs (price of fuel) have fallen as well.

What is actually the case is that we have multiple posters providing opinion - with some analysis - that the profitability picture has changed. I actually find some of this analysis somewhat convincing - I'm at least beginning to think that airlines are driving down actual belly yields by engaging in competitive practices like rebates (per planesmart's intimation).

Nonetheless, the only direct evidence on A.net indicates that belly cargo was highly profitable as of 2014.
 
Dalmd88
Posts: 3157
Joined: Fri Jul 28, 2000 3:19 am

Re: Belly cargo: highly profitable or not?

Mon Jun 20, 2016 9:38 pm

I think it depends on the flight and the airline. I know at DL we can make a killing out of some of the South America markets during certain times of the year. I think Ecuador is one of the leading cultivators of asparagus. I've recall seeing the flights get upgraded to 767-400 and seats blocked just to fill the belly with fresh asparagus. Same for other deep south routes. There will be warnings to non-revs that the high seat available counts are due to high cargo loads that have blocked out passenger seats.

I think in the perishables markets there is very good margins in belly cargo. The airline just has to have the facilities to handle fish, produce or flowers.
 
User avatar
zeke
Posts: 15278
Joined: Thu Dec 14, 2006 1:42 pm

Re: Belly cargo: highly profitable or not?

Mon Jun 20, 2016 10:51 pm

Notice the distinction here: Dedicated freighters are operating at a loss; belly freight is operating at a huge profit margin. The cargo market was bad in 2014 too, but belly cargo was still profitable.


Absolutely junk, and the source, a blog that has been proven more times wrong than right is even more junk.

Belly freight only makes money if the passengers subsidise it, ie they pay for all of the costs of operating the aircraft, and freight just pays the opportunity cost of the additional weight.

However if you then ask freight for the same contributions to overheads as pax pay for, it is runs at a loss. Even when looking at these opportunity costs some people do not include the processing and warehousing costs, airport transfer and loading/unloading costs.

Please no more quotes saying belly freight is highly profitable at Cx, it is just not true, if anything comments from managers suggesting 10 across is being looked at on the 777 should tell you that they are trying to add pax, not freight. As I mentioned above ULH makes next to no money as the cost to carry the cargo is very high, dedicated freighters will make that same route with multiple stops to reduce the fuel cost. Regionally where we can carry large volumes and weights on the wide bodies yields are very tight as there is just so much competition not only from other airlines, surface transportation rates are also extremely low.
Human rights lawyers are "ambulance chasers of the very worst kind.'" - Sky News
 
tortugamon
Posts: 6795
Joined: Tue Apr 09, 2013 11:14 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 2:11 am

zeke wrote:
Absolutely junk, and the source, a blog that has been proven more times wrong than right is even more junk.

Belly freight only makes money if the passengers subsidise it, ie they pay for all of the costs of operating the aircraft, and freight just pays the opportunity cost of the additional weight.

However if you then ask freight for the same contributions to overheads as pax pay for, it is runs at a loss.


What terrible logic. These are airlines we are talking about. Its a given they are operating the flight. The question becomes does it make sense to fill the cargo hold while they operate the flight or does it make sense to leave it completely empty. Passengers don't subsidize freight, freight compensates airlines for operating the passenger flight.

tortugamon
 
User avatar
Matt6461
Topic Author
Posts: 2989
Joined: Wed Oct 16, 2013 9:36 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 2:54 am

zeke wrote:
freight just pays the opportunity cost of the additional weight


Do you know what opportunity cost means? It's the revenue/gain missed by doing one thing instead of something else. By your own logic (and mine), freight almost never displaces passengers. Therefore, there is no significant opportunity cost to carrying freight - only the costs directly attributable to somewhat full belly rather than an empty one.

We all realize, by the way, that freight pays poorly compared to pax. That doesn't get us near to resolving the issues being discussed here. So you need to make a couple more moves. I've described them in detail throughout this thread.
 
User avatar
Matt6461
Topic Author
Posts: 2989
Joined: Wed Oct 16, 2013 9:36 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 3:07 am

zeke wrote:
As I mentioned above ULH makes next to no money as the cost to carry the cargo is very high,


Did you read the post by our mutual friend Speedbored inferring fuel and "other" costs based on estimated fuel consumption and cargo yields? In all of the scenarios we looked at, you need "other costs" to be a multiple of fuel costs to make profit margin fall below 80%. A little arithmetic is often useful and I highly recommend reading his post.

ULH may be most profitablefor belly cargo given that cargo's delta to mission fuel burn is relatively low and that "other costs" are incurred only once. These costs - handling, marketing, storage, aggregation - wouldn't seem to vary with stage length at all.

zeke wrote:
comments from managers suggesting 10 across is being looked at on the 777 should tell you that they are trying to add pax, not freight.


They surely want more pax, more cargo, and less cost. But tradeoffs must be made by managers; they don't imply a trade of nothing for something.
 
User avatar
seahawk
Posts: 9750
Joined: Fri May 27, 2005 1:29 am

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 5:00 am

Thank you for your outstanding analysis and factual evidence Matt. As always a joy to read your post and gain from your deep understanding of the industry.
 
PanHAM
Posts: 9719
Joined: Fri May 06, 2005 6:44 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 7:17 am

frmrCapCadet wrote:
Freight on planes can include a variety of services. For determining profit margins we should be comparing the simplest. The customer delivers a container planeside ready to be put aboard at the agreed time, and has made arrangements for it to be picked up and taken through customs at agreed time. The airline delivers from A to B. Likely the airline may provide some services on the way to planeside, but those need to be priced separately, at least for our conversations to make sense. I realize we are having to construct data as it is not released by the parties involved.



LOL, do you have a clue how the Airline cargo Business works? "Customers" don't deliver Containers alongside airplanes, for quite a number of security reasons. The System may be not the most efficient anymore, but especially security has slowed it doen. But the customers, meaning OEM or Traders, use the Services of freight forwarders to handle their freight. That is a bit more than delivering cargo to the Airlines warehouse. Export and Import customs regulations for instance, just to mention one.

Back to the Basic question and the conclusion we have found here a while ago. The question simply cannot be answered with a straight yes or no. It is individual, case by case. Some Airlines operate a highly profitable cargo Division without pure freighters, some just use freight to fill up otherwise empty bellies at all costs.

As simple as that.
Was Erlauben Erdogan!!!
 
User avatar
enzo011
Posts: 1913
Joined: Tue Jun 21, 2011 8:12 am

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 8:16 am

Matt6461 wrote:
Did you read this:

Matt6461 wrote:
rom 2014:
This can lead to a 60%-70% profit margin on belly freight, according to Aspire Aviation‘s understanding and Cathay’s executives have lamented during the cargo doldrum since 2010 that dedicated freighters can often cover only their cash costs, but not capital costs.

http://www.aspireaviation.com/2014/10/0 ... ke-flight/

Notice the distinction here: Dedicated freighters are operating at a loss; belly freight is operating at a huge profit margin. The cargo market was bad in 2014 too, but belly cargo was still profitable.

Also from 2014:
What is the impact for the freighter business – new builds and conversions? Old fuel inefficient platforms are out and what Fred Smith described as ‘low cost belly space’ is in. Airline cargo managers are moving out of main deck freighters (IAG, JAL, United, American, Delta to name a few) and befriending their passenger colleagues for space below the main deck to accommodate their cargo which they can sell at rates and profit margins not dreamed of before.

https://leehamnews.com/2014/04/13/the-d ... reighters/

Again from 2014:
Roslyn Wilson, author of the annual "State of Logistics Report," whose silver anniversary edition is released today, estimates that airlines generate margins of around 65 percent on their belly cargo.

http://dcvelocity.com/articles/20140616 ... argo-unit/


So we have copious evidence that belly cargo was highly profitable as of 2014.
Regarding today, we have two facts that produce an ambiguous outcome: Yields have fallen but costs (price of fuel) have fallen as well.

What is actually the case is that we have multiple posters providing opinion - with some analysis - that the profitability picture has changed. I actually find some of this analysis somewhat convincing - I'm at least beginning to think that airlines are driving down actual belly yields by engaging in competitive practices like rebates (per planesmart's intimation).

Nonetheless, the only direct evidence on A.net indicates that belly cargo was highly profitable as of 2014.



I did read, "can", not it leads to a 60%-70% profit margin. If EK sells all its F seats and all its J seats and all of its Y seats the A380 can beat all other models for revenue for a flight. Best case scenarios which doesn't happen all the time though.

As PanHam noted that it all depends on the time and type of cargo being transported. If you are lucky that you are getting the highest margin cargo that is time sensitive then good for the airline. That would assist the airlines that operate the 77W or 787 or A350 more than the A380 if the amount of cargo exceeds the space in the A380.
 
PanHAM
Posts: 9719
Joined: Fri May 06, 2005 6:44 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 9:16 am

something I haven't mentioned yet, to calculate the Profit of belly cargo, only the average weight Charge is of importance. Weight charges start with a Minimum Charge, where 1 Kilo can yield $$ 100, you have high rated premium Cargos like persihables, DGR Medicines, spare parts with priority and more, all thse have a premium weight Charge. Then the rest is made up of space available fill-up traffic. The higher the üpercentage of premium cargo is, the higher the average yield and subsequently the Profit. As said many times before, that can be a different margin every day.
Was Erlauben Erdogan!!!
 
User avatar
speedbored
Posts: 2230
Joined: Fri Jul 19, 2013 5:14 am

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 9:54 am

Matt6461 wrote:
Did you read this: ...
So we have copious evidence that belly cargo was highly profitable as of 2014. ...
Nonetheless, the only direct evidence on A.net indicates that belly cargo was highly profitable as of 2014.

Two opinions and one estimate, all by people who do not actually work for any airline or cargo company, hardly counts as "evidence" , and is definitely neither "direct" nor "copious".
One of the opinions doesn't even guess that belly freight could/might/should be "highly profitable" - it merely opines that belly freight would be more profitable than dedicated freight.

Matt6461 wrote:
Did you read the post by our mutual friend Speedbored inferring fuel and "other" costs based on estimated fuel consumption and cargo yields? In all of the scenarios we looked at, you need "other costs" to be a multiple of fuel costs to make profit margin fall below 80%. A little arithmetic is often useful and I highly recommend reading his post.

Please don't try to use any of my numbers to support your thesis.
As I made clear in my "analysis", the purpose was to prove that you cannot get any meaningful numbers from doing that sort of analysis without having access to real numbers from real airlines.
 
User avatar
zeke
Posts: 15278
Joined: Thu Dec 14, 2006 1:42 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 9:56 am

Matt6461 & tortugamon

You guys time and time again demonstrate how people outside industry have no idea on how the industry actually works. This article puts a figure on how much revenue cargo provides to the industry, just 8.6%, for most commercial operations outside of aviation a 10% profit margin would not be considered worthwhile getting out of bed for.

Have a look at this article, http://centreforaviation.com/analysis/a ... ity-192139

I will quote a few lines for you, strap yourself in as it goes against everything you are saying

"Freight load factors compare horribly with their passenger counterparts, which almost reached 80% in 2013, an improvement of close to 4ppts since 2009. By contrast, the 2013 freight load factor of 45.3% was nearly 4ppts below its 2009 level."

"Passenger belly space accounts for the majority of air cargo capacity, but is almost two thirds empty. The cargo load factor of the world's passenger hold space was just 36.9% in 2013 (source: Boeing). Belly hold load factor is quite volatile, but this figure was almost 3ppts lower than in 2010 and has not been above 40% at any time this century. Freighter load factor was a much more respectable 67.1% in 2013, but this was also nearly 3ppts lower than in 2010 and it has not been above 70% at any time this century."

"In spite of a further decrease in the freighter fleet in 2012, load factor fell once more as demand fell and belly space increased. In 2013 and 2014, freight load factor has been more stable, in spite of further increases in the wide body passenger fleet, but cargo yields have continued to fall."

"Passenger bellies account for more than half of this capacity and are little more than one third full. Some airline managers argue that, since the passenger aircraft are flying anyway, any volume of freight makes a contribution to the costs of operating the passenger aircraft (provided the freight revenue generated covers its handling costs).

This argument seems to engender an attitude that sees belly freight capacity almost as a free resource. This ignores the impact that belly capacity has on the overcapacity situation in air freight markets, placing downward pressure on yields across the industry. Moreover, it ignores the capital costs of acquiring this space. If belly space cannot be filled, it should not be designed into aircraft.

Conversely, those who believe that belly space is effectively free should question their use of freighters, which represent a high fixed cost. The reduction in the global freighter fleet demonstrates that many have questioned their use of freighters and answered in the negative, but the growth in passenger belly space suggests that these are the same people that adhere to the "free belly" creed."

"However, air cargo faces much more fundamental problems. It accounted for just 8.6% of total airline industry revenue in 2013, down from 12.4% a decade earlier. Freight load factor was just 45.3% in 2013, compared with almost 80% for the passenger business.

Very few other industries would tolerate such a degree of overcapacity. Perhaps the approach of many LCCs - to ignore cargo - is the right one."

This is IATAs latests Cargo report http://www.iata.org/whatwedo/cargo/Docu ... rategy.pdf

"Air cargo yields continue to decline slowly, consistent with persisting weakness in load factors, keeping downward pressure on cargo business financial performance. "

seahawk wrote:
Thank you for your outstanding analysis and factual evidence Matt. As always a joy to read your post and gain from your deep understanding of the industry.


I loved the sarcasm, very subtle, very apt.
Human rights lawyers are "ambulance chasers of the very worst kind.'" - Sky News
 
User avatar
seahawk
Posts: 9750
Joined: Fri May 27, 2005 1:29 am

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 10:04 am

It happens when you look at something in isolation. If you go ahead and say that belly cargo is free space, that you would be flying around empty if not filling it and you just compare the income to the extra fuel costs and extra handling costs, you can see quite some decent margins.

If you look at the revenue stream for the whole flight though, the yield gained from that cargo is tiny.
 
frmrCapCadet
Posts: 4418
Joined: Thu May 29, 2008 8:24 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 1:05 pm

Zeke - you last post was informative, however it raised a humorous implication:
This argument seems to engender an attitude that sees belly freight capacity almost as a free resource. This ignores the impact that belly capacity has on the overcapacity situation in air freight markets, placing downward pressure on yields across the industry. Moreover, it ignores the capital costs of acquiring this space. If belly space cannot be filled, it should not be designed into aircraft.


Given the necessity of a circular shape for a pressurized tube those designers are never going to quit producing 'belly space'
Buffet: the airline business...has eaten up capital...like..no other (business)
 
Flighty
Posts: 9963
Joined: Thu Apr 05, 2007 3:07 am

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 1:37 pm

Matt6461 wrote:
zeke wrote:
freight just pays the opportunity cost of the additional weight


Do you know what opportunity cost means? ......I've described them in detail throughout this thread.


What attitude. Are you impressing yourself? Might there be another way to communicate, and perhaps listen more to people who know how the industry works?

Maybe I am just recognizing how I used to behave myself. As a rule, other people know more than I do about everything. Many of them are too graceful to speak loudly. About airline revenues and costs, I have pretty decent standing. But there are people in this thread who know more, so why not just lighten up and see what they have to say...
 
Amiga500
Posts: 2645
Joined: Tue Mar 03, 2015 8:22 am

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 1:50 pm

frmrCapCadet wrote:
Given the necessity of a circular shape for a pressurized tube those designers are never going to quit producing 'belly space'


And straight to the point which raised all this.

Some fuselage cross sections are more efficient (less cargo space per passenger carried) than others.
 
PanHAM
Posts: 9719
Joined: Fri May 06, 2005 6:44 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 2:17 pm

Amiga500 wrote:
frmrCapCadet wrote:
Given the necessity of a circular shape for a pressurized tube those designers are never going to quit producing 'belly space'


And straight to the point which raised all this.

Some fuselage cross sections are more efficient (less cargo space per passenger carried) than others.



The cross section is rather irrelevant since hardly any freight is loaded loose. The industry uses ULD, Unit Load Devices since decades, which are, for the purpose of connectivity and interchangeability with other aircraft types shaped so that they can be accomodated in the smallest wide body aircraft.
Was Erlauben Erdogan!!!
 
Amiga500
Posts: 2645
Joined: Tue Mar 03, 2015 8:22 am

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 2:22 pm

PanHAM wrote:
The cross section is rather irrelevant since hardly any freight is loaded loose. The industry uses ULD, Unit Load Devices since decades, which are, for the purpose of connectivity and interchangeability with other aircraft types shaped so that they can be accomodated in the smallest wide body aircraft.


The cross-section is anything but irrelevant given the initial point that raised this whole thing.

Again, some aircraft are more efficient (less cargo space per passenger carried) than others. If you want to clarify that as "less container space and less loose cargo space per passenger carried" - go ahead - it still applies.
 
User avatar
speedbored
Posts: 2230
Joined: Fri Jul 19, 2013 5:14 am

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 3:25 pm

Amiga500 wrote:
Again, some aircraft are more efficient (less cargo space per passenger carried) than others. If you want to clarify that as "less container space and less loose cargo space per passenger carried" - go ahead - it still applies.

And even if the cargo is containerised, the closer the aircraft cross-section is to the cross-section of 1 or 2 ULDs or pallets, the less wasted space there will be.
 
User avatar
Matt6461
Topic Author
Posts: 2989
Joined: Wed Oct 16, 2013 9:36 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 4:41 pm

zeke wrote:
Matt6461 & tortugamon
You guys time and time again demonstrate how people outside industry have no idea on how the industry actually works.


I find Zeke's personal attacks are tiresome, pointless, and disheartening about the forum.
While claiming insider privilege, he posts a publicly available article already discussed in this thread.
It does not provide any evidence regarding belly cargo's profitability at all.

A truck driver wouldn't be able to manage a supply chain nor a stevedore a shipping company. A pilot needn't be granted deference for the same reasons and, more importantly, because deference regarding ideas is a terrible idea. At least in my culture.

Let's all leave personality out of this as much as we can and judge each other on our ideas.

Flighty wrote:
What attitude.


And where are you when people attack me? I admit that I have gotten less pleasant on this forum over the last year or so. It would be much easier to remain pleasant if some decent norms were generally defended here, instead of selectively applied depending on which "team" a person is on.
 
User avatar
sassiciai
Posts: 1121
Joined: Mon Jan 07, 2013 8:26 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 5:59 pm

Pot, kettle, black! Mote in his eye?

Your attitude on Airliners.net has shifted radically from the optimistic & enthusiastic man with a strong interest and a POV about how to improve the A380. Now you dish out rude insults to those who hold opposite views to your own. Often, your views lack any justification and are opinionated, and anyone defending a different position with facts you now react to with personal attacks on the poster. So perhaps you should set the example by your defense of "some decent norms here". Better to lead by good example, than to follow bad ones!

All that aside, I find this thread extremely interesting and educational (in bits) and amusing (in the other bits)
 
User avatar
Matt6461
Topic Author
Posts: 2989
Joined: Wed Oct 16, 2013 9:36 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 7:00 pm

sassiciai wrote:
Pot, kettle, black!


I admitted as much here:

Matt6461 wrote:
I admit that I have gotten less pleasant on this forum over the last year or so.


I would much prefer to keep the discussion limited to ideas and keep personality out of it.

Have you noticed that probably 90% of my "personal attacks" amount to defending the right of non-industry people here to have an opinion, and to generally fending off accusations of some anti-Airbus bias?

If you met me in person you'd find me much more like how I conducted myself in the first couple years here. But everyone has their limits and I'm not a saintly kind of person. I came here sharing thoughts and ideas and have received, for the most part, an incredible amount of animosity in return.
 
User avatar
Matt6461
Topic Author
Posts: 2989
Joined: Wed Oct 16, 2013 9:36 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 7:10 pm

sassiciai wrote:
Often, your views lack any justification and are opinionated,


First, I am literally the only person who has presented direct evidence regarding the specific issue of belly cargo's profitability. Literally. Every other poster has provided data or stories about cargo generally. So I do not find this accusation justified.

Second, what you just posted is a personal attack on me. You can see that, right? Now, I am not going to make a generalization about you based on that personal attack - as you have done regarding my own personal attacks. Sometimes even the most level-headed and fair person can come to believe that a personality rather than an idea must be addressed. So I'll assume that you're operating in good faith in judging that to be necessary. The important point is that you also believe in personal attacks in certain circumstances.

Third, if you put a lot of work and thought into a set of ideas - none of them directly contradicted by external evidence, all of them the product of earnest thought, all of them defeasible given contradictory evidence - if you did this and then were met with the kind of hostility that I received here, I wonder how you would respond. Given your judgment that personal attacks on me have become necessary, might you respond similarly to additional posters were you in my shoes?

Fourth, we should all look at the substance behind personal attacks here. Attacks on me tend to be of the nature, "You're not an industry outsider, you don't know what you're talking about." And my replies tend be "I was right about prediction X in the past while you were wrong, you are currently not addressing an argument (maybe because you don't understand it), so why don't you address the idea instead of personally attacking?" I admit that my replies often involve excoriating someone else for not addressing the idea, and that I can be pretty insulting in doing so. Between these two modes of personal attack, however, it seems obvious that mine is less toxic to an exchange of ideas. Mine turns the conversation back towards the actual content of this forum - presenting ideas and arguments - while theirs encourages an attitude that is useless on this forum - the supposed deference owed to anonymous people whose prediction records here are underwhelming.

So yeah I get your point that my tone here lately has been less than pleasant. I've enjoyed myself here less as a result. But if people keep attacking me personally rather than addressing my ideas that's what you're going to get. So unless I'm banned, you're going to have to deal with this from me. My advice: criticize everyone for their personal attacks, not just me. Don't tolerate someone who tells you "I know best" unless they have evidence. And maybe considering joining my calls for that evidence and refuse to just take someone's word that they know better than you.
 
User avatar
zeke
Posts: 15278
Joined: Thu Dec 14, 2006 1:42 pm

Re: Belly cargo: highly profitable or not?

Tue Jun 21, 2016 10:42 pm

Matt,

There was no personal attack, it was a simple statement of fact. CAPA clearly have said that air cargo contributes less that 9% to the industry revenue across the world, that means that over 90% of the revenue is generated in the passenger business.

It is not highly profitable as you have stated without evidence.

Of that 9% probably 5%+ is generated by dedicated freighters. The remainder which is less than 5% by belly freight. There is excessive amounts of belly capacity available, it outgrew the available dedidicated freighter capacity years ago. The overcapacity in the market has resulted in very poor yields. Everyone except yourself has recognised this, everyone in industry is well aware of the low belly freight load factors.

These single digit additions to revenue across the whole industry cannot by any objective measure be called highly profitable.

On a daily basis I get reports for the daily performance on load factors for passengers and freight and how they compare with our targets. Being an outsider you just don't see that sort of information, and airlines don't publish it.

That CAPA article also stated what is also well known in industry, in general LCCs don't touch cargo. These airlines are the most sensitive to generating revenue streams even they don't see freight as being highly profitable.

The CAPA article also touched on the point you have suggested that cargo space is free, it is not free, to carry that structure costs money, to carry the empty pallets/containers costs money, to carry the fuel costs money.

Then they also suggest why have cargo space at all if you are not going to use it, and the majority of the aircraft in industry are like this, they just do not have easily accessible cargo areas, lack the ability to load pallets or containers under floor. I am of course referring to regional and short haul aircraft.

Then I presented the latest IATA report which states that cargo yields are still reducing.
Human rights lawyers are "ambulance chasers of the very worst kind.'" - Sky News
 
User avatar
Matt6461
Topic Author
Posts: 2989
Joined: Wed Oct 16, 2013 9:36 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 12:15 am

zeke wrote:
Of that 9% probably 5%+ is generated by dedicated freighters. The remainder which is less than 5% by belly freight. There is excessive amounts of belly capacity available, it outgrew the available dedidicated freighter capacity years ago. The overcapacity in the market has resulted in very poor yields. Everyone except yourself has recognised this, everyone in industry is well aware of the low belly freight load factors.
These single digit additions to revenue across the whole industry cannot by any objective measure be called highly profitable.


The specific issue being debated is profit ***margin*** for belly cargo.
Whether cargo 0.000000000001% or 100% of revenue is irrelevant to profit **margin**.
 
VonRichtofen
Posts: 4296
Joined: Sun Nov 05, 2000 3:10 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 12:30 am

zeke wrote:




Of that 9% probably 5%+ is generated by dedicated freighters. The remainder which is less than 5% by belly freight. There is excessive amounts of belly capacity available, it outgrew the available dedidicated freighter capacity years ago. The overcapacity in the market has resulted in very poor yields. Everyone except yourself has recognised this, everyone in industry is well aware of the low belly freight load factors.

These single digit additions to revenue across the whole industry cannot by any objective measure be called highly profitable.

On a daily basis I get reports for the daily performance on load factors for passengers and freight and how they compare with our targets. Being an outsider you just don't see that sort of information, and airlines don't publish it.

That CAPA article also stated what is also well known in industry, in general LCCs don't touch cargo. These airlines are the most sensitive to generating revenue streams even they don't see freight as being highly profitable.

The CAPA article also touched on the point you have suggested that cargo space is free, it is not free, to carry that structure costs money, to carry the empty pallets/containers costs money, to carry the fuel costs money.

Then they also suggest why have cargo space at all if you are not going to use it, and the majority of the aircraft in industry are like this, they just do not have easily accessible cargo areas, lack the ability to load pallets or containers under floor. I am of course referring to regional and short haul aircraft.

Then I presented the latest IATA report which states that cargo yields are still reducing.


Revenue and profit are not the same thing. Cargo can be a small part of an airlines total revenue, but that doesn't mean that the cargo division itself isn't profitable.
 
User avatar
sunrisevalley
Posts: 5392
Joined: Tue Jul 06, 2004 3:26 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 1:35 am

My argument is the total cost for handling cargo is the same for dedicated freighter and belly cargo except from the moment the ULD is tied down in the freighter or in the belly of a passenger plane and when the UDL is untied and ready to be unloaded. During that time on board an airplane a quite different set of costs apply. There are the incremental fuel and maintenance costs for the belly cargo and the full operating costs of the dedicated freighter. Nobody can convince me that these costs as belly freight are not considerably lower than those of a dedicated freighter.
 
User avatar
par13del
Posts: 10397
Joined: Sun Dec 18, 2005 9:14 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 1:59 am

How about airlines who just offer up their belly space to dedicated cargo movers, freight forwarders and other shippers, all the cargo infrastructure is off airport and goods to be shipped are just delivered to the airport for loading. Obviously these are smaller shippers than FedEx, UPS etc but for some airlines its worth it.
Funny thing, airlines said pax luggage was too much, fuel too high so they put fees in place to make more revenue and discourage pax checked bags, now in addition to loosing bags they have also lost freight??? Say it ain't so.
 
User avatar
seahawk
Posts: 9750
Joined: Fri May 27, 2005 1:29 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 5:08 am

sunrisevalley wrote:
My argument is the total cost for handling cargo is the same for dedicated freighter and belly cargo except from the moment the ULD is tied down in the freighter or in the belly of a passenger plane and when the UDL is untied and ready to be unloaded. During that time on board an airplane a quite different set of costs apply. There are the incremental fuel and maintenance costs for the belly cargo and the full operating costs of the dedicated freighter. Nobody can convince me that these costs as belly freight are not considerably lower than those of a dedicated freighter.


Sure, and that is why the margin can be good, while the revenue stream is small. That is the problem of looking at it in isolation. I might be able to take belly cargo and considering all costs make a healthy margin of 30% with it (revenue for cargo vs. costs associated directly to cargo), yet the revenue might be so small that the extra minutes used to load the cargo might not warrant the effort when you look at the revenue and planing for the whole flight or whole day schedule. There are reasons why even LCC do look at certain types of freight (usually time sensitive and/or of limited size and weight) while staying the hell away from the not time sensitive bulk freight.

That is the problem of looking at a problem in isolation. If you just see belly cargo as an extra with limited additional costs, it can have high margins, but imho if you look at the whole flight it tells you nothing about the actual revenue it is adding for the whole flight. The fact is that today you need special circumstances that you would trade passengers for cargo. (usually only when you have lots of high value and time sensitive cargo to be transported, which is true for some routes)
 
olle
Posts: 2464
Joined: Tue Feb 06, 2007 3:38 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 6:04 am

VonRichthofen wrote;

''Revenue and profit are not the same thing. Cargo can be a small part of an airlines total revenue, but that doesn't mean that the cargo division itself isn't profitable. ''

The original argue here was if the A380 with a balance between PAX and Cargo favoring PAX was more or less smart compared to the new twins like A350 and B777 where a bigger % of revenue is dependent of cargo.

Now it seems to come to 3 conclusions;

1. Cargo is small around 9% including dedicated freight of airline business

2. Cargo perhaps is not sold by profit if considered handling of cargo before loaded on the airplane

3. belly cargo is often half empty.

With this in mind perhaps more of the new twins should move more toilets down into the cargo area and therefore make more money in the PAX business?

If most flights have half empty belly areas for teh A350 and B777 perhaps this shows that the A380 belly area for cargo is balanced?

It is one A.net truth that B777 and B747 is preffered because the advantage of the belly cargo. Has something changed during the last 2 years or was it never correct?
 
User avatar
seahawk
Posts: 9750
Joined: Fri May 27, 2005 1:29 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 6:28 am

The important part is to sell the passenger seats on the aircraft. All the rest is a bonus and more important to forum discussions than to real life.

Under floor toilets and galleys come with a penalty in weight and maintenance, if it is worth the effort depends on the availability of a larger frame to use on the route and the question if the revenue of the extra seats is constant enough to over compensate the costs for the under floor installation.

The same with the A380, if I can fill an A380 with Pax while keeping the desired frequency and have enough routes for which this is true, I will have a fleet of A380s.

Outside some special routes, belly cargo is an extra and the important metric is to fill the plane with pax. Sometimes you might use a larger plane with extra cargo capacity on a route, but this is usually seasonal.
 
User avatar
Ncfc99
Posts: 784
Joined: Tue May 31, 2005 2:42 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 6:49 am

Matt

Far from being the only person to offer direct evidence (2-3 year old articles), on page one there are articles to show cargo yield and profits are down, one has in the title 'profit at 7 year low'. Why is your article to be considered evidence but others are not?

You also seem to be assuming the only cost is fuel, if we take that metric on the PAX side of things then PAX are highly profitable too right? In the A380 stagnation thread (which this discussion was originally part of) you complain that posters are being 'overly simplistic' regarding the low 380 production rate, may I suggest you are too being overly simplistic in your view of cargo costs.
 
kurtverbose
Posts: 581
Joined: Thu Jun 26, 2014 9:33 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 8:39 am

Matt6461 wrote:
The specific issue being debated is profit ***margin*** for belly cargo.
Whether cargo 0.000000000001% or 100% of revenue is irrelevant to profit **margin**.


Amazingly selective reading of Zeke's post.

The correct reply should have been 'yes, I was wrong'.
 
User avatar
seahawk
Posts: 9750
Joined: Fri May 27, 2005 1:29 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 9:31 am

kurtverbose wrote:
Matt6461 wrote:
The specific issue being debated is profit ***margin*** for belly cargo.
Whether cargo 0.000000000001% or 100% of revenue is irrelevant to profit **margin**.


Amazingly selective reading of Zeke's post.

The correct reply should have been 'yes, I was wrong'.


Consultant logic.

"The chewing gum sold from the vending machine has a huge margin, we should try to sell more of those, instead of finding more customers...."
 
User avatar
zeke
Posts: 15278
Joined: Thu Dec 14, 2006 1:42 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 9:48 am

The specific issue being debated is profit ***margin*** for belly cargo.
Whether cargo 0.000000000001% or 100% of revenue is irrelevant to profit **margin**.


I also addressed this, the industry vernacular is not "profit margin", it is referred to as "yield". Both CAPA and IATA referred to poor yields.

Revenue and profit are not the same thing. Cargo can be a small part of an airlines total revenue, but that doesn't mean that the cargo division itself isn't profitable.


My posts have address both the quantity (percentage of total revenue) as well as quality (yields). Neither can be considered as highly profitable.

The important part is to sell the passenger seats on the aircraft. All the rest is a bonus and more important to forum discussions than to real life.


What is missing from this discussion and the discussion that started this relating to the A380 is what can the aircraft carry over an ULH sector. Take for example a 77W going from DXB-LAX. ( lets assume to make things easier its one of those cooler times of year so takeoff performance is not a factor), that route would be around 7500 air nautical miles.

Go into Boeing ACAPs dated March 2015, page 3-3, for a range of 7500 nm the payload plus OEW is close enough to 465,000 lb. Page 2-2 from the same document says and OEW of 370,000 lb. So the payload available using the very optimistic marketing configuration is 95,000 lb, or 43t.

The under floor capacity of the 77W is 44 LD3s with a tare weight of around 100 kg per container. Average general cargo density is around 160 kg/m^3. LD3 volume is 4.5 m*3. 44x4.5x160 = 31.7t, plus the tare weight of the containers is 36t. Leaves just 7t for passengers+IFE+catering.

Rhetorical question, does EK fly that route with less than 70 passengers on the 77W because the cargo is "highly profitable" ?

Now lets say EK operates A6-ECX from DXB-LAX with a F6/C42/Y304 configuration. 352 pax + bags x 100 kg = 35.2t, add 5t for catering, add 1,.4t for the LD3s to carry the luggage and add IFE, the aircraft does not have any payload available at all for freight. The cargo hold is empty except for passenger baggage.

Where is the freight ? Its on the A380 because the A380 still has payload available in excess of full passengers load over that distance.

It is one A.net truth that B777 and B747 is preffered because the advantage of the belly cargo. Has something changed during the last 2 years or was it never correct?


The real answer which I posted above is it depends. On ULH routes the costs per kg are very high, and the amount of payload that is available is low. This is where dedicated freighters work best. They can have large volumes/capacity and multiple stops to reduce the cost per kg. People shipping a lot of goods unless extremely urgent will have made the modal shift to surface transport which is even cheaper.

Medium haul belly freight works as the balance between cost, and the time competitiveness against other modal forms is there. This is where aircraft can carry their MZFW, so lots of passenger, and lots of cargo without hitting MTOW. MLW maybe the limiting performance.

Short haul is a basket case, too many airlines and the market is saturated. Often you can get it to where you want to to go under a day by road. This is why LCCs dont really want to have anything to do with freight. To carry freight costs money in overheads for the systems and processes that need to be in place to accept cargo (IATA dangerous goods etc), handle, document, loads, add to loads sheets, generate NOTOCs etc. If you carry carry no freight at all on a flight those overheads still need to be paid for.
Human rights lawyers are "ambulance chasers of the very worst kind.'" - Sky News
 
User avatar
EPA001
Posts: 3893
Joined: Tue Sep 12, 2006 8:13 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 9:53 am

zeke wrote:
What is missing from this discussion and the discussion that started this relating to the A380 is what can the aircraft carry over an ULH sector. Take for example a 77W going from DXB-LAX. ( lets assume to make things easier its one of those cooler times of year so takeoff performance is not a factor), that route would be around 7500 air nautical miles.

Go into Boeing ACAPs dated March 2015, page 3-3, for a range of 7500 nm the payload plus OEW is close enough to 465,000 lb. Page 2-2 from the same document says and OEW of 370,000 lb. So the payload available using the very optimistic marketing configuration is 95,000 lb, or 43t.

The under floor capacity of the 77W is 44 LD3s with a tare weight of around 100 kg per container. Average general cargo density is around 160 kg/m^3. LD3 volume is 4.5 m*3. 44x4.5x160 = 31.7t, plus the tare weight of the containers is 36t. Leaves just 7t for passengers+IFE+catering.

Rhetorical question, does EK fly that route with less than 70 passengers on the 77W because the cargo is "highly profitable" ?

Now lets say EK operates A6-ECX from DXB-LAX with a F6/C42/Y304 configuration. 352 pax + bags x 100 kg = 35.2t, add 5t for catering, add 1,.4t for the LD3s to carry the luggage and add IFE, the aircraft does not have any payload available at all for freight. The cargo hold is empty except for passenger baggage.

Where is the freight ? Its on the A380 because the A380 still has payload available in excess of full passengers load over that distance.


I think the numbers in this example are very convincing. Thanks for this Zeke! :)
 
User avatar
speedbored
Posts: 2230
Joined: Fri Jul 19, 2013 5:14 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 10:11 am

zeke wrote:
The specific issue being debated is profit ***margin*** for belly cargo.
Whether cargo 0.000000000001% or 100% of revenue is irrelevant to profit **margin**.

I also addressed this, the industry vernacular is not "profit margin", it is referred to as "yield". Both CAPA and IATA referred to poor yields.

In any case, the original assertion was that belly cargo is "highly profitable".

**Margin** was only introduced later, after it proved impossible to substantiate the original assertion. Though it didn't really improve the substantiation situation much.

Regardless of whether you believe the margins are high or low, any reasonable reader would interpret "belly cargo is highly profitable" as "belly cargo makes a lot of money", not "belly cargo makes a high percentage return on fuel cost".

Brick wall. Head. Banging.
 
User avatar
zeke
Posts: 15278
Joined: Thu Dec 14, 2006 1:42 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 10:14 am

speedbored wrote:
Regardless of whether you believe the margins are high or low, any reasonable reader would interpret "belly cargo is highly profitable" as "belly cargo makes a lot of money", not "belly cargo makes a high percentage return on fuel cost".


I take my hat off to you Sir.
Human rights lawyers are "ambulance chasers of the very worst kind.'" - Sky News
 
Afstand
Posts: 11
Joined: Wed Jun 22, 2016 11:51 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 12:19 pm

Hello guys and girls!

I’ve been reading airliners.net for quite some time, but this topic made me register and write the first post.

I think that speaking about apparent overcapacity of the belly freight space, a transport economist notices that

a) Abundance of relatively and historically cheap transport capacity will eventually generate demand for this space. Some products that now travel by sea will probably shift to air as certain shippers may realize that there is a better balance between time-related costs and transport costs. So the bellies will get eventually fuller with time

b) Contrary to the passenger market, where people almost always return to their place of residence, there is a trade imbalance in freight: Asia sends much more goods to Europe than otherwise. So if a plane goes 100% full from Asia to Europe, it may go only 40% full from Europe to Asia. This will result in the LF of 70%

Also narrow body operations limit the growth of LF. B737 is very inconvenient for freight. They fly over relatively short distances, so it is not very attractive in comparison to the dense networks of road haulers. LCCs may not bother with freight because they fly point-to-point between the places, which do not have much freight between them. These operations also pressure down IATA’s industry statistics and LFs.

The industry apparently sees belly capacity as not a factor that determines network designs (in general, of course there are exceptions). Then with time the freight capacity will be sold to the market at marginal cost plus profit, which will depend on how competitive is the route. I think the industry will become much better at product differentiation and yield management for cargo, in a way as it does for passengers.

Now, I have a couple of questions.
How is the LF computed? In my view, it is aircraft capacity divided by weight transported. It could be ton-kilometer capacity (Available Freight Ton Kilometers) divided by Actual Freight Ton Kilometers. But how the available ton capacity of an aircraft is determined? Airlines present different numbers, as for instance EK says that their A332 has 17 ton of freight capacity, but AFKL says that A332 can carry 10,9 ton of freight. Does it mean that these a/c use different capacity units in their statistics?

A question to wide body pilots, who see load sheets every day. Could you give some data on the cargo loads you haul? It would be very interesting to listen to people who do it everyday.
 
Amiga500
Posts: 2645
Joined: Tue Mar 03, 2015 8:22 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 1:46 pm

speedbored wrote:
Brick wall. Head. Banging.


I've found an ignore function in the user control panel. :idea:


I'm now taking the stance that those who refuse to listen can feel free to remain emperors of "truth" in their own little kingdoms of ignorance. Better than getting annoyed and wasting my time writing something that will be ignored anyway.
 
PanHAM
Posts: 9719
Joined: Fri May 06, 2005 6:44 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 2:42 pm

Amiga500 wrote:
PanHAM wrote:
The cross section is rather irrelevant since hardly any freight is loaded loose. The industry uses ULD, Unit Load Devices since decades, which are, for the purpose of connectivity and interchangeability with other aircraft types shaped so that they can be accomodated in the smallest wide body aircraft.


The cross-section is anything but irrelevant given the initial point that raised this whole thing.

Again, some aircraft are more efficient (less cargo space per passenger carried) than others. If you want to clarify that as "less container space and less loose cargo space per passenger carried" - go ahead - it still applies.


It IS irrelevant if the cross section of a new widebody is a few inches wider than an old widebody. Loading loose cargo does not happen, except in the bulk compartment. A wider cross section will not load one additional Standard ULD, only a longer fueselage will allow that.
Was Erlauben Erdogan!!!
 
Amiga500
Posts: 2645
Joined: Tue Mar 03, 2015 8:22 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 2:49 pm

PanHAM wrote:
It IS irrelevant if the cross section of a new widebody is a few inches wider than an old widebody. Loading loose cargo does not happen, except in the bulk compartment. A wider cross section will not load one additional Standard ULD, only a longer fueselage will allow that.


If widebody A fits 18 passengers per seat row and has X m^2 of cross section area for the cargo bay and widebody B fits 10 passengers per seat row and has the same X m^2 of cross section area for the cargo bay (i.e. both bays fit 2x LD3) ---- then which do you think is better optimised to a market where typical cargo load factors are in around 50% and yields in the gutter?

It is not irrelevant.
 
frmrCapCadet
Posts: 4418
Joined: Thu May 29, 2008 8:24 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 3:00 pm

Afstand - thanks for introducing a few new things to the discussion. I think you are right that all of that empty belly space is going to attract some customers. And contrary to what one poster suggested planes without belly space do not seem to sell well (hint - it is because larger twins, by their nature have belly space and twins are selling very well).

I don't know what is happening now, but a few years ago WN was doing very well with cargo - with planes and routes which do not fit the standard model for freight - so much for the model, there may always be those niches the model does not fit.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
User avatar
Matt6461
Topic Author
Posts: 2989
Joined: Wed Oct 16, 2013 9:36 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 3:08 pm

Amiga500 wrote:
If widebody A fits 18 passengers per seat row and has X m^2 of cross section area for the cargo bay and widebody B fits 10 passengers per seat row and has the same X m^2 of cross section area for the cargo bay (i.e. both bays fit 2x LD3) ---- then which do you think is better optimised to a market where typical cargo load factors are in around 50% and yields in the gutter?


Ah so this explains why the A380 is selling so well, while single-deck twins are near extinction.
 
a380787
Posts: 4573
Joined: Tue Jul 09, 2013 4:38 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 3:14 pm

I think for a lot of airline, the calculation is more about trip cost than unit cost. You can either

1) fly A380 with minimal cargo, then have dedicated freighter operation, e.g. another 330F running the route. Trip cost = 2 flights, and you'll need to find ways to fill both the pax bird and the freighter.
or
2) fly a single 77W / 779 with lower pax revenue (can be configured to capture most of the front cabin), and still have substantial payload left to carry profitable cargo. Trip cost = 1 flight.

For uniquely suitable airlines like EK, option 1 is an excellent choice by maximizing both revenue and absolute profit. For most other airlines that have capital constraints, option 2 seems to be a much safer solution that allows easy capture of the higher end of both markets without having to move the earth and the sea.
 
User avatar
Matt6461
Topic Author
Posts: 2989
Joined: Wed Oct 16, 2013 9:36 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 3:19 pm

Welcome to the forum, Afstand!

Afstand wrote:
Abundance of relatively and historically cheap transport capacity will eventually generate demand for this space


This is an interesting side point. We'll probably see some demand stimulation as (1) the market price of belly freight continues to decline and (2) belly freight supply and reach continues to expand.

Belly freight management seems very inefficient right now - apparently many operators still use paper manifests rather than digital, for example. As the scale and efficiency of belly cargo increases, investments in the necessary infrastructure to ensure efficient uptake will be increasingly warranted and, with technology, increasingly effective.

Afstand wrote:
Then with time the freight capacity will be sold to the market at marginal cost plus profit, which will depend on how competitive is the route


Agreed. Except the competitive pressure will be more by airport than route perhaps. Cargo is much less picky about direct versus hub flights than passengers. As long as another carrier can ship cargo from A to B via C, competition is there.
 
User avatar
Matt6461
Topic Author
Posts: 2989
Joined: Wed Oct 16, 2013 9:36 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 3:44 pm

zeke wrote:
I also addressed this, the industry vernacular is not "profit margin", it is referred to as "yield". Both CAPA and IATA referred to poor yields.


Yield is revenue per unit, not profit per unit or any other kind of profit. A product can be both high-yielding and low margin. It can also be high-yielding and unprofitable.

zeke wrote:
This is why LCCs dont really want to have anything to do with freight.


Maybe some LCC's that operate only narrowbodies. AirAsiaX and Norwegian Long Haul both operate freight divisions.

zeke wrote:
that means that over 90% of the revenue is generated in the passenger business.

Of that 9% probably 5%+ is generated by dedicated freighters. The remainder which is less than 5% by belly freight.


Probably ~70% of airline revenue is generated by narrowbodies who carry a negligible amount of cargo.
If 4% or airline revenue comes from widebody belly cargo, while these widebodies generate 25% of total airline revenue on their maindecks, then ~17% of widebody trip revenue would be, on average, from cargo.

If cargo's profit margin were ~60-70% as in 2014, the on average cargo would contribute a profit delta per widebody trip equivalent to ~10% of trip revenue.

A 10% profit delta is worth a -10% trip cost delta - more than an airline achieves by switching from 77W to A35K per Leeham's analysis.

Cut that number in half - 5% profit delta - and you have about the *total* operating cost/profit delta achieved by a simple NEO.

In short, a big deal. Even on the numbers you present.
 
Afstand
Posts: 11
Joined: Wed Jun 22, 2016 11:51 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 4:07 pm

<< If cargo's profit margin were ~60-70% as in 2014, the on average cargo would contribute a profit delta per widebody trip equivalent to ~10% of trip revenue.
Cargo profit margin is a very slippery notion, which led to a heated argument here.
If you would count direct expenses of flying a plane with a can of cargo and without, your profit margin can jump to 500%. It is what you put into your cost base that results in a margin estimation.
Fundamental questions here: how you divide effective payload of 77W (say 65 ton) between cargo and people? Purely on the weight basis, 25 ton can go to cargo and 40 ton to people, would require assigning some 1/3 of the trip costs to belly cargo. This would surely result in a negative profit margin. If you go into another extreme, say that cargo space is free because of the fuselage form, then your profit margin will increase indeed. The fundamental question, which bothers me a lot, is how to divide the costs (and CO2 emissions by the way) between cargo and pax.
Is it volume? Is it weight? Is it something else?
Consider example of 77L, which comes in two incarnations, as passenger and freight crafts. Freighter can lift some 100 ton, pax variant can lift some 300 pax and some 20 ton. So comparing oranges to oranges, we contemplate that pax consume 80% of the plane’s capacity since in passenger configuration the aircraft is capable of carrying of only 20% of cargo weight compared to the freighter.
Probably this is the fairest way to assign the costs. And hence the way to compute profit margins.
I think if you assign 20% of trip costs to the belly cargo, it will not be stellar profitable. But again, it is A way to compute the costs. Another choice will result in other estimations.
 
User avatar
Ncfc99
Posts: 784
Joined: Tue May 31, 2005 2:42 am

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 4:13 pm

Matt6461 wrote:
Yield is revenue per unit, not profit per unit or any other kind of profit.


I always thought yeild was the same as revenue. Anyone clarify?


a380787 wrote:
I think for a lot of airline, the calculation is more about trip cost than unit cost. You can either

1) fly A380 with minimal cargo, then have dedicated freighter operation, e.g. another 330F running the route. Trip cost = 2 flights, and you'll need to find ways to fill both the pax bird and the freighter.
or
2) fly a single 77W / 779 with lower pax revenue (can be configured to capture most of the front cabin), and still have substantial payload left to carry profitable cargo. Trip cost = 1 flight.


Or 3) Or fill the plane with as many PAX at the best configuration as possible for that route and then fill any further MTOW with cargo starting with the highest yielding first. If you have 10 seats empty, that's another 1t-ish of cargo you can load. Let someone else take the low yielding cargo. Trip costs = 1 flight and nothing left on the table regards revenue.
 
a380787
Posts: 4573
Joined: Tue Jul 09, 2013 4:38 pm

Re: Belly cargo: highly profitable or not?

Wed Jun 22, 2016 4:21 pm

Ncfc99 wrote:
Or 3) Or fill the plane with as many PAX at the best configuration as possible for that route and then fill any further MTOW with cargo starting with the highest yielding first. If you have 10 seats empty, that's another 1t-ish of cargo you can load. Let someone else take the low yielding cargo. Trip costs = 1 flight and nothing left on the table regards revenue.


True. My option 2 essentially encapsulates your idea ... perhaps I didn't express it clearly enough.

Who is online

Popular Searches On Airliners.net

Top Photos of Last:   24 Hours  •  48 Hours  •  7 Days  •  30 Days  •  180 Days  •  365 Days  •  All Time

Military Aircraft Every type from fighters to helicopters from air forces around the globe

Classic Airliners Props and jets from the good old days

Flight Decks Views from inside the cockpit

Aircraft Cabins Passenger cabin shots showing seat arrangements as well as cargo aircraft interior

Cargo Aircraft Pictures of great freighter aircraft

Government Aircraft Aircraft flying government officials

Helicopters Our large helicopter section. Both military and civil versions

Blimps / Airships Everything from the Goodyear blimp to the Zeppelin

Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos