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ElroyJetson
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How Little Cargo Revenue Really Matters For DL And UA

Fri Jul 19, 2019 4:58 am

I was looking at both DL and UA's second quarter earnings statements and it was a bit surprising how little cargo contributes to the bottom line. For example, DL had revenues of 12.5 billion dollars and cargo only added 186 million dollars to that total. Put another way, cargo represented approximately 1.5% to DL's total revenue.

For UA the story is slightly better. UA has gross revenue of 11.5 billion dollars of which cargo contributed 295 million. Cargo added roughly 2.5% to UA's overall revenue.

Basically cargo is for many airlines the equivalent of green stamps. It's pocket change. Sure, it's something and something is better than nothing, but realistically cargo is a tiny fraction of many airlines business.

I make this point because many a.net enthusiasts make passionate arguments about how airlines make aircraft purchase decisions based in the cargo lifting ability of various aircraft.

Like "sure the 787-10 might be super efficient but plane X can carry 5 tons of cargo another 800nm."

Well, if cargo is 2% of your revenue and you as an airline are making multi-billion dollar decisions on aircraft purchases, listing cargo carrying capacity as a major consideration is pretty stupid. In fact, I can think of about 10-15 factors that are more important.

Again, my point is the revenue from cargo is nice, but for many airlines it is a tiny piece of their business. Not something that should be a major driver in deciding which frames to purchase, all other factors being equal.
Last edited by SQ22 on Fri Jul 19, 2019 9:23 am, edited 1 time in total.
Reason: Title was misleading
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Scarebus34
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 5:05 am

Precisely - in regards to UA, Scott Kirby has said many times that Cargo does not make or break a route nor does it play a factor in network planning. If you can make some extra money carrying cargo, cool!
 
TUSDawg23
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 5:17 am

I agree with you. Passenger airlines are first and foremost in the business of flying people. That said, having the ability to fly cargo can really help to mitigate parts of the year where demand is not as high on a route.

One route I've flown that I've heard is heavily reliant on cargo is DFW-SCL. A lot of fish packed in the belly of that 787 going to the US year round where there is always demand for good seafood versus the fluctuating demand for passenger travel to Chile which can get very cold in what is typically our summer time.
 
MaverickM11
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 5:19 am

It depends on the route, but that's why "but the cargo is great!" is usually a red flag for a route's profitability...
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B777LRF
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 5:36 am

Using US airlines, who are notoriously inept at making cargo a significant part of their portfolio, is not an example giving the correct perspective.

Lufthansa, for example, derives 7% of their revenue from logistics, for Singapore Airlines it's around 5%, and for Emirates it's around 14%.

Cargo may very well be the difference between a profitable and loss making route. That US airlines don't wish to invest in the opportunities, or don't understand the market well enough, is not a good example of how cargo generally affects airlines around the world.
Last edited by B777LRF on Fri Jul 19, 2019 5:42 am, edited 1 time in total.
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waly777
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 5:41 am

ElroyJetson wrote:
I was looking at both DL and UA's second quarter earnings statements and it was a bit surprising how little cargo contributes to the bottom line. For example, DL had revenues of 12.5 billion dollars and cargo only added 186 million dollars to that total. Put another way, cargo represented approximately 1.5% to DL's total revenue.

For UA the story is slightly better. UA has gross revenue of 11.5 billion dollars of which cargo contributed 295 million. Cargo added roughly 2.5% to UA's overall revenue.

Basically cargo is for many airlines the equivalent of green stamps. It's pocket change. Sure, it's something and something is better than nothing, but realistically cargo is a tiny fraction of many airlines business.

I make this point because many a.net enthusiasts make passionate arguments about how airlines make aircraft purchase decisions based in the cargo lifting ability of various aircraft.

Like "sure the 787-10 might be super efficient but plane X can carry 5 tons of cargo another 800nm."

Well, if cargo is 2% of your revenue and you as an airline are making multi-billion dollar decisions on aircraft purchases, listing cargo carrying capacity as a major consideration is pretty stupid. In fact, I can think of about 10-15 factors that are more important.

Again, my point is the revenue from cargo is nice, but for many airlines it is a tiny piece of their business. Not something that should be a major driver in deciding which frames to purchase, all other factors being equal.


This is not a one size fits all. LH, CX, EK and quite a few more carriers have cargo contributing a significant portion of their revenue & profits. In addition an overwhelming majority of the US carrier are narrowbodies on domestic routes. With FedEx, UPS and other smaller cargo carriers based in the US, there's little point in competing in the cargo arena within the US.
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77H
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 5:41 am

MaverickM11 wrote:
It depends on the route, but that's why "but the cargo is great!" is usually a red flag for a route's profitability...


Correct. A few years ago UA was looking into downgauging the HNL-GUM flight from their HD 77A to the 752. I was told the main reason the downgauge didn’t happen was the value of cargo on the route.

77H
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 5:59 am

Other than mail, how much cargo are US airlines going to move around the USA on NB jets? Compare that to the number of people flying domestically and you see why cargo is such a small part of it. And are they really going to effectively compete with fedex and ups?
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planewasted
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 6:09 am

ikramerica wrote:
Other than mail, how much cargo are US airlines going to move around the USA on NB jets? Compare that to the number of people flying domestically and you see why cargo is such a small part of it. And are they really going to effectively compete with fedex and ups?


UPS and Fedex packages often travel on commercial airliners. At least international shipments.
 
LH658
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 6:23 am

SQ use to operate IAH - DME - SIN which the flight load factors were terrible, but it carried a lot of cargo. The First/Business class had great loads, though cargo was also big money maker on this route.

IAH - AMS KLM 747 combi route, had a ton of cargo loaded all the time.
 
69bug
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 6:26 am

For US carriers most of their flying is on continental US and the ground transport network there is excellent so the airlines needs to match the cost of shipping by road (and rail). Don't forget you still need the truck at both ends of the flight so making the journey on one truck may be better. The other airlines mentioned (LH/SQ/EK) carry loads where ground transport is not really an option and perhaps thats why cargo revenue is slightly better.

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eta unknown
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 6:31 am

All the carriers I've worked for consider cargo gravy, and nothing more. There was maybe the one odd route I can think of which was constantly filled with high revenue perishables, but that was an exception. In my position I get to see route financials and for the most part, cargo revenue isn't that significant, but I do get a chuckle when I read some posters saying cargo is ultra important.
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 6:40 am

One thing to bear in mind with these numbers is that on many domestic routes that UA and DL both serve, the amount of cargo carried will be minimum to none.

If you were to to only use only Trans-Con and International flights, I'm sure this number would jump dramatically, the many domestic flights served by both carriers will dilute the overall percentage of profit taken on cargo.

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ITSTours
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 7:32 am

For US airlines only.

Korean Air's cargo revenue is 23% of the total.
Cathay Pacific's cargo revenue is 25% of the total.
 
FlyHappy
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 7:32 am

ElroyJetson wrote:
Well, if cargo is 2% of your revenue and you as an airline are making multi-billion dollar decisions on aircraft purchases, listing cargo carrying capacity as a major consideration is pretty stupid. In fact, I can think of about 10-15 factors that are more important.

Again, my point is the revenue from cargo is nice, but for many airlines it is a tiny piece of their business. Not something that should be a major driver in deciding which frames to purchase, all other factors being equal.


If you are going to make a point in such a simplified manner, then you might as well equally simply illustrate % of revenue provided by cargo specifically for widebody aircraft.
Once you strip away all that enormous revenue generated for US carriers on narrowbody domestic & near flying, I think you'd find far more than just pocket change from cargo, and purchasing decisions for (widebody) frames with cargo in mind not quite so stupid.

In fact, with respect to the a.net arguments, I rarely recall any debate about lift over range with respect to anything smaller than a 767; only occassionally reference to 757 vs 321, and not surprisingly its precisely because its because they are/have become very long ranged aircraft (and thus are flying traditionally more cargo lucrative routes).

I'd say your point is missing some context.
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 7:54 am

ITSTours wrote:
For US airlines only.

Korean Air's cargo revenue is 23% of the total.
Cathay Pacific's cargo revenue is 25% of the total.

However in perspective, US passenger carriers other than Alaska don't operate dedicated cargo fleets. It's all belly cargo in passenger liners. In a recent Air Cargo New posting, UA and AA were the #17 and #21 freight carriers respectively by FTK (not including partners), without any dedicated freighters. FedEx (#1) and UPS (#4) can offer the full door-to-door service, so of course they command the market, both US domestic and worldwide. Korean is #5 and CX #6, with cargo fleets.
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 8:02 am

77H wrote:
MaverickM11 wrote:
It depends on the route, but that's why "but the cargo is great!" is usually a red flag for a route's profitability...


Correct. A few years ago UA was looking into downgauging the HNL-GUM flight from their HD 77A to the 752. I was told the main reason the downgauge didn’t happen was the value of cargo on the route.

77H




That flight has always been packed, Continental operated it with the 747 Classic, DC10, 767-400HD and after the merger with the high density triple



There’s a huge passenger demand on that
route that no other airline serves


Cargo is important but not the only reason
they keep a widebody on it
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jetwet1
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 8:03 am

Once you start talking about revenue in the hundreds of millions, it may be pocket change, but and it's a big but, that is still a huge number and something any business will want to protect and grow.

Certainly for the US 3 it is a small part of their overall revenue, but it's still a hundred million dollars.
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 8:05 am

ITSTours wrote:
For US airlines only.


Exactly - the OP has drawn this conclusion from looking at only DL and UA??
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 8:06 am

Furthermore, I would add that in the case of most LCCs, cargo doesn't factor at all in their route planning decisions. From my experience, in some it is a "nice to have", but if the economics don't stack up from the passengers, cargo isn't going to swing it.

I daresay that for most routes in the world, they will live or die based on the people sitting above the cargo, rather than the other way around - including those in Asia. The Cathay's, SIA's and other Asian carriers that derive 35-40% of their revenue based on cargo also have sizable dedicated freighters that pay their way, rather than relying on bellyfreight. For most managers, the cargo is the cream on top, rather than the cake. So when it comes to fleet decisions, a bit more space to play with cargo is nice to have, but not a deal breaker or maker.
 
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eta unknown
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 8:14 am

+1
Exactly. Take the Asian freighters out of the equation and the cargo revenue won't be anywhere near around 25%.
 
strfyr51
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 8:37 am

ElroyJetson wrote:
I was looking at both DL and UA's second quarter earnings statements and it was a bit surprising how little cargo contributes to the bottom line. For example, DL had revenues of 12.5 billion dollars and cargo only added 186 million dollars to that total. Put another way, cargo represented approximately 1.5% to DL's total revenue.

For UA the story is slightly better. UA has gross revenue of 11.5 billion dollars of which cargo contributed 295 million. Cargo added roughly 2.5% to UA's overall revenue.

Basically cargo is for many airlines the equivalent of green stamps. It's pocket change. Sure, it's something and something is better than nothing, but realistically cargo is a tiny fraction of many airlines business.

I make this point because many a.net enthusiasts make passionate arguments about how airlines make aircraft purchase decisions based in the cargo lifting ability of various aircraft.

Like "sure the 787-10 might be super efficient but plane X can carry 5 tons of cargo another 800nm."

Well, if cargo is 2% of your revenue and you as an airline are making multi-billion dollar decisions on aircraft purchases, listing cargo carrying capacity as a major consideration is pretty stupid. In fact, I can think of about 10-15 factors that are more important.

Again, my point is the revenue from cargo is nice, but for many airlines it is a tiny piece of their business. Not something that should be a major driver in deciding which frames to purchase, all other factors being equal.

Cargo does not make or break a route, However? With a full belly of revenue cargo? The passengers are "Free Gratis" as the cargo is Paying the Bills.
During Christmas season United used to shut down one of our Hangar bays to devote it to Cargo at SFO as air freight was overloaded. we also used to fly cargo charters with not much more than Belly Freight on flights that were Milk Runs. SFO-DEN-MSP-ORD-IAD. there and Back with the airplane departing at 0445 and returning at 2200. All the Junior and reserve Captains flew these flights. and for some of the reserve captains? This was their ONLY PIC time during the year as they lflew as FO's for most of the year. We flew other belly freight flights Just for USPS as well to some Weird places too. The employees got to go for free as there were flight attendants on board to make it legal. They really didn't have a lot to do though and if we went along we all sat in first class. Sometimes? That was the only way employees got to go home during the holiday season.
we flew the flights from Dec 18th until Jan 3rd. and sometimes we'd schedule rescue flightsto Hawaii to pick up all the NON-REVS and overflow passengers that got stuck in Hawaii and missed of got Bumped off of their flights due to overbooking.
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 8:37 am

ElroyJetson wrote:
cargo represented approximately 1.5% to DL's total revenue.

For UA the story is Cargo added roughly 2.5% to UA's overall revenue.


Well, all airline profit margins can be incredibly thin. Even in these boom-times it is still in the single digits. Cargo revenue can often be the difference between a profit or a loss for the period in question.

Narrowbody cargo, being bulk loaded, is a super small part of the belly volume. Since the vast majority of US fleets are narrow body it is no wonder that cargo revenue is such a small part of the overall financial performance.

I think a more wide body focussed airline has a relatively larger benefit from belly cargo. It would be interesting to compare the small cargo revenues from primarily narrow-body airlines such as US carriers, against the relatively larger revenues from primarily wide-body airlines such as Singapore or Emirates. I think Cargo is much more important piece of the puzzle at the latter type of carrier.
 
Bongodog49
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 8:49 am

if you travel round the South side of LHR, you would quickly see that whilst your 2% or so of revenue from cargo may be correct for the airlines you state, it is certainlynot the norm. There is no conceivable way that an airport with asuch a shortage of space as LHR would have so much area devoted to cargo if it were such a small part of overall revenue.

As others have said, you are looking at airlines with a relatively high proportion of narrowbody flights that have to compete with land transport for freight. The poor cargo yield potential from narrowbody shorthaul flying can be illustrated by the likes of FR not accepting any freight at all (except for human remains STN- Knock and I assume this is due to local pressure)
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 8:51 am

Even a few percent cargo revenue could be make or break when you consider the fact that most airlines profit margin are only in the low single digit percent range.
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 8:57 am

ElroyJetson wrote:
Again, my point is the revenue from cargo is nice, but for many airlines it is a tiny piece of their business. Not something that should be a major driver in deciding which frames to purchase, all other factors being equal.


As is often the case, you’re looking at a small, US-centric picture and drawing the wrong conclusions. As other have pointed out, there are lots of airlines for whom cargo represents a significant proportion of their revenue.
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 9:05 am

Bongodog49 wrote:
if you travel round the South side of LHR, you would quickly see that whilst your 2% or so of revenue from cargo may be correct for the airlines you state, it is certainlynot the norm. There is no conceivable way that an airport with asuch a shortage of space as LHR would have so much area devoted to cargo if it were such a small part of overall revenue.


Heathrow used to be the second biggest cargo port in the UK even though It has minimal full freighter flights
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 9:08 am

I suspect for some areas of the USA and elsewhere, postal mail and private express package services make up a significant amount of the 'belly freight' and helps airlines make money on some flights. The transport of postal mail is why some routes are subsidized under 'essential service' programs like here in the USA. However, the overall decline in the volume of postal mail due to the use of the internet to communicate or pay bills, shifts to the use of the private freight air carriers like FedEx, UPS, DHL, etc. has likely in turn affected the volume of belly freight. Over the years too, for safety, there has been a shift of freight to dedicated freight flights from belly freight on pax flights.
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 9:12 am

eta unknown wrote:
+1
Exactly. Take the Asian freighters out of the equation and the cargo revenue won't be anywhere near around 25%.


Why on earth would you do that for, expect trying to prove that if everyone did as the US3 cargo wouldn't be as big a thing as it is? Facts are, however, that a large number of airlines can and do have a market for dedicated freighters, as well as carrying significant amounts of cargo on their passenger services.

Looking at the US market only for air cargo, would be about as daft as l looking at the same market to gauge the importance of football* in the world.

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seat38a
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 9:13 am

What percent of revenue did Northwest generate from cargo? They operated a dedicated fleet of 747 Cargo aircraft with a hub in Anchorage.
 
DALCE
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 9:16 am

Belly cargo is un(der)developped in the USA. IN both Europe & Asia cargo is a very important contribution to airline results. The only US carrier (other than the freighterboys) who had an eye for cargo was goold old NorthWest. All the others never looked at it seriously, and it was never really developped.
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MIflyer12
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 9:27 am

jetwet1 wrote:
Once you start talking about revenue in the hundreds of millions, it may be pocket change, but and it's a big but, that is still a huge number and something any business will want to protect and grow.

Certainly for the US 3 it is a small part of their overall revenue, but it's still a hundred million dollars.


You need to look at the margins on the cargo revenue. I don't expect they're stellar - FedEx, UPS and DHL air ops exist for a reason. Do you keep cargo for what might be a $100 million/year profit contribution when you've got a business making $4 Billion a year? How many flights - with ever-higher load factors - have to go out payload-optimized, leaving cargo/bags/some passengers behind? Eliminating cargo could also significantly simplify operations.
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 9:28 am

I think three things are different across the world, that make OPs topic title irrevelant. Most of them have been mentioned, but I'd like to have them organized.
1. Airlines across the world are different in numbers. It's been analyzed above.
2. Routes are different. If you have a feeder model, you'd probably have some feeder routes with no cargo (Ejets, anyone?) feeding passengers to long routes. If you have 5 routes feeding a LH flight, with no cargo (thin pax routes), "only 2.5%" gets twice or triple that on this particular flight. Lufthansa case? That's 7% going triple to 20%. 20% income on particular flight is significant.
3. I believe there were some analysis how belly cargo on pax flights gets more and more from specialized cargo ops. If this trend continues, and I see no reason not to, it's not only this years pct that counts, but also a trend line. And an analysis in terms of plane life cycle. The question that CEOs answer is "what is your bet on numbers of cargo a specific line will generate". Of course, "bet" is a simplifying thing - that's a huge analysis to be done, and no one wants to have 50% board full for cargo - but trend is important, you know.

Cheers,
Adam

PS. One more real life example. AY1331 example, anyone?
Last edited by gloom on Fri Jul 19, 2019 9:30 am, edited 1 time in total.
 
MIflyer12
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 9:29 am

scbriml wrote:
ElroyJetson wrote:
Again, my point is the revenue from cargo is nice, but for many airlines it is a tiny piece of their business. Not something that should be a major driver in deciding which frames to purchase, all other factors being equal.


As is often the case, you’re looking at a small, US-centric picture and drawing the wrong conclusions. As other have pointed out, there are lots of airlines for whom cargo represents a significant proportion of their revenue.


Sure. You're just acknowledging that some other countries have inefficient markets where air freight carriers get monopoly rents. Does that make you fell better? It shouldn't.
 
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lesfalls
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Re: How Little Cargo Revenue Really Matters For DL And UA

Fri Jul 19, 2019 9:35 am

Lets not forget that LH,CX,SQ, KE and EK all have seperate cargo units which carry ONLY cargo aboard which causes the numbers to go up compared to UA/DL since they don't have a seperate cargo fleet. UA/DL don't have as many departements that can handle cargo though compared to LH,CX,KE,SQ and EK have which have locations all over the world to deal with their cargo customer directly. UA/DL just instead handle their cargo ops abroad over to a GSA, which causes professionalism to go down.
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MIflyer12
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 9:56 am

seat38a wrote:
What percent of revenue did Northwest generate from cargo? They operated a dedicated fleet of 747 Cargo aircraft with a hub in Anchorage.


2007 was the last full year for NW prior to merging with Delta. The 2007 Annual Report shows cargo revenue at $840 million, down 11% from the prior year. Total operating revenues were $12.5 Billion.
 
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Faro
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 10:03 am

B777LRF wrote:
Using US airlines, who are notoriously inept at making cargo a significant part of their portfolio, is not an example giving the correct perspective.

Lufthansa, for example, derives 7% of their revenue from logistics, for Singapore Airlines it's around 5%, and for Emirates it's around 14%.

Cargo may very well be the difference between a profitable and loss making route. That US airlines don't wish to invest in the opportunities, or don't understand the market well enough, is not a good example of how cargo generally affects airlines around the world.



This confirms what I intuitively thought, that cargo is indeed important even if it isn't a make-or-break factor for equipment/route planning. I would hazard a guess that for most Asian carriers cargo is not less that 5% of revenue.

But surprising that US airlines are inept at cargo ops. Why is this?


Faro
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rbavfan
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 10:38 am

ITSTours wrote:
For US airlines only.

Korean Air's cargo revenue is 23% of the total.
Cathay Pacific's cargo revenue is 25% of the total.



Both like Lufthansa & KLM have dedicated cargo only fleets as well as passenger models. So yes they will have higher cargo volume to passenger ratio. But find out what it is for cargo loaded only on passenger planes and removing cargo jets from the equation.
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 10:52 am

B777LRF wrote:
Using US airlines, who are notoriously inept at making cargo a significant part of their portfolio, is not an example giving the correct perspective.

Lufthansa, for example, derives 7% of their revenue from logistics, for Singapore Airlines it's around 5%, and for Emirates it's around 14%.

Cargo may very well be the difference between a profitable and loss making route. That US airlines don't wish to invest in the opportunities, or don't understand the market well enough, is not a good example of how cargo generally affects airlines around the world.

You make a good point, but also list 3 airlines that have managed cargo so well that they earn a very high premium for their services. Most airlines will earn less per unit of cargo than the best.

So EK, SQ, and certainly LH really care about cargo capability of an aircraft. But the bulk of airlines, I would surmise, don't make enough on cargo for it to be in the aircraft top ten decisions.

Now we can add more airlines such as KLM or Alaska. But for most airlines, FedEx, UPS, DHL, Atlas, CargoLux, and others spoil the opportunity.

I would phrase it that cargo requires a significant investment. DL gave up their 747 freighters at the start of the last downturn. Before then Northwest was a cargo powerhouse. The market decisions forced an investment call. Judging from DL's profits, their debt reduction efforts paid off.

Lightsaber
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eta unknown
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Re: How Little Cargo Revenue Really Matters For DL And UA

Fri Jul 19, 2019 10:53 am

US carriers aren't inept, rather they are probably mostly uninterested as the ROI may simply not be there. I've never known cargo to be a factor in pax route planning, although I'd imagine it would contribute in some models, maybe KLM.
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 11:45 am

lightsaber wrote:
You make a good point, but also list 3 airlines that have managed cargo so well that they earn a very high premium for their services. Most airlines will earn less per unit of cargo than the best.
Lightsaber


Indeed, before the headline was changed the OP seemingly took two of the worst examples of major global carriers to make his point, I merely reversed that by listing three of those who make cargo a priority and an intergral part of their business.

As for the premiums, however, they'll be more or less the same for any given route; the market set the rates it's willing to pay, airlines bid on the business based on those rates.

But it's very far from being only EK, LH and SQ making cargo a priority. In the global scheme of things, US3 are actually the outliers in this respect; the Asian (near and far) carriers are all making a lot from cargo, as are most of the EU flag carriers. Cargo is also a big deal in South America and Africa. The reason US3 aren't big into cargo, is that they're predominantly domestic carriers with a bit of international flying on the side (relatively speaking), and just as cargo (outside of express) can't compete with rail and road in continental Europe, nor can it in the US.
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scbriml
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 12:16 pm

MIflyer12 wrote:
Sure. You're just acknowledging that some other countries have inefficient markets where air freight carriers get monopoly rents.


Does any of that change the fact that OP’s conclusion based on a sample size of two from a single country was incorrect and that many airlines derive significant revenue from freight? :confused:

MIflyer12 wrote:
Does that make you fell better? It shouldn't.


It doesn’t make me fell better or worse. * shrug *
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DylanHarvey
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Re: How Little Cargo Revenue Really Matters For DL And UA

Fri Jul 19, 2019 12:22 pm

Speaking strictly for DL. Routes like EZE, LIM, AMS, JNB, MUC, and even SYD are lucrative with cargo. But the passenger demand far outweighs the freight.
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 1:14 pm

B777LRF wrote:
Using US airlines, who are notoriously inept at making cargo a significant part of their portfolio, is not an example giving the correct perspective.

Cargo may very well be the difference between a profitable and loss making route. That US airlines don't wish to invest in the opportunities, or don't understand the market well enough, is not a good example of how cargo generally affects airlines around the world.


That may be changing, at least at DL.

Over the past year, I've heard comments on some of the DL investor calls which indicate DL's intent to focus on growing Cargo revenue. This makes sense when you consider that DL is passionate about continued diversification and growth of existing revenue streams as well as developing new sources of non-passenger revenue. Small item for sure, but at least twice over the past 6 months, I've seen advertising for DELTA CARGO featured in their onboard magazine. I never recall seeing advertising for the Cargo segment of their business being featured there. This signals increased focus.
Last edited by DL747400 on Fri Jul 19, 2019 1:26 pm, edited 2 times in total.
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 1:17 pm

EBT wrote:
Furthermore, I would add that in the case of most LCCs, cargo doesn't factor at all in their route planning decisions. From my experience, in some it is a "nice to have", but if the economics don't stack up from the passengers, cargo isn't going to swing it.

I daresay that for most routes in the world, they will live or die based on the people sitting above the cargo, rather than the other way around - including those in Asia. The Cathay's, SIA's and other Asian carriers that derive 35-40% of their revenue based on cargo also have sizable dedicated freighters that pay their way, rather than relying on bellyfreight. For most managers, the cargo is the cream on top, rather than the cake. So when it comes to fleet decisions, a bit more space to play with cargo is nice to have, but not a deal breaker or maker.


Most European LCCs do not carry cargo other than company mail, aircraft spares, etc.
 
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Re: How Little Cargo Revenue Really Matters For DL And UA

Fri Jul 19, 2019 1:38 pm

It may be low revenue, but it probably has a high margin as it is normally space that would just be empty and a lot of the costs are already factored into the flight.

A lot of very time sensitive freight would not be possible (or financially feasible) without it.
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 2:56 pm

DL747400 wrote:
B777LRF wrote:
Using US airlines, who are notoriously inept at making cargo a significant part of their portfolio, is not an example giving the correct perspective.

Cargo may very well be the difference between a profitable and loss making route. That US airlines don't wish to invest in the opportunities, or don't understand the market well enough, is not a good example of how cargo generally affects airlines around the world.


That may be changing, at least at DL.

Over the past year, I've heard comments on some of the DL investor calls which indicate DL's intent to focus on growing Cargo revenue. This makes sense when you consider that DL is passionate about continued diversification and growth of existing revenue streams as well as developing new sources of non-passenger revenue. Small item for sure, but at least twice over the past 6 months, I've seen advertising for DELTA CARGO featured in their onboard magazine. I never recall seeing advertising for the Cargo segment of their business being featured there. This signals increased focus.


advertising in the inflight magazine really doesn't do much as someone flying cannot simply go and drop something off at cargo. Its simply the current customers that DL has are the same customers day in and day out. its a matter of DL being able to price something higher to the forwarder if they use DL vs. AA, or any other airline.
 
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Re: How Little Cargo Revenue Really Matters For DL And UA

Fri Jul 19, 2019 3:14 pm

There are a few things to consider here for how the US3 view their cargo operations.

1) Cargo revenue is small in percentage to Passenger revenue, but it is actually a high margin business in their current operating model
2) Network / route / fleet decisions are not made based on cargo needs, its low on the scale of decision criteria
3) Dedicated freighter fleet and the supporting infrastructure, particularly building from scratch would add a whole bunch of incremental costs and likely not obtain the margins they receive on underbelly cargo
4) The opportunity now is to grow cargo ops since newer aircraft (777, 77W, 359) have significantly more cargo capabilities that prior generation aircraft (D10, 744, 767)
5) The broad domestic route network has very limited underbelly cargo, and what typically goes is bulk-loaded mail
 
drdisque
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Re: How Little Cargo Revenue Really Matters For DL And UA

Fri Jul 19, 2019 3:15 pm

I know of one specific example of a route planning decision that is driven by Cargo in the US.

A lot of pharmaceuticals that have to be temperature controlled are produced in Puerto Rico. Because they have to be temperature controlled they can't fly as belly cargo in any narrowbody. UA flies a daily 764 on SJU-EWR in part to be able to serve this cargo market since the 764 can take a refrigerated cargo container.

That being said, if UA didn't think it could fill the 764 with pax reliably, it wouldn't be on the route. They wouldn't be flying around a half-full 764 just for the belly cargo.
 
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Re: How Little Cargo Revenue Really Matters.

Fri Jul 19, 2019 3:58 pm

Depends on the airline. For a carrier like SK, cargo is why a route like CPH-EWR is year-round and flown with a wide-body, when a plane like the A321LR or A321XLR could do it on passengers alone.

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