Hard to handle

posted on 4th April 2018

Low-cost carriers’ competitive fare structures means they are always on the lookout for ancillary revenue streams, from scratch cards to discounted car hire.

However, for most LCCs, especially in mature short-haul markets such as Europe and North America, cargo has proved a step too far. With multiple rotations per day, time on the ground is too short. The single-aisle jets favoured by these carriers are not designed for unitised cargo and rapid loading, making it difficult to offer freight forwarders a guaranteed service.

In principle, Southwest Airlines can accommodate one tonne of volumetric freight on its domestic US services, and up to two tonnes of denser cargo such as perishables. “But we are a high-frequency, point-to-point carrier and are constrained on our Boeing 737-700s by a 30-minute turnaround,” says Wally Devereaux, senior director for cargo and charters. “The larger -800s have a little longer turn time because we’re boarding up to 175 passengers.”

Southwest’s cargo cut-off is typically 30 minutes prior to departure (though up to an hour in some locations), plus any paperwork processing or security screening that may be required. The carrier mostly looks after its own cargo handling, using third-party handlers only at some smaller stations.

Southwest recently completed its integration of AirTran, a rival LCC that had no cargo business. “But because of their route network, we have been able to open in markets we didn’t serve such as Atlanta, and we have put on additional frequencies to destinations such as Milwaukee and Baltimore,” Devereaux says.

Atlanta is a good destination for retail commodities, diagnostic specimens and some perishables, he comments. Because goods move through the system so quickly, Southwest customers can ship temperature-sensitive goods in insulated packaging.

High frequencies on thicker routes, for example Los Angeles-Chicago, means that larger multi-tonne shipments can be shared between several flights, either non-stop and transiting via Phoenix, Denver or Kansas City, Devereaux says.

However, true to its low-cost philosophy, Southwest uses secondary airports for some big-city destinations, for example Chicago Midway instead of O’Hare and Dallas Love Field rather than Dallas/Fort Worth. And it doesn’t call at Miami, so any South American cut flowers imported into that hub have to be trucked to Fort Lauderdale.

The carrier can only accept loose cargo on its 737s and, unusually for an LCC, does not charge for hold baggage, so customers will not think twice about checking in one or two bags.

Owing to these various constraints, cargo accounts for less than one per cent Southwest Airlines’ revenue, generating $84 million in the first half of 2014 compared with passenger revenue of $8.6 billion.

It currently carries cargo only in the US domestic market, but has offered services to San Juan, Puerto Rico, from Orlando (three times daily) and Tampa Bay (daily) since April 2013 when it began integrating former AirTran-operated routes into its network.

Southwest has since added direct Puerto Rico services from Houston, Atlanta and Baltimore, and announced in December that it had sought approval from the US Department of Transportation to fly from Houston’s Hobby airport to four Mexican destinations, Cancun, Mexico City, Puerto Vallarta, and San Jose del Cabo, plus Belize City and the Costa Rican capital of San Jose from this October.

Although processing of export freight will take longer than on domestic services, Devereaux says aircraft will spend longer on the ground with fewer daily rotations.

Handler’s cost penalty

US-based Consolidated Aviation Services has handled cargo in the past for LCCs in both Canada and the US. The latter arrangement lasted only six months and both contracts foundered for the same reasons, says Ray Jetha, senior VP for sales and marketing.

“You have tight turnaround times because the carriers are so dependent on volumes, and you’re mainly dealing with narrow-bodied aircraft that can’t carry containerised cargo,” Jetha says.

“What traffic they have is mostly courier, which is high yield for the airline, but there was little in it for me. You can find yourself driving 20 times per day from the cargo shed to wherever the aircraft are parked with loads of 100 or 200kg, so your tug and labour costs are very high. When we asked for a monthly minimum volume, it was cost prohibitive for the airlines to make that commitment.”

While CAS remains in contact with LCCs, the nature of the US market means these issues won’t go away. Jetha says the scenario in the Middle East and Asia is different as carriers add long-haul services and upgrade to wide-bodies.

The inexorable rise of Dubai as a tourist destination and workplace for migrant workers means that an increasing number of LCCs, including flydubai, India’s IndiGo and Philippines-based Cebu Pacific, Indigo now serve Dubai International (DXB) and Dubai World Central (DWC) airports. Bernd Struck, senior VP for UAE Cargo at monopoly handler dnata, says most use B737, A320, and A330 aircraft in high-density configurations on their medium-to-long haul routes.

“Passengers tend to carry more checked luggage than on shorter routes, limiting cargo capacity. In addition, because some of these aircraft are operating towards the top end of their operating range, they will be carrying maximum fuel load,” Struck says.

The guarantee of cargo capacity will depend on each carrier’s contractual relationship with the forwarding community. “Some airlines have contracts for express/courier and mail carriage, which will have the highest priority and must travel as booked,” he says.

The majority of LCCs serving Dubai are obliged to make passenger baggage their first priority, but courier traffic, express mail and perishables are attractive because of their small dimensions, Struck points out. “These types of goods generate higher yield and are therefore preferred on restricted-volume aircraft.”

Limited ground time between flights does not impact on the ability to load cargo in markets such as Dubai. “Larger hubs mostly have longer ground times than smaller airports because of their sheer size and the longer travel distances. DXB is a slot-controlled airfield, and ground times mainly depend on the allocation of slots from Dubai Airports,” Struck says.

‘Pit stops’ no handicap

Cargo also represents a good revenue stream for Turkey’s Pegasus Airlines, despite the limited size of its aircraft. The current Pegasus fleet consists almost entirely of B737-800s with maximum cargo capacity of 45cu m. Over the next two years the carrier is set to take delivery of 75 Airbus A320 and A321neo aircraft, which can accommodate slightly less cargo, at 37.4cu m.

One of Europe’s most profitable carriers, Pegasus began life as a charter airline before converting to the low-cost model under new ownership in 2005. Today it has become more of a hybrid carrier, offering multi-channel distribution, a frequent-flyer programme, and a hub-and-spoke network that serves 30 domestic and 56 international destinations from Istanbul’s Sabiha Gökçen airport.

Flights to Europe, Russia, the Middle East, the Balkans and Central Asia operate at high frequency in most cases, comments Aydin Alpa, VP Pegasus Cargo. He refers to time on the ground as “pit stops”, with turnaround times typically 40 minutes for international flights and as little as 25 minutes on domestic services.

“The maximum weight and dimension per piece is limited to the aircraft’s specifications. Additionally, every destination country has its own loose-load weight restriction,” Alpa says. “Availability on each flight depends not only on passenger baggage quantity but also the amount of fuel required for the flight and weather conditions.”

So, while some LCCs and their airport and handling suppliers can make cargo work and provide another useful ancillary revenue stream, particularly for longer-haul flights characterized by larger aircraft and longer turnaround times, in mature pure short-haul LCC markets it remains a tough challenge. As more hybrid airline models emerge and legacy carriers migrate to trucking for intra-regional freight, there may be more scope in future for cargo – provided would-be shippers remember than the first priority in this cut-throat market is always going to be the choosy traveller.