How airlines can grow air cargo into a viable business

?The suspension of flights grounded the aviation business during the Covid-19 pandemic. A green shoot for airlines during this disruption was the air cargo business. Independent airlines and flag carriers retrofitted their wide-bodied passenger aircraft and airlifted essential goods. The silver lining in the fog of dysfunctional global supply chains, seaport closures and container shortages: tons of spare cargo capacity in the holds of passenger jets.

?British Airways, United Airlines, SpiceJet, Singapore Airlines, and several other carriers repurposed their aircraft to transport vital supplies, especially emergency medical consignments. In a period of acute revenue loss, effective utilization of belly capacity for freight services generated revenue of US$ 129 billion. Air cargo accounted for almost one-third of airlines revenue in 2020, according to the International Air Transport Association (IATA).

?A revenue model with wings

With air travel restrictions easing and airport operations ramping up, airlines need to grow the air cargo business organically. Air freight is the fastest and most reliable method for high-value, specialized cargo such as electronic spares, temperature-sensitive goods such as pharmaceuticals, and cold supply chains such as food and vaccines where time is of the essence. Global demand is expected to surge across these categories as manufacturing, retail and global trade gather momentum.

?Commercial airlines that increased cargo capacity during the pandemic as well as carriers with spare inventory can grow the bottom line by leveraging digital enterprise capabilities to compete with traditional air freight forwarders, freighter operators and cargo-only carriers. Significantly, cargo delivery is a hedge against revenue loss during a lull in travel demand during off-season.

?Digital approach to air freight

The airline cargo business needs to take a leaf out of the commercial services playbook. Passenger carriers implemented digital solutions to achieve superior efficiency, boost productivity and enhance the travel experience. Commercial airlines transformed the flyer experience by combining artificial intelligence (AI), machine learning (ML), robotic process automation, and predictive analytics. Digital technologies built in resilience and enabled enterprises to address the dynamics of supply and demand. These carriers can now leverage digitization to capitalize on global trade.

?The widespread adoption of automated digital systems provides airlines with an edge over traditional logistics enterprises. Passenger airlines can accelerate cargo services with both specific point solutions as well as a wide range of omnichannel logistics solutions. Digital freight systems streamline end-to-end processes – from search, booking and payment processing to cargo handling and reclaiming.

?Digital tools allow airlines to gain real-time visibility into cargo inventory, which facilitates optimal pricing based on demand-supply dynamics. Just as AI tools drive dynamic pricing based on criteria such as days-to-departure, demand forecasts, seat selection, and ancillary services, AI-driven freight booking solutions allow flexible pricing based on shipment volume, speed and frequency of delivery, and handling requirements, among other criteria.

?ML-based revenue management systems enable rule setting for quote generation, preferential pricing and dynamic bundling. It can be integrated with digital cargo management platforms and mobile apps to empower customers with self-service and the ability to track consignments through order and delivery processes. Notably, digital solutions help enterprises better serve customers while enhancing the experience. For instance, loyalty programs allow frequent flyers to accumulate air miles and redeem it for free flights, upgrades, and services / offers in the partner ecosystem. The same principle can cultivate loyalty for the air cargo business. Points earned or quantum of past shipments can be exchanged for priority booking or discounted rates.

?Flight data aggregators, travel agents and third-party service providers use digital platforms to fulfill the flight booking pipeline of airlines. Similarly, digital cargo systems enable collaboration between carriers and stakeholders to maximize distribution and grow revenue. Online marketplaces and aggregation services that enhance flight passenger services can also augment the air freight business. Mobile apps allow carriers to access new markets and diverse customer segments via spot markets and digital distribution marketplaces for cargo.

?Since a majority of passenger airlines replaced manual document management processes with digital systems, they can provide cost-efficient and error-free documentation services for freight forwarding. Airlines can generate electronic Air Waybills (eAWBs), thereby eliminating paperwork and ensuring traceability and transparency. Besides, eAWBs accelerate processing of shipments involving letter of credit and customs clearance.

?The post-Covid airfreight landscape provides airlines with the opportunity to grow cargo yields into a sustainable revenue stream. Digital cargo operations and digital service channels can generate significant revenue from every ton of belly space.