Shifting air patterns
As Delta and United reconfigure cargo operations, Southwest steps out.
When Delta Air Lines recently announced with the departure of its Senior Vice President and Chief Cargo Officer Tony Charaf on Aug. 1 that Delta Cargo would be undergoing realignment, freight forwarders were a bit skeptical.
That the news occurred around the same time Robbie Anderson, who shepherded United Airlines’ cargo operation the past four years, was being replaced by Jan Krems, the former vice president of the Americas at Air France/KLM/Martinair Cargo, was nothing more than coincidence. It did, however, signal major changes at two of the largest domestic carriers — which, along with American Airlines, make up the main three U.S.-based belly cargo carriers — and could possibly leave the door open for new competition.
Delta laid out the realignment as a change in reporting structure that will allow all aspects of the carrier to work more in synch with each other. Charaf, who had been in the job for two years since the departure of long-time cargo head Neel Shah, would see his position disappear upon retirement. Cargo sales will now report to the global sales team, and operations have a new global boss as well.
“It’s an opportunity to keep improving what we are providing to the industry,” said Ray Curtis, Delta’s vice president of global cargo sales. “It’s a very competitive landscape, the airline industry, and you must constantly be looking at how do you ensure that the manner in which you are serving your customers gives them a compelling reason to keep choosing you every day.”
Delta President Ed Bastian assured customers that Delta Cargo “remains a highly valued part of our business, and these changes will provide each group with the resources they need to meet our cargo-related goals.”
Curtis classified the move as keeping things in tighter alignment and giving cargo “a laser-beam focus.” Both Curtis and Scott Barkley, Delta’s managing director of global cargo operations, said the cargo team is operating with a “business-as-usual” outlook.
“If anything, the change has created more focus on the cargo division throughout the corporation,” Barley said. “It makes sense that we’re all on the same team working toward the same goal. We’ve already seen some good momentum because of it.”
Curtis and Barkley said though some customers are anxious about the change there has been no negative feedback. In fact, Curtis said, many customers understand the changes and have gotten behind them.
Brian McConaghy, chief operating officer of Shelton, Conn.-based forwarder BTX Global Logistics, saw the move to scrap the separate cargo division as “head scratching” and wonders how the new alignment could possibly make things run more smoothly.
Based on feedback from the forwarder industry in the past month, McConaghy isn’t the only one who holds this opinion. He’s also worried, he said, that a recent push for investment by Delta Cargo will dry up. In the Atlanta hub, he said, Delta had recently instituted a number of technology upgrades that improved the flow of cargo.
“They tried to improve over the years, come up with some sophisticated ways to move freight through the Atlanta hub system,” he said, “but now that they’ve taken a second-seat to it, I, myself, within this corporation, have to second guess whether or not that’s going to be the right move for growing the cargo side.”
McConaghy noted the same level of investment as before the changes is not likely to occur, but added he has no idea yet how things will shake out. “None of us know, and none of us really understand that business model and how that’s going to improve their cargo side,” he said.
The bottom line, McConaghy said, is that this will likely make his job harder.
“There’s going to be no focal point on cargo,” he said. “It’s going to be like their whole drive is based around passenger, and I think cargo is going to suffer.”
Some of the larger shippers have asked McConaghy about what it means for service levels moving forward. “The rest of [the shippers] I don’t think understand enough of what that means to the industry,” he said. “As long as the freight moves, that’s not going to concern them.”
A big beneficiary of the change, he said, is Southwest Airlines.
A few months ago, Wally Devereaux touted Southwest’s expanded reach once it achieves full integration with AirTran. While it began shipping cargo on the AirTran network in April 2013, it will start international flights the middle of next year, opening up a wealth of cargo possibilities for the cost-competitive carrier.
“These other carriers that do care about cargo, it’s going to put them in a larger light,” McConaghy said. “It’s going to take away business from the Uniteds and Deltas and move it into those that have really captured the cargo world over the last 10 years.”
Southwest Cargo has a long way to go to catch up to the cargo volumes of Delta and United. The Bureau of Transportation Statistics shows that United and Delta have jockeyed for top position for the last few years. In 2013, United flew 2.206 billion cargo ton miles, a 10.26-percent drop from 2012, when it finished with 2,458,771 cargo ton miles, a massive 43.32-percent increase from 2011. United and Continental announced a merger in May 2010 and brought on Robbie Anderson that fall. That first full year was a bit rough though, as 2011’s was a nearly 10 percent drop from 2010’s number.
Where United has seen activity see-saw in recent years, Delta has been more stable. The airline flew 2.34 billion cargo ton miles in 2013, a 1.49-percent drop from 2012; that year, it had flown 2.38 billion cargo ton miles, down 0.34 percent from 2011. In 2011, Delta experienced its most recent positive growth rate, seeing that year’s total of 2.39 billion cargo ton miles show a 5.3 percent improvement over 2010.
Delta reported flying 207.637 million cargo ton miles in June, a 5.9-percent year-over-year boost, but the carrier’s six-month cargo total of more than 1.12 billion cargo ton miles is off 2013’s growth pace by 0.9 percent. United's cargo activity climbed 7.2 percent year-over-year in June, finishing the month at 202.264 million revenue ton miles. For the first six months of the year, United’s 6.2 percent growth rate means it finished the period with just more than 1.18 billion ton miles.
Both Delta and United have experienced shifts in cargo personnel recently. In 2008, Neel Shah came to Delta to lead the cargo side. Charaf, who had been Delta Cargo’s leader between 2000 and 2004, came to lead the division once again in 2012. United’s Anderson came to the airline with great fanfare in the fall of 2010, but quietly left in June. This shift in personnel could lead to lower customer service levels, but it’s also indicative of a trend toward lower staffing and a move toward more automation, according to Mark Appelton, operations manager at Inwood, N.Y.-based Airline Cargo Services.
“I think it’s terrible,” he said. “I believe more in the customer service and personal approach to the business. I’m not looking forward to it, but I just think it’s how today’s market is going. They’re cutting back on actual staff and using more of an electronic system.”
He added, “I think it’s a way for them to cut back on expenses.”
Appleton said Delta’s customer service has already suffered, and this recent development won’t improve things. He anticipates forwarders will have to do more work after the airline shakeups to make sure their cargo is efficiently sent through the system.
He cited the example of communication with Delta, stating “we send them emails, and we don’t get responses for 24 hours, at least… Certain airlines will get back to you in five, 10 minutes.”
McConaghy agreed with Appelton’s assessment. “Both United and Delta, it’s a solid product, but it’s one of those things where 90 percent of the time they’re right on target, and it’s the 10 percent where it gets stuck in a hub or missed a flight. It’s hit and miss — more on the hit side the last couple of years.”
He continued, “I give it to Wally [Devereaux]’s group, and I’m 99-percent sure that short of a weather delay, it’s going to make it to where it needs to be.”
But Appleton doesn’t think many forwarders will give Southwest more business because of Delta’s new alignment. The market structure will mostly stay as it is, he said, “unless Southwest goes out there and puts out some really competitive rates to kind of chip off at the market and build up somewhat of a client base.”
He reasoned, “It’s tough to get in there when people get used to their set rates, their set flights and their schedules and the rest of it.”
McConaghy said the air cargo market worldwide is still slowly gaining ground. The most recent figures by the International Air Transport Association and Airports Council International bear out that opinion, but forwarders and shippers still face a number of challenges. The price of fuel, McConaghy said, is outpacing base freight rates.
At Delta, Barkley said there will be no reduction in service because of the move. Delta’s position as one of the top passenger carriers of cargo will hold the bar moving forward, he said.
“The goal is still the same,” Barkley said. “We want to provide the best service that we can, and by tying the airport group and the cargo ops group together, we can build on those synergies and provide better service.”
This article was published in the August 2014 issue of American Shipper.