Is your "belly" full?
Optimizing airline cargo revenues; a potential 10 percent revenue increase
By Bhargav Shanker Galla
Naturally, airlines want to fill their seats, but what about the cargo hold, or “aircraft belly”? Are their bellies full? If so, are they transporting the most profitable cargo, or are they leaving money on the table? Undoubtedly, air cargo enables airlines to generate additional revenue from their commercial flights, even if the seats are not filled before takeoff. However, today, most airlines have an opportunity to increase cargo revenue by up to 10 percent by using latest cargo revenue-optimization processes.
aturally, airlines want to fill their seats, but what about the cargo hold, or “aircraft belly”? Are their bellies full? If so, are they transporting the most profitable cargo, or are they leaving money on the table? Undoubtedly, air cargo enables airlines to generate additional revenue from their commercial flights, even if the seats are not filled before takeoff. However, today, most airlines have an opportunity to increase cargo revenue by up to 10 percent by using latest cargo revenue-optimization processes.
Air cargo is one of the most lucrative means of transporting goods, and it is a rapidly growing area within the airline industry. According to IATA, 62.5 million tons of cargo was carried last year. That’s an increase of more than 4.5 percent over the 59.9 million tons carried in 2017. In addition, goods carried by airlines exceeded US$6.2 trillion in 2018, representing 7.4 percent of world gross domestic product.
However, many airlines may not be capitalizing on their cargo operation to the fullest and, therefore, are not generating the maximum amount of revenue from this side of their business.
Cargo revenue-management challenges
Cargo revenue management is a complex practice that presents several challenges for airlines, including:
- Network optimization — Today, it is one of the most important and most complex problems an airline faces. Network disruptions due to any number of reasons, such as inclement weather, change in another airline schedule, cargo transit delay, crew issues, etc., needs to be captured by the cargo planner so he or she can provide an alternative for the transit of important cargo. Moreover, a cargo planner needs to understand the available flight and truck capacities, as well as various cargo loadings and handling costs at both origin point and destination point so the maximum revenue is extracted from the cargo transported. These multiple factors create a complex process while planning the cargo network.
- Products and services — The products and services offerings must be designed based on critical parameters, such as time bound, type of product (in terms of size and volume) and priority service. By considering these parameters, a cargo planner may need to justify why the price of the service is higher or lower, why there was a change to the schedule of the transit and how to handle special shipments, which may be bigger in size or sensitive to transport.
- Systems integration — Analysts who are responsible for creating airline schedules are aware of near-term and future departure changes, be it delays, cancellations or capacity fluctuation. However, those who work in cargo management aren’t automatically notified of the changes and are, therefore, unable to effectively respond and minimize the impact on cargo. To address this issue, schedule and network-management systems should be integrated with an airline’s cargo-management system to ensure real-time communication exists among these areas.
- Future forecasting — Booking in the cargo industry doesn’t always happen in a pattern. Sometimes bookings can increase or decrease based on the season or an event (for example, the Formula 1 event in Delhi can trigger an increase in cargo shipments toward Delhi). Also, cargo is two dimensional in terms of weight and volume. Some shipments are heavier and some are bigger. This makes bookings uneven in nature. Hence, it is difficult for airlines to use historical bookings data to predict future demand without sophisticated cargo-management technology that can harness, organize, prioritize and analyze cargo data. A comprehensive cargo revenue-management system will solve this problem and result in improved revenue optimization. Capacity forecasting is one of the primary areas of focus in the cargo industry. A more precise capacity forecast can lead to better planning for the transit of shipments. However, the stochastic nature of historical demand/consumed capacity will make forecasting of capacity much more difficult and complex.
- Decision support — Many cargo operators tend to make decisions based on business knowledge and current trends. However, this approach ignores the historical hidden patterns that can be unearthed by mining past data. Hence, it becomes more important for airlines to use modern cargo technology that helps analysts make precise, data-driven decisions based on both historical data and current trends.
Sophisticated cargo management
To address these challenges and sustain a sophisticated, revenue-enhancing cargo business, several areas, systems and processes across an airline must be aligned and in constant, real-time communication. These include flight management, capacity management, network management and allotment management. Cargo operators will also need specific reports to determine load factors, allotment usage and show-up rates. In addition, they will need to conduct performance monitoring to compare predicted versus actual values.
Robust flight-management technology, used to monitor flight conditions, helps a cargo analyst determine which flights are critical to cargo operations. This helps an analyst prioritize and carefully monitor important cargo flights to ensure all possible cargo-related revenue is captured.
Used by an airline’s reservations systems, a capacity-management system helps determine space availability for future cargo bookings on a scheduled flight. The capacity availability is predicted for every flight leg, and the forecast is performed based on weight, volume and number of container positions (for wide-body aircraft). Calculating the future cargo capacity, or space availability (SPAV), is the result of multiple factors, such as passenger weight, baggage weight and mail weight, involved in a flight.
Effectively Calculating SPAV
SPAV = space available = capacity
SPAV Freight (Weight) =
(Payload) - (Passenger Weight) - (Bag Weight)
— (Mail Weight) — (Other Allocation Weight)
The forecasting of passenger, baggage, mail and other weight is completed individually and then deducted from the overall payload of the aircraft to determine cargo space availability, or SPAV.
Today’s network-management system should contain several modules that define the attractiveness of the network in financial terms. These include:
- Route generator module — This module generates a list of alternative feasible routes that can carry a shipment from origin to destination, considering specific shipment and service characteristics. For example, if cargo needs to be shipped from Indira Gandhi International Airport to London Heathrow Airport, the router will show possible alternative routes — such as DEL-BOM-LHR, DEL-FCO-LHR, DEL-AUH-FCO-LHR — should a disruption occur with the original flight or capacity is limited.
- Cost module — This module enables cargo analysts to calculate the total cost for the specific route and specific shipment. It also enables them to define different types of costs that are associated with carrying the shipment on specific flights, such as:
a. Station costs,
b. Fuel costs,
c. Interline costs,
d. Truck costs,
e. General sales-agent costs.
- Demand module — A cargo-demand-forecast module helps forecast the freight that will be booked on a route based on both historical and current bookings. This level of forecasting is conducted for both long term (more than one year) and short term (more than two weeks) to ensure precise results. In addition, holidays and special events are identified and managed separately to ensure capacity meets demand.
- Pricing module — With demand forecasts in place, a bid-price module computes optimal controls for accepting or rejecting O&D demand. The O&D demand is parsed on multiple O&D routes by the route generator and then mapped to the corresponding leg capacities. The leg demand and capacity plus the booking request rates and route costs are input into the bid-price module, which provides optimal weight and volume bid prices at the leg level. The leg-level weight and volume bid prices are reverse parsed to O&D-level weight and volume bid prices and converted to O&D chargeable rates. This ensures that all conceivable revenue is captured for each leg of the shipment.
To ensure the cargo division is capturing every freight opportunity, it is vital to generate reports about:
- Load factors – Gauges flight performance and assesses how efficiently the cargo division is filling allocated cargo space and generating revenue.
- Allotment usage – Determines if the cargo space (by flight and day of week) is being filled by cargo customers who generate the most revenue.
- Show-up rates – Identifies the percentage of cargo that is anticipated but won’t be filled so the unused space can be sold to another customer.
As with any successful business, it is imperative to examine the actual values (by capacity, allotments and bid prices) versus the predicted values. This will help measure the performance of the cargo operation and its supporting technology, processes and human resources, as well as provide valuable insights regarding cargo forecasts and necessary strategy adjustments.
Don’t leave money on the table
The Sabre AirVision Cargo Revenue Management suite provides key flight, customer and booking information to help cargo departments make more precise cargo decisions and secure a lucrative cargo operation. It is the industry’s leading cargo revenue-management technology and can improve cargo revenues by up to 10 percent.
In addition to its extensive cargo revenue-management technology, Sabre provides consulting services to help airlines create a solid cargo strategy; update their infrastructure, technology and processes to support the strategy; and help ensure the right human resources are in place to drive a thriving cargo operation. /A
Bhargav Shanker Galla
To learn more about Sabre’s all-inclusive, industry-leading cargo revenue-management solutions, contact Bhargav Shanker Galla at firstname.lastname@example.org.
Bhargav has seven years of experience in the analytics industry. He has provided various analytical solutions for companies such as Hewlett Packard, Cisco Systems and Sabre Airline Solutions. He is an expert at solving customer problems with the help of data and sophisticated analytical tools. Currently, Bhargav’s primary focus is in the areas of airline planning and scheduling and cargo management.