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1. Introduction. Air freight is a dynamic and volatile industry sensitive to GDP growth and world events. World/Regional Air Cargo Market Overview 2003: Boeing. 1981 Recession. 1982 Falklands War. 1985-86 Recession. 1991 Recession
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1. Air freight logistic trends and key issues and challenges
A Qantas perspective
20 May 2004
2. 1 Introduction Air freight is a dynamic and volatile industry sensitive to GDP growth and world events
3. 2 Introduction Constant ‘shocks’ in the global arena
economic downturns, technology bust, fallout from 9/11, Iraq War and SARS
Responding to rapid change is our biggest challenge
4. 3 Introduction QF primarily a passenger airline
Air freight part of core business
freight carried in underfloor space of aircraft
additional capacity on leased or joint venture freighter aircraft
Combination passenger and freighter capacity offers QF flexibility and maximises yield
5. 4 Introduction A newcomer to the industry
Objective look at air freight
Qantas Freight Commercial portfolio covers everything outside of terminal operations & capacity
includes: strategy, marketing, sales, customs, e-business and customer relations
6. 5 Introduction QF markets three products on all international flights:
Cargo
Mail and
Express services
Domestic Freight
Australian air Express (AaE) – a joint venture between QF and Aus Post
7. 6 Australian market: top five airlines
Introduction
8. 7 Introduction Nearly half the top world carriers of Air Cargo are from Asia
Qantas a ‘player’ in the global arena.
9. 8 Background Where we’ve come from ...
QF world’s second oldest airline
Carrying freight since inaugural service Nov 1922
1935 QF’s first international flight carrying mail to the UK via Darwin and Singapore
10. 9 Background In the early days passengers jammed into cabin - just another bit of freight
We’ve come a long way since those early days
11. 10 Background Today QF operates around 540 international services p/w to 85 destinations & 35 countries
Freight on every one of those flights
global airline industry with over 700 airlines
Freight a by-product of passenger continues to grow – multi-billion dollar industry
Shippers, forwarders, passenger and freighter airlines and integrators
Moving in excess of 10m tonnes per year
12. 11 Key challenges We’ve come a long way…but QF and the industry face enormous challenges ahead
Key challenges
Maintaining profitability (reducing costs)
Matching our customers expectations
keeping to service levels and turnaround times
Responding to the challenges of a constantly changing market
13. 12 Key challenges
14. 13 Profitability: yield & load factors As companies looked for increases in efficiency and profitability emergence of dedicated cargo businesses within airlines
Lufthansa, Singapore Airlines, Emirates, Cathay and Malaysian airlines
October 2003 QF announced an organisational restructure
Performance at the bottom line
15. 14 Profitability: yield & load factors
Struggle to put a value on the belly space of passenger flights a by-product of the core passenger airline
Marginal costing contributed to downward pressure on yields
Yields through mix and load factor improvements …tailoring products and services to meet changing customer needs
16. 15 Profitability: Passenger v. Freighter Differences in market demands
Passengers want return tickets, non stop flights direct to destinations, high frequency
Freight usually one way, shorter sector lengths – but still demanding frequency for premium products
Passenger – more comfort, inflight entertainment and interactive systems … reduce capacity …accelerated move to freighters
17. 16 Profitability: Passenger v. Freighter Why fly freighters...
Means of generating revenue and profit
Complement pax belly space and provide a service
Freighters will continue to grow but if you get it wrong, they are a great way to tear up money
Profitability linked to keeping market offerings in line with market demands
Dedicated freighter services play vital role but underfloor capacity in pax is a major force
18. 17 Profitability: Passenger v. Freighter On some routes underfloor capacity offers greater flexibility and cost efficiencies
Asia’s economic boom, new destinations come online, air trade opportunities will increase, particularly intra-asia
Intra-asian cargo growth a resilient annual growth of 10.4% per year, significantly higher than other regions
QF devotes nearly 1/4 of seats across international passenger network to service Asia region …whatever happens in Asia will affect our interests
19. 18 Key challenges
20. 19 Matching customer expectations:Products and service reliability Airlines slow to match their products and capacity to customer demands?
Failure to meet customer expectations … challenge we face is to evolve our product range to match those expectations and at the same time to do it profitably
Two-pronged effect – allows us to improve yield through better mix
Customers (shippers/forwarders) say reliability is the most important factor in making their decision
21. 20 Matching customer expectations:Most important aspects of freight service QF Freight Customer Satisfaction Monitor
If we deliver expected service, get products on time and intact to their customers... perceived value for money
22. 21 Matching customer expectations:Terminals Potential barriers to service delivery
Terminals geared to handle general cargo
Tendency to automate old practices – not create new
Latest technology in place but need to constantly review processes, practices refined and upgraded
Terminals a direct pipeline from aircraft to customer
23. 22 Matching customer expectations:Terminals Terminals of the future...
Everywhere you look change is occurring – terminals no different
To meet current and future customer expectations service standards must be measured, recorded and be ever more demanding
Moving target
Technology a key player
24. 23 Matching customer expectations:Information systems Accelerate the pace …
Customers are demanding to know where their freight is from comfort of office or wherever they may be
Internet not enough, proactively notified, SMS
Technology constantly changing
QF at forefront of industry but need to maintain the momentum
25. 24 Matching customer expectations:Electronic trading exchanges 1990s saw dot com boom come and go … not many dot coms survived
QF time and effort assessing situation
Concentrated on developing qantasfreight.com
Leading edge
Benefits: productivity and customer satisfaction
26. 25 Matching customer expectations:Electronic trading exchanges Recent initiative …launch of Ezycargo internet cargo portal
QF along with Singapore Airlines Cargo, Cathay Pacific and Japan Airlines founding member
Customers can now select information, book space with multiple carriers on a single site …one stop portal
Efficiency and ease of doing business for customers
27. 26 Key challenges
28. 27 Responding to change:Security Post 9/11 threat of terrorism remains
Nationally and internationally aviation industry faced with an increased regulatory environment
Changes to customs reporting and increased security measures will put pressure on airlines to keep to service levels and turn-around times
Australia:
CMR program
Aus government committed A$100m to tighten airport security, inc. screening of freight
29. 28 Responding to change:Increased regulatory environment USA:
shippers moving goods in/out of US required to provide details about cargo before it arrives at US borders
airlines required to provide advanced manifest information 4 hours prior to arrival of goods into US
house air waybill data required
Several options available. Preferred option direct from forwarders host system, or via qantasfreight.com
30. 29 Responding to change:Submit FHL function As of July 2004 you’ll be able to submit HAWB data for consolidated shipments online at qantasfreight.com
Submit FHL application is easy to use, convenient and one of the many free online services we offer to qantasfreight.com registered users
31. 30 Responding to change:Increased regulatory environment Implications:
significant changes to way we do business in order to comply with changes
lots of work to be done in a short time
immediate short-term threat of increased cycle times and costs
32. 31 Responding to change:New initiatives Route changes
2002/3 rationalised approach to route management
Many unprofitable or low yield routes disappeared
Tailored approach better yield management
2002/3 QF boosted international freight capacity with intro of 6 x 747-400 Extended Range aircraft serving North America … increased capacity
June 2004 commence 3 x 747- 400 direct services ex BNE to LAX
2004 new India and China services
33. 32 Responding to change:New initiatives Australian Airlines
Launch of AO, international, all economy class full service carrier
services key Asian routes inc. Singapore, Japan, Hong Kong and Malaysia
This month AO commences twice weekly 767-300 services to Singapore via Darwin and Cairns … expanding capacity to Asia
34. 33 Responding to change:New initiatives Shanghai service
February 2004 QF commenced twice weekly freighter service to Shanghai via Sydney and Singapore…
growing demand for capacity generated by China’s economic boom
Shanghai emerging as a leading hub in Asia region
Currently evaluating expansion of Shanghai services
recently negotiated Taipei, Korea and Hong Kong rights
35. 34 Summary Growing industry expanding in volume and some regions growing in double digit numbers
volatile but resilient industry … relatively quick recovery from SARS
future looks optimistic, remains need to review business practices, reduce costs, improve service levels and match customer expectations
increasing demands placed on technology … reduction in paper flows
information systems facility increase in security and screening
36. 35 Summary Our customers will demand and get integrated solutions to their distribution with guaranteed service standards
only efficient, effective and competitive will survive …airlines, integrators and forwarders
big will get bigger and small will probably be reduced to niche players or be absorbed
Asia and in particular China will play a major role as the region continues economic transition
Future optimistic but tough and competitive
37. 36