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Family Aid 2020
   Vol. 20 No. 36
Thursday September 23, 2021

Airline Problems Began Before COVID-19

Airline Problems Began Before COVID-19

William R. Boesch is an air cargo pioneer, and also an accomplished leader
across a distinguished and exemplary 50 years’ career. Bill served as President of American Airlines Cargo, which he prominently put on the world stage during the era of Robert Crandall, the inventor of the Frequent Flyer programme. Crandall and Cargo were sitting either side of the aviation chessboard, while Bill Boesch was trying his luck with the belly space.
     A key logistician for U.S. military forces, Bill Boesch later created methodologies in transportation that delivered the goods, while saving lives during the Iran and Iraq conflict. For his efforts Bill was awarded The Medal of Freedom at a ceremony on Ellis Island in New York harbour, in the shadow of the Statue of Liberty.
     Impossible to give a complete recount of the prestigious, decisive positions which Bill held in his long and inspiring career, suffice it to say that he is (or was, accordingly) a key player for Seaboard World Airlines, Pan Am, American Airlines, Emery, DHL Global Mail and the U.S. Dept of Defence, whereas he also founded and continues to lead today the Council for Logistics Research, Inc. We suspect he was also the mastermind behind the Flying Tigers’ feat.
      FlyingTypers did not pass the chance to exchange views with Bill and what follows is an abstract of their recent conversation. Speaking of abstracts, here is an interesting element to explain why we were so interested in exchanging views with Bill Boesch: this is part of the WIPO Patent for tracking and logistics management system that Marconi and Envirotainer obtained on Oct 11th 2001. The application was dated April 4th 2001, following U.S. documentation dated April 4th 2000.
WIPO Patent

Bill and Shari Boesch      We know from Bill Boesch that, in addition to Envirotainer, he also served on the Board of Directors of Air Cargo Incorporated, Air Cargo International, The International Air Cargo Association (TIACA), Deutsche Post Global Mail, Smart-mail, DHL Global Mail, and Al Seqir/Falcon.
      In this regard though, more importantly he was one of the four inventors of the patented system referenced in the above source. Today we are familiar with aviation security, the powerful engine which drives tracking and tracing and total logistics management. Reading the text of the abstract in 2021 is a no brainer, these concepts sound totally obvious to us. However, the inspiring personalities that could see the picture in 2000, so far as to imagine what was to become of air cargo, were not many before 9/11. Kudos to William R. Boesch for that.
      Both Bill and I have learned in our lives how unpredictable the future is, but it is nonetheless legitimate to try and figure out what is at stake, with a bit of imagination and, perhaps more importantly, 50 years’ experience on your shoulders.

GA:  Bill, I have always been fascinated by the way you went to the top of the aviation industry, even though you have been more involved in air cargo, not the first choice for many airline professionals I daresay. Can U.S. airlines make money with air cargo in your view?
WB:  The U.S. passenger carriers’ main strategy has been to be the biggest and have the highest market share. Their schedules and their frequent flyer games were based on that, their growth plans ensured they had resources, capacity and flights as needed on each route at different times, so their frequent flyer customers never had to use another airline. Cargo was considered a by-product in the end. This strategy only works when the economy is flourishing. With declining figures, carriers cannot shed their fixed costs and start suffering. New, lower cost carriers enter the market: a situation we have often seen over the past 50 years, roughly in 10-year cycles. With lower profit margins than other industries, airlines have never been a good long-term stock buy.
     Bob Crandall, the former chairman and president of AMR/American Airlines, had a sign on his desk which said: “If God meant people to fly, he would have made it profitable”. Bob Baker, who ran the successful operation at AA, felt that airlines had a hard time to show a good long-term profitability because of their unions, but I believe that the problem was not the unions, as much as the airlines just had the wrong long-term strategy at that time.

GA:  That is quite a statement, Bill. What would you suggest instead? Would you suggest a more balanced approach between passengers and cargo?
WB:  Well, let us first review the passenger side. Fortunately, some airlines are abandoning the old strategy and are now looking at different long-term profit schemes. The Coronavirus pandemic was the straw that broke the camel’s back I believe: it is impossible to predict the future with 100% certainty, no matter how good or accurate the data, but predicting the impact of a pandemic before you are right in the middle of it is next to impossible. Passenger airlines and aircraft manufactures got it wrong when the A380 and the B747-8 and B780 were introduced into the market, against all figures; we all know that now, but twenty years ago that seemed to make sense.
     On the passenger side there are just three types of long-term profit strategies. 1.   Utilizing more narrow body aircraft on domestic and international routes.
2.  Limiting widebody international aircraft to major hubs overseas and using international partnership agreements to move passengers to their final destination.
3.  Is a combination of the first two. Much, of course, depends on the strength of the partnerships.

GA:  Well, Bill, you say the pandemic and the A380 taught us a lesson, did they really?
WB:  U.S. business travel is expected to only recover to approximately 70%, at least initially, as virtual meetings are just too convenient for businesses. Hence U.S. airlines will try to increase their percentage of leisure travellers and improve their business class accommodations, targeting the reduced number of higher paying business travellers by flying more single aisle aircraft internationally. That is why Boeing is considering upgrading its 757 to compete in this emerging market. The result will be less belly space for cargo overall, as leisure travellers tend to check their bags, particularly if they fly far away.
     Over the past two decades the passenger carriers moved about 60% of the international air cargo and treated it as incremental on-demand business with “capture pricing”. The predicted result of less passenger aircraft belly space is good news for the air cargo freighter market, and the end result may be that only as much of 40% of the world’s international cargo business will travel as belly cargo in future.

GA:  This will push cargo prices upwards even higher, or is something else at play here?
WB:  Cargo rates are at an all-time high and are not expected to be lower until sufficient belly space returns on passenger aircraft. As noted previously belly space is just starting to rebound. The major freight forwarders, who are the prime users of belly space, are seeing this trend and are forming partnerships for either ACMI or CMI leases to ensure access to capacity and stable pricing. The results could mean a consolidation within the air forwarding companies, with bigger ones surviving and smaller ones being absorbed or finding a sustainable niche. It is a never ending story, as you well know.

GA:  We know only too well that air cargo cannot rely on freighters alone, so what do you see happening?
WB:  The air cargo industry has four primary business models for using freighters. They are scheduled service, e-commerce, integrator, and non-schedule charter operators.
     According to credible sources, the global air cargo services market is expected to grow from $56.48 billion in 2020 to $64.98 billion in 2021 at a compound annual growth rate (CAGR) of 15%. Most experts are predicting the market to reach $99.67 billion in 2025 at a CAGR of 11%. If these predictions are accurate, then air cargo will grow approximately $9B a year (or 14% per annum) through 2025 with at least 60% of the volumes moving on freighter aircraft.
     Markets supported by integrator carriers are expected to grow 20%, the e-commerce companies will grow 25 to 30%, the scheduled freighter operations may grow 10%, and ACMI contracts are becoming the vehicle of choice with the major airfreight forwarding companies.
     One major change affecting the cargo industry is that the ACMI/CMI lessors want to renegotiate their rates yearly, while most major ACMI lessors are insisting on five-year leases at a higher margin, with the present shortage of freighters. This, coupled with a possible slowdown in U.S. foreign trade and a continued strained U.S./China relationship during which China grows its own freighter fleets, could mean the U.S. cargo carriers will be at the bottom of the “totem pole” and in serious trouble, if their fleets are not covered by ACMI/CMI leases.
     Looking at the U.S. freighter and on order conversions and new freighters, most are going to the integrators and the e-commerce companies, which will dominate the air cargo freighter market in the near future.

Bill Boesch in Iraq and Afghanistan

     There are other elements at play in this day and age that we in the U.S. could once upon a time consider less important. China is rapidly becoming the largest market in the world in all segments and air cargo is probably next in line. Europe is probably less likely to grow at the same pace, but my take is that Africa will come next with exponential demand in cargo. Let us not forget that 13 out of the 20 largest cities in the world will be in Africa in 2100 and the other 7 in Asia, none of them in China. America and Europe are out of this picture. It is not happening overnight, but demographics rarely fail and this model in eighty years’ time is completely different from today’s model. We must wait and watch what this kind of future will bring.
     In the meantime, let me thank you for the insight you have given us, which will be extremely interesting for our readers. Let me wish you all the best in your current endeavours that are so important for our nation.

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