As is the case with many carriers today, United Airlines’ cargo fi gures so far this year are not in sync with Boeing World Air Cargo Forecast projections for 6.1 percent growth per year. The reason is China, previously the enginefor cargo growth.
"The market has not been as strong this year as anticipated," comments Neel Shah, United Cargo vice president sales and marketing. With so many carriers now actively serving Asia — especially China, rates are now more competitive. Consequently, yields for individual carriers on Pacifi c lanes are off considerably.
"There is a lot more capacity, and this has caught up with demand," Shah says. Simply put: China is no longer the goose that is laying the golden eggs. Instead the Pacifi c is now one of the more challenging trade routes in the industry.
Whereby, up until recently opportunities in China seemed bountiful, now carriers like United are having to scrap around to fi ll their planes. "It‘s getting harder and harder," Shah comments. United offers three fl ights daily to Beijing from Washington, D.C.; Chicago, and San Francisco. It also has two fl ights daily to Shanghai from Chicago and San Francisco. In addition, United fl ies to Hong Kong twice daily from Chicago and San Francisco, and will commence another service to Hong Kong from LosAngeles in October.
From Hong Kong the carrier fl ies onward to Singapore and Ho Chi Minh City. To date, United is the only carrier serving Vietnam direct from the US. The Beijing-Washington, D.C. service is United’s latest addition. Added in March from Dulles International Airport (IAD), the carrier was awarded the route primarily because it links two major world capital cities. Passenger volumes are good on the route, butcargo is problematic.
"This is something new for customers, particularly in Beijing," Shah states. "We are starting to get more activity in the market place." But westbound from Washington to Beijing depicts another story. Since Washington, D.C. is a government town with minimal manufacturing, its cargo market is virtually non-existent with the exception of documents and household effects. Consequently, cargo sales reps continue to focus on South America and markets farther a fi eld such as Atlanta and Charlotte for freight.
"I have to truck cargo from Atlanta for shipments on the fl ight out of Washington," Shah states. "Given the cost, this becomes a negative proposition for us. I’d rather not carry it." Meanwhile, connecting cargo from Latin America via United fl ights that service its US hubs then fl y onward to Shanghai offerssuperb opportunities.
"We can sell Shanghai-Sao Paolo, Brazil with the quickest same day connection that no one else can match," Shah says. The service is particularly benefi cial to companies such as Intel that sources components from China and moves tonnes of microprocessors for fi nal assembly in Brazil. The same holds true for other companies that outsource manufacturing in both Southeast Asia and Latin America. United’s connections bring a unique value proposition to the market forthese businesses.
Although yields are off in the Pacifi c, Shah reveals United is experiencing strong growth both eastbound and westbound across the Atlantic. "Our Atlantic volume year over year is up close to 16 percent with very little newcapacity," Shah explains.
Domestic freight volumes have also picked up, although still slightly down system wide, largely due to the fact the US economy is coming out of its recession. Positioning it well, United operates in a number of strong transcontinental markets such as betweenChicago and key West Coast cities.
Despite the pockets of good news, United executives continue to keep a watchful eye on the airline’s No. 1 concern: high fuel prices. These have resulted in the carrier having to implement Level 11 for surcharges, whichcomes to 55 cents a kilo.
"Overall as a carrier, these prices are very painful. We are a nickel off our historic highs," Shah states. Point blank, for every $1 oil producers add per barrel costs an airline like United $50 million. Equally worrisome, fi nding increases in fuel prices and surcharges are negatively impacting demand.
"For every nickel you go up, other cheaper modes of transportation become more attractive," Shah says. This is compounded by the fact that memories of longshoremen strikes on the U.S. West Coast are fading fast, and seaports and railroads are increasingly working more efficiently.
In addition, steamship carriers are ordering bigger and faster ships, thereby shaving days off of transit times. The business will further escalate with the widening of the Panama Canal."We are seeing a lot of products thattraditionally go by air go by sea," Shahobserves. "This is especially true in thePacific."
The fl ood of aircraft on order by Middle East carriers are also throwing a wrench into the air cargo market, although United is not yet feeling the pinch like its European counterparts."But we will when they start fl yingmore routes into the United States,"Shah says. Currently, Emirates offersthree times a week service to JFK. LastOctober, Etihad also added a routeto New York and has plans for SanFrancisco.
"These airlines have a lot of aircraft on order, a lot of resources and a lot of money," Shah comments. "The US is clearly part of the world they have not fully tapped into." Nevertheless, baring further increases in fuel prices, Shah is optimistic about United’s future. "We continue to anticipate 2 to 3 percent growth," he states.
Having aircraft positioned on the right trade lanes helps. Plus, United does not operate freighters. "If we did, it would be an uglier picture," he states."We generate every dollar of revenue inthe belly. It’s a very important piece ofUnited’s overall profi tability."
For 2007, he projects this to come close to $8 million. "When we plan for a new route, cargo is defi nitely at the forefront of that process," he adds. "We take a holistic approach to planning."
