American Airlines’ freight division is in the process of implementing a new cargo management system and fleet expansion, and e-commerce will be crucial for driving growth.
In late March, American Airlines (AA) expanded its reach to three offline markets with the appointment of GSAs in Croatia, Slovenia, and Kuwait.
The alignment with regional GSA R-BAG in the Balkans brought the US carrier’s footprint in Europe to 18 cities in 12 countries.
Freight from Croatia and Slovenia is trucked to European online stations, while traffic from Kuwait is fed through interline partners to AA’s gateways in London, Paris, Madrid, and Rome.
The airline is also boosting its online presence in Europe this year. Flights from Philadelphia to Budapest and Prague and from Chicago to Venice were due to commence in early May, to be followed with the launch of a Dallas/Ft Worth-Reykjavik service on 7 June.
In Asia, a major focus for AA’s expansion, the airline started Los Angeles-Beijing flights last November, using B787-8 aircraft.
American Airlines’ 787 fleet is set to grow, thanks to an order for 47 more planes of that type placed in early April.
This order – for 22 B787-8s and 25 B787-9s will bring incremental growth in cargo capacity, as the 787-8s aircraft will replace B767-300s, while the 787-9s will come in for A330-300s and older B777-200s.
The airline currently has 35 787s in service flying to points like Tokyo, Sao Paulo, and Paris.
The expansion of the airline’s network strengthens the position of its cargo division. Rick Elieson, who was promoted to president of AA Cargo in March 2017, regards the breadth of the network as a key strength.
His outfit has a strong focus on transit traffic, notably intercontinental flows connecting Latin America with Europe and Asia.
“Out of Asia, we have a good network. Is it the best? No. But from Asia to Latin America we have the best network in the world,” he comments. “Similarly, Europe to Latin America we are uniquely well-positioned.”
Usually, airlines have found better margins on selling individual sectors, but this does not apply to the current Asia-Latin America market, according to Elieson.
“I’d rather turn down the volume from Asia to the US in lieu of Asia to Latin America,” he says. “My yield US to Latin America is not that strong.”
He adds that most conversations with clients are not limited to one route, but look at the customer’s needs and how working together can resolve these while improving the overall revenue picture.
The door is open for further expansion in Latin America after the Brazilian authorities gave their blessing to open skies with the US.
This had been one of the conditions set by the US government for its approval of a joint venture between AA and LATAM Airlines.
At this point, AA has not unveiled any plans to ramp up its flights to Brazil. The joint venture plans with Latin America’s largest carrier are driven by the passenger business and neither side has revealed any plans or immediate desires in the cargo sector for joint activities.
There is an undeniable appeal in LATAM’s capabilities, but Elieson wants to identify first how such an alignment would affect AA’s ability to serve its clientele better:
“We don’t want to jump into bed with a partner just because they look attractive. What matters is what this means to our customers,” he remarks.
Interline arrangements with other carriers make up a considerable chunk of AA’s business. “We have a lot of interline relationships that are very important to us,” says Elieson.
“There are parts of Southeast Asia that American does not serve at all but they are very important to us.”
The emphasis on transit traffic entails a strong focus on the transfer points in the network and widebody connections between them.
Besides the obvious hubs, especially Miami and Dallas/Fort Worth, (DFW) this also extends to points like Chicago, Los Angeles, and Philadelphia.
Recently, AA deployed a widebody between Los Angeles and Philadelphia, which has a number of European connections. “There is not much local traffic in Philadelphia. Most of it is transit,” says Elieson.
The installation of a new cooler facility at AA’s DFW base last year was a key step for the development of further perishables flows from Latin America to Asia.
While this segment accounts for a large portion of the volumes that AA slots through the facility, the cool chain infrastructure at its hubs is also a vital plank for the pursuit of more pharmaceutical traffic.
AA is underscoring its attention to this with the pursuit of CEIV accreditation at its major gateways that handle pharmaceuticals.
“CEIV is a great initiative. We’ve been working in that direction for some time,” says Elieson. He stresses, however, that rather than the certificate itself, this is about being able to provide value to AA’s customers. Moreover, a CEIV badge cannot replace dialogue with customers.
Contracts that have grown out of tripartite discussions with forwarder and shipper, involving staff from the sales, operations and customer service groups have been the most effective, he explains.
“They tend to be most fruitful when they deal with problems, find solutions,” he adds.
Given the importance of connectivity and transit times, large network carriers have an advantage when it comes to attracting this type of traffic, Elieson says.
He attributes the improved utilisation of AA’s narrowbody capacity to the rise of e-commerce traffic.
To handle the increased volume of traffic on its narrowbodies, AA Cargo has striven to coordinate work between warehouse and ramp loading teams better and provide cross-training.
These efforts are not designed to make a play for business from large online merchants and selling platforms bypassing the forwarder.
American Airlines has no intention of going directly to e-commerce providers, stresses Elieson. He recalls the aftermath of the storm that devastated Puerto Rico last year.
As many AA employees had ties to the island, management invited them to ship relief goods to families and friends for free on its flights. The drive was a success, generating about 1 million pounds of cargo, but it quickly overwhelmed the carrier’s warehouse.
At some point the airline had to hold some shipments for later flights to make room for more strategic, larger relief shipments moving for aid organisations.
“It showed me that we don’t have the infrastructure to handle lots of individual shipments,” Elieson says.
In any case, this would not be the right time to launch a new product. AA’s line-up is relatively static for the time being while the company is bringing in a new IT platform, the iCargo package from IBS Software.
This marks a huge step for the airline, as the new platform is going to replace a patchwork of 91 different elements that are in play today.
According to Elieson, it is the largest single investment that AA Cargo has ever made in technology. “The platform is a game-changer,” he says.
Employees joke that the system will be able to solve everything, including making coffee for them. “It solves nothing. It’s not a process. You don’t have a new product suite. It’s a capability to develop one,” Elieson comments.
The migration to the new system will take some time. Its components will be installed and tested throughout this year, and the roll-out is scheduled to commence by the beginning of 2019 and should be completed by the end of next year.
Once it is in place, AA Cargo will have a powerful tool to develop new products, but it makes no sense to come up with new service definitions before the platform is up and running, Elieson says.
He does not feel hamstrung by the wait. The project of moving to a new system is not impeding AA’s sales efforts – unlike the existing platform, where further investment would not make sense, he argues.
He regards the ability to process and share data as critical going forward:
“I am a fan of broader data distribution, not just for pricing, but also for network and availability information. People who hold that data tight will find themselves relegated to obscurity,” he reflects, adding that customers want better transparency.
Over the past year, AA Cargo has implemented functionality that enables clients to access information on its website from mobile devices.
While the uptake has been good on the tracking side, the number of online bookings made through mobile devices is still disappointingly low, Elieson reports.
On the client-facing side, a major undertaking over the past year has been a revamp of the carrier’s customer service centres, adding services and improving turn and response times.
A new call centre was added that helps with the backend processes and bundles functionality that previously resided elsewhere in the organisation.
With these measures in place or progressing, Elieson is confident that AA Cargo can accommodate further growth without too much strain on its setup.
Last year his outfit registered 15 per cent growth in volume, outpacing the industry average of 9 per cent. Revenues were also up 15 per cent in 2017.
“Revenue growth was the same as volume, which means we grew on volume, not on yield,” comments Elieson.
A global rate increase that AA implemented in late October, the first in a long time, went some way to address this issue. “The market appreciated the need for rates to rise,” he says.
While much of this growth was fuelled by traffic into the US, exports have also shown upward momentum. “Outbound has been softer in recent years, but we’ve seen some good improvements in our contracts.
It’s nowhere close to imports, but it is improving,” comments Elieson.
The overall rise in traffic has carried into 2018 and indications from customers and analysts point to further growth ahead. “The outlook is good, despite the rhetoric on trade,” he says.
The threat of punitive tariffs on a number of goods is a concern. China identified fruit and some meats amongst the US commodities that face a 25 per cent tariff.
“Perishables is an important part of our business. It is an area that we focus on,” says Elieson.
For now, he is waiting to see how much of the rhetoric is negotiating tactics and how much is actually going to happen. His customers have not changed their arrangements to date. “So far, it’s not showing up,” Elieson says.
For more information on American Airlines Cargo, visit aacargo.com/index.html.