America West Airlines is finding it difficult to make money flying passengers, so the carrier is trying to bolster its bottom line by flying more mail and freight in the belly of planes.
In an industry hampered by high fuel prices, low fares and too many seats, extra space on the aircraft is being looked at with the intention of squeezing out revenue.
"What we’re trying to at a macro level is maximize the belly space with whatever product that may be, whether it’s mail, whether it’s freight, whether it’s fish," said Randy Richards, America West’s vice president of cargo sales and service. "What we want to do is just try to capitalize on as much revenue under the wing that we can."
From 2001 through 2004, U.S. airlines lost about $31 billion, according to industry estimates. This year losses are expected to be be between $2 billion and $4 billion.
America West’s parent company posted a $50 million loss during the fourth quarter of 2004. It was the second consecutive quarter the company lost money after five consecutive quarters of profits. For all of 2004, the Tempe company reported a loss of $89.9 million.
"In the times when things get a little tighter, you continue to look around," Richards said. "Cargo is receiving more exposure and maybe being looked at more now. It’s always been there, but I think it’s been a little bit further down the priority list."
In the fourth quarter of 2004, America West cargo revenue was up nearly 42 percent from the same time the year before, the airline’s financial filings show.
While the amount of freight the company hauled decreased in January 2005 compared with January 2004, the quantity of United States Postal Service mail flown by the Tempe airline tripled during the same time, according to numbers from Phoenix Sky Harbor International Airport.
In 2004, the company increased its cargo revenue to $28.2 million, nearly 5 percent higher than the year before. But cargo operations only make up more than 1 percent of America West’s total revenue, a number that’s no surprise to Robert Dahl, Air Cargo Management Group project director.
While he says many domestic carriers are looking to haul more goods, the amount they fly is relatively small compared to shippers like UPS, FedEx and DHL.
"Airlines are looking to make a buck and try and do anything they can to generate additional revenue and try and turn some of that into profit," Dahl said. "They certainly are interested in freight from that standpoint, but individually the U.S. passenger carriers are not very big players in domestic air freight business these days."
Still, in these desperate times where airlines have considered everything from doing away with pillows and in-flight magazines to charging for extra luggage, flying more goods is a smart idea, said Mike Boyd of the Boyd Group, a Colorado-based airline consulting group.
"Belly cargo, if it’s handled right, can be very lucrative," he said. "It’s all incremental revenue. Most of the cargo is not time-specific. If the airplane to New York fills up with luggage, it’s ‘We’ll get it on the next airplane’ in most cases."
Air cargo can generate as much as 7 percent in new revenue, Boyd said.
American Airlines was the first domestic passenger carrier to begin flying cargo 60 years ago. While the company doesn’t have them anymore, it used freighters to carry goods, Boyd said.
About 60 percent of the U.S. domestic market for air freight in handled by integrated shippers including UPS, FedEx and DHL, companies that buy planes big enough for huge shipping containers. But traditional airlines like United, Delta and Continental also carry cargo, Dahl said.
The low-cost, low-fare model airlines are trying to emulate makes shipping somewhat difficult, he said, particularly because freight is handled the same way luggage is — by conveyor belt and stacked in the plane.
"The normal type of airplane that’s used to carry passengers in the United States is a narrow-body airplane," Dahl said. "There’s not a lot of space, plus they’re trying to turn the airplanes around quickly . . . there’s not a lot of time for handling freight or making sure it gets on the right flight."
About 15 percent of air freight traffic in the United States is mail and some of that is handled by airlines like America West. Airlines haul about 20 percent of the regular air freight and another 5 percent of it is ferried by chartered airlines, Dahl said.
"What that tells you is FedEx, UPS and DHL together have about three times as much business in the U.S. domestic market as do all of the airlines combined," Dahl said. "In fact, on an individual basis, FedEx and UPS have more traffic than all of those airlines combined."
While larger domestic airlines like American and Delta fly goods over the Atlantic and Pacific Oceans, they generate less than 5 percent of their revenue from freight, Dahl said.
In contrast, major airlines in Europe like British Airways, Air France and Lufthansa receive at least 10 percent and, in some cases, 15 percent, of their revenue from freight, Dahl said. The number is as much as 45 percent for some large Asian airlines, he said.
Security constraints play a large role in air freight, particularly on goods stowed in passenger airlines.
Following the terrorist attacks of Sept. 11, 2001, the government restricted passenger airlines from carrying any mail packages larger than 13 ounces, Dahl said. "Obviously the threat is some sort of an explosive device," he said.
While passenger airlines are not required to screen 100 percent of their freight, at least one U.S. senator has introduced bills requiring it, Dahl said, adding it’s questionable as to whether technology exists to screen everything.
"I guess you could argue if there are individual shipments about the size of suitcases, then probably the technology is there," he said. "But as they start to become bigger and bulkier items, especially some of the ones that might go into the bellies of the wide-body airplanes, which do have containers, you might be trying to screen a whole container full of things at one time as opposed to screening individual suitcase-sized items."
Richards said America West is required to inspect a minimum of 10 percent of its freight.
Dahl said there are a number of measures in place to improve freight security, including using a data base of known shippers.
"In essence, it says if you’re getting a shipment from someone who is one of your regular customers, the odds of their being a problem with that are substantially lower than if its a customer you’ve never seen before," he said. "They have a lot of checks that they go through, not necessarily to open each and every box, but they go through a process that’s sort of a layered approach . . . where they try and identify some of the higher risk items."
Most of the goods America West hauls comes from freight forwarders, shipping companies that buy space on the jet based on the amount of weight it sends and the distance the goods will travel.
"We do have some direct customers on the perishable side, seafood and live tropical fish," Richards said. "Live tropical fish and seafood make up about 20 percent of our freight profit."
The company flies cargo on all its routes, including ones to Costa Rica, Mexico and Canada.
Richards said the dramatic jump this year in the amount of mail America West hauls is because of a new U.S. Postal Service contract that rewards carriers with additional volume based on performance. He said America West controls more than 9 percent of the postal service’s market share in the Valley, a record high.