Final Year Project ReportAn assessment of the Air cargo integration into Airlines Strategic business design, a decisive choice for market prosperity

u0968054

2011-2012BSc Air Transport and Logistics management

University Of Huddersfield

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Abstract

Air transport has always been linked to the global economy fluctuation. While the industry is facing cyclical fluctuation, innovation remains one of the answers that can lead the market to a higher competitiveness.

The aim of this study is too establish the perspective in air cargo transportation as regard as the strategic business opportunity that airlines can undertake. Does the strategic choice undertake by airlines justify their growth or does the market is set in a way that every types of airlines can operate cargo transportation as an ancillary revenue.

3. "What did you do?" –In an abstract, the description of the methods has to be concise, and much of the details of what was done must be omitted. However, in a few short sentences, you can give the reader a good idea of the design of the study, the context in which it was done, and the types of patients or measurements that were included.

Through a series of qualitative and quantitative research analysis as well as a literature review, this report establish the link in between the airlines strategic choice and their legitimacy and benefit to undertake such strategy.

4. "What did you find?" –It is important to give the main results of the study, not just in subjective terms ("We found

device X to be superior to device Y") but also in the form of some real data. You will need to choose which findings to report here: it should be the most important data in your study, and the findings on which your conclusions will be based. Do not include a table or figure unless you need it to show your results.

5. "What does it mean?" –• Here, space limitations generally limit you to a single sentence of why you think your

findings are important, and their potential implications. Keep your conclusions reasonable and supportable by the findings of your study. Remember that if your study was restricted to certain patients, or a particular therapy, or a specific device, its results may not extend beyond these restrictions.

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Acknowledgements

From the idea to the redaction, this report is the fruit of a reflection made thanks to the discussion undertake with colleagues and tutor as well as relatives of the air transport industry. I would like to thanks especially my comrades that made my reflection evolved and prosper through numerous discussions as well as former colleagues of Air France that helped me to have a concise and detailed view of the air transport industry. I also would like to thank Mr Dewulf for it implication and it enthusiasm about my final year project subject.

Whom to thank

Usually it’s up to you to decide whom and how many people you are going to mention in your acknowledgement, but the general requirement presupposes moderate restriction upon the categories of the “acknowledged”. You cannot honour everyone in the world; on the contrary, it is utterly impolite not to thank anyone at all. Try to find the golden mean in the matter, selecting the most obvious, notable and significant contribution from your closest surrounding. Do not invent any imaginable contributors to add weight to your paper; you can find the people to thank around you, just look properly.

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Table of ContentsAbstract................................................................................................................................................................................................. 1

Acknowledgements..........................................................................................................................................................................2

Whom to thank..............................................................................................................................................................................2

Introduction........................................................................................................................................................................................ 5

Air Cargo expectation and Perspectives: a literature review of the Air transport Sector................................8

A) THE AIR TRANSPORT INDUSTRY AND ITS CHARACTERISTIC.....................................................................8

1) Types of air transport operators............................................................................................................................8

2) Factor affecting air transport:..................................................................................................................................9

a) Economic regulation/ deregulation:..................................................................................9

b) A walk leads by demand:...............................................................................................10

c) PESTEL Analysis of the sector:.....................................................................................10

d) Investments attract economic growth:............................................................................11

3) Nature of the air transported product:.............................................................................................................12

B) THE AIR CARGO MARKET: COMPETITOR AND OBJECTIVE.............................................................................13

1) Main types of competitor of the Air cargo industries.....................................................................................13

a) All cargo carriers.........................................................................................................................................................14

b) Combination carriers................................................................................................................................................15

c) Integrators..................................................................................................................................................................... 16

2) Different strategy applies to the different competitors.................................................................................17

a) Product strategy..........................................................................................................................................................17

b) Market strategy........................................................................................................................................................... 18

c) Network strategy........................................................................................................................................................18

C) THE FUTURE OF THE AIR CARGO MARKET............................................................................................................19

1) Future trends....................................................................................................................................................................19

2) Challenges.......................................................................................................................................................................... 19

Main Findings.................................................................................................................................................................................. 20

a) Industry relatives............................................................................................................................................................20

b) Different demands different needs..........................................................................................................................20

c) Strategic business design and revenue management......................................................................................20

Équilibre de Nash...........................................................................................................................................................................20

Air Freight future: a place for improvement and innovations?.................................................................................22

a) Analysis on Air Cargo Forecasting...........................................................................................................................22

b) Benefit of partnership and alliances.......................................................................................................................22

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c) Does Air Cargo have space for innovations?.......................................................................................................22

Conclusions and Recommendations......................................................................................................................................23

APPENDIX.......................................................................................................................................................................................... 25

Appendix 1: Growing deliveries from Aircraft manufacturer...............................................................................25

Appendix 2: World Growth Domestic Product and Air Cargo traffic Correlation.........................................26

Appendix 3: Cycle within the air transport industry:................................................................................................27

APPENDIX: Boeing Company forecast in RTK’s...........................................................................................................28

Appendix : Leading 25 Air Cargo Carriers – Total FTK (2010).............................................................................29

Bibliography..................................................................................................................................................................................... 30

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Introduction

The dream of mankind has always been to rub shoulders with stars, the first step of this journey is to rub the birds. Since the dawn of time man has always desired rub birds, discover the secret and enjoy the benefits extended by avoiding sea, mountain, and precipice. As stated into the Greek mythology, Icarus was the first man that was able to fly allowing him to fly over the sea and flee the oppression of king Minos. Then thanks to the first flight of the Wright Brother’s in the late 19 th century, the air transportation seems to be possible without crashing. Primarily used for military purpose with recognition mission especially during the First World War, aircraft then allowed population to considered traveling farther and faster. This mode of transport represents one of the major evolutions of the 20th century. In Europe, the end of the Second World War climate was truly tense. During the Berlin Blockade, aircraft was the response for West Berlin population, which were surrounding, enabling common consumer goods and fuel delivery from the ally in order to resist to the Soviet Union embargo.

The technological innovation resulting from the air transport industry allowed great changes into the interconnection between countries and enables great changes into customer habits. This way of transportation has grown in a correlation to the Growth Demographic Product and the trade between countries, the more trade and globalisation have been made the more the air transport is developing. With a wider market opportunity, and the massive importance of the tourism industry, bigger and faster transportation device has led to increase the trade and the competitiveness of the industry. On a technologic basis regarding to the air transport by itself but also other industry the benefit can be a wider range of purchasing opportunities, new market opening’s and a wider range of destination to offer for a welfare population.

The airline industry can be divided into three different types of transported product: Passenger, cargo and mail. This product differentiation permits a segmentation of the market and enables a great competitiveness. Where passenger and mail industry are extremely time sensitive, with regards to the needs for passenger to have shortest travel time and mail to have quick transit time, cargo customer can still get other mode of transport in order to response to their expectation. There is four main points that enable the customer to make decision that an airline has to consider: What type of product? What price they have to charge for it? Where they sale it? And what kind of promotion they have to do to present the product to the customer?

The jigsaw of the air transport market is composing of different characteristics, on the political side since the deregulation act of the US market in 1978, which help “the consumer of air travel with lower fares and freeing business from the “dead hand of regulation”.” (BAILEY, 2008), the company gained more margin of manoeuvre for selling product, as the market grow the possibility for airlines to make profits grow as rapidly. However this deregulation act wasn’t concerning the Air cargo which had already a year before sign a deregulation acts for Air Cargo only. With this new deregulation the liberalisation of the skies allow company to get more flexibility to enter new market through inter-countries agreement.

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Air cargo market is affected by several factors which influence it demand fluctuation. From economic factor, which acts on the demand by increasing or decreasing the World trade flows to the environmental regulation that become more and more strict and demand constant investment into new technology and new strategy to conduct the market as smoothly as possible. Technological factor remains one of the main factor that affect the market through a constant increase in fuel efficiency, aircraft size or propulsion engine capacity.

Nowadays company are trying to enhance their revenue considering competitors and the pressure that they have on their business, the uncertain economic climate, and the actual tendencies such as the hedonism, the mass tourism, airport strategy, the international trade fluctuation and other impact on the air transport market. Boeing company stated that the world air cargo demand will grow with an average of 5, 9% a year for the next 20 year1. The sector has been touch by the economic downturn, while trade flow is going down the whole sector is disturbed. Thanks to better communication and the introduction of different business strategy the sector as set a number of parades against the economic downturn, and the trading scope of company is wider and enable a sustained growth of the air transport market.

The air transport market has reach is maturity2, according to Kevin Michaels, Co-Founder and Partner of Aero Strategy, due to several factor including the increase of cost of fuel that affect the revenue of air transport market and so increasing the cost allocation of airlines, the deregulations of the market that affect the competitiveness and give less space for growth but also due to the growing threat of the substitutes that lead to less market share and bring the market to the last stage of a product life cycle: the decline stage.

1 The Boeing Company: World Air Cargo Forecast 2010-2011 “Demand for air cargo transport rebounded sharply in 2010 after a calamitous 18-month decline that began in May 2008. In spite of this downturn, world air cargo traffic will triple over the next 20 years, compared to 2009 levels, averaging 5.9% annual growth.”2 “Aero Strategy believes that air travel – at least in North America and Europe - is in fact a mature market and that these forecasts are likely overstated.” (Kevin Michaels, 2011)

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This paper deals with the air cargo integration into the airlines strategic business design. It focuses on the revenue management that company are expecting to enhance through several business designs. Different needs conduct to different way of satisfy them. The airlines industry has really understood the concept of market segmentation through the implementation of different business that is built in order to answer to the different demand. Where certain companies are leading into all cargo transportation market other are specialised into combination between passenger and Cargo and other companies such as the integrators that profit of a wider range of opportunity to operate on a door to door basis. The aim of this report will be to determine if it is or not relevant for airlines companies such as combination carriers to confront the dedicated cargo companies into the air cargo market. It will deals with strategic decision along the market to establish or not the relevance for combination carriers to set up a cargo sides and so on separate the two activities like Lufthansa group. Does the airlines industry could find an interest by achieving alliances with 3Pl’s company?

Through a literature review showing the accuracy and efficiency of the different markets operators, the actual status of the markets, the key factor affecting it and the market strategy often used by operators as well as the future expectation of the market. Then the report will discuss about the different offer that operators are giving to respond to the demand and try to identify if the different entities present on the market are dedicated to respond to different types of demand or are they all trying to answer to the same demand. Does the strategy powered by the different type of companies are efficient? Does the competitiveness of integrators aren’t in combination carriers light? The report will finally deals with the air cargo future through an analysis of air cargo forecasting, analysing the benefit of alliances strategy and asking the question of the innovation perspective that the market could offer.

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Air Cargo expectation and Perspectives: a literature review of the Air transport Sector

A) THE AIR TRANSPORT INDUSTRY AND ITS CHARACTERISTIC

1) Types of air transport operators

Three entities can be identifies into the air transport industry, line-haul operators, integrated/courier/express operators, niche operators (Reynolds-Feighan, 2009).

Within the first entity, three types of operators has been identify, the All-cargo operators such as Cargo Lux that operate scheduled and charter service on several destination but with a dedication to only cargo operations (Cargolux, 2010); Following by the combination carriers3 such as KLM-Air France that operate scheduled flight and operating passenger and freight on the same aircraft, using belly space or ad hoc freighters (Dewulf, Meersman, & Van de Voorde, 2011); and the passenger operators that only uses belly space within their passenger aircraft such as Iberia. These three types of companies operate on an airport-to-airport system without taking into account the whole supply chain linked to their business.

The second entity regroups the integrator4 identify as being company operating on a door-to-door system that can benefit from a ground network such as FedEx, UPS or DHL, which confer them a serious advantage on entities previously presented. They offer a various products differentiation and a multimodal network that helps to raise a strong worldwide network mixing flexibility of the road transportation and speed of the air transport. Moreover they can offer logistics expertise as opposed to the first entities due to their door-to-door system.

The third and final entity regroups all the niche operators5 that operate on special consignment. This type of entity mostly attract customer who needs specialized transportation.

3 “Combination carrier is an airlines that transports both passengers and cargo, usually on the same aircraft” (Doganis, 2006)4 “Integrator: they perform their own pickup and delivery services of smaller parcels, operate aircraft and trucks to support the door-to-door delivery operations supported by advanced information and communications technologies.” (Morell, 2011)5 “Carries oversized cargo, uniquely-shaped loads and dangerous goods worldwide on scheduled, on-demand and emergency charters” (Heavylift, 2011)

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2) Factor affecting air transport:

a) Economic regulation/ deregulation:

Rigas Doganis has stated that the airlines industry is a complex and dynamic industry subject to several factor for change and innovation in a rapid globalise economy (DOGANIS R. ,1991). The expansion of this mode of transport has been unrivalled over the last 50 years by any other modes of transport because of the speed and technological advance made in this area. These comparatives advantage that benefit to the sectors allowed customer to see a decrease in term of fares and an increase in terms of transportation times due to higher competition over the years. Even when the industry where facing economic downturn, such as oil crisis or a weakening of the global economy.

The liberalisation of the skies that lead to an increase of the competition between airlines and the implementation in the late 60’s of the charter service and low cost charter airlines but also aimed them to gain access to larger market and to open new routes and a reduction or an enlargement of the fares offer. Tae, Hoon and Oum wrote in their report that the liberalisation of the market conducts to stimulate the market by increasing traffic capacity and reducing fares by expanding their network and by developing hub and Spoke system (Tae Hoon Oum, 2009). The aggressive competition resulting from the liberalisation finally benefit to customer via an enhancement in terms of quality standards and productivity level.

It had positive influence on the major airlines that were able to enhance their productivity and survive to this aggressive market environment, and help to participate in the market cleaning by eliminating small companies as well as unable or unwilling to adapt this market which resulted in the bankruptcy of some companies or their acquisition by larger company.

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b) A walk leads by demand:

In his book, Doganis present the different aspect that affect the airline market from the cost to the nature of the demand. “Understanding the demand is the first step in the marketing process” (DOGANIS R. , 1991). Expected Demand will help to establish strong forecast, helping the fleet management and strategic choice to be done and also the price positioning.

The main strength is being able to take advantage of technological advances. With the increase of propulsion efficiency seeking for military purpose at the first place and then adapted for the civil use. Several authors agree that the airline is run by, among other technological innovations, which it benefits.

Thereby the market will be subject to a kind of cyclicality in terms of innovation, allowing it to bounce cycle after cycle and renewal this attraction. From capacity increase (see Appendix 1: Growing deliveries from Aircraft manufacturer) allowing more ASK6, to the propulsion efficiency enhancement with better jet engine, fuel efficiency improvement, the Air transport industry first characteristics is its ability to profit of innovation improvement that enable the whole industry to stay highly competitive regarding to its competitors.

6 American airlines define the ASK as: Available Seat Kilometers (ASK) captures the total flight passenger capacity of an airline in kilometers. It is obtained by multiplying the total number of seats available for scheduled passengers and the total number of kilometers those seats were flown. (American Airline, 2011)

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c) PESTEL Analysis of the sector:

Air transport industry can be affected by several factors. A PESTLE analysis clarifies the different macroeconomics factors affecting the market. On a political point of view, economic regulations and deregulation that states has implemented through open skies agreement, and anti-trust immunity or safety standards. On the economic point of view, the economic growth is obviously the main factor affecting the sector, as notice in the Boeing report on world Air Cargo Forecast (see Appendix 2: World Growth Domestic Product and Air Cargo traffic Correlation), the world economic fluctuation are affecting the air cargo traffic, as well as innovations cycle such as Kondratieff cycle7 (see Appendix 3: Cycle within the air transport industry), where the Russian economist have found a correlation between economic cycle and innovations in capitalism system.

On the Social, demographic changes as well as lifestyle are affecting the sector, more people travelling more often and it has for consequence an increase of the exchange, and the globalisation participate to facilitate to these exchange offering a wider market. Technological factor also affect the market, with larger and faster aircraft, the air transport industry meet more demand for fast shipping and bigger shipment. Environmental factor also begin to be a large part of the factor through a number of regulations affecting air traffic management, pushing the manufacturer and their customer to operate a continuous improvement policies to reduce CO2 emissions, noise effect, and to constantly look for proper fuel.

The brand awareness is also an important factor regarding the environmental perspectives where company have to “go green” to satisfy the vision that customer has of environment friendly company. Legal requirement have been reinforced, from the Chicago convention in 1944 a lot has been made and has been specified, especially in terms of passenger protection, security and safety statement.

d) Investments attract economic growth:

7 The Kondratieff waves, or cycle, has been discover by Nicolai Kondratieff and are define as a cycle in economics activity in the world economy, ”where technical innovation often cluster during recessions, when they open the door to revived profits and to wider transformations,[…] often associated with technological revolution and structural growth” (Gregory, Johnston, Pratt, Watts, & Whatmore)

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However, these technological advances require a perpetual demand for investment(DOGANIS R. , 1991). The aircraft manufacturer tried to provide to their customer better financial arrangement in order to facilitate their order. Such investments lead to better market share via first holder advantage. While conquering the mass market, airlines needed to improve their revenue by offering services that could help customer to differentiate company and start to retain their customer.

Airlines business model can be split in many ways regarding their product, their customer specification or their network for example, for Rigas Doganis, has stated that airlines can be differentiate via their network specification and sorted two type of airlines:” The majors developed hub-and-spoke operations through their hub airport(s), thereby providing good on-line transfer connections to most points passengers would wish to travel to.” while low cost carriers will prefer point-to-point system (DOGANIS R. , 2006).

The Hub and spoke system is, regarding to the Tae-Hoon-Oum study, affecting demand and cost (Tae Hoon Oum, 2009). The system helps to increase the demand through increasing routes and also help to reduce the cost through the increase of flight frequency. That also helps to increase the demand by offering more and multiple destination. The hub and spoke system represent one of the different strategies that airlines had put in place to face competition.

3) Nature of the air transported product:

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Air transport can be divided into three type of transported product on an airlines point of view. The transports of goods into the air transport sector are passenger, freight and mail. The main challenges of airlines are essentially to provide competitive services based on the length of the transportations and on the accuracy of their delivery. This report is primarily focused on the appearance of Cargo section of the air transport market. According to the Lufthansa, “This includes live animals, valuable cargo, airmail, dangerous goods and also the transport of temperature-sensitive goods.” (Lufthansa, 2010). The products transported by air are driven by two important variable, value and time sensitiveness of the product.

While Peter S. Morell stated that air cargo product could be divided into 6 different types of product transported within an air cargo airlines position that can be divided through the two variables enumerated below, the valuable product such as High tech product and capital equipment (industrial machinery) and the time sensitive product such as the fashion industry product, the consumer product (newspapers), the intermediate product (semi-finished product), and the refrigerated foods.

Craig Voortman support the idea of a separation of the two variable in terms of time and cost for transit planning, according to the cost engaged, the value and the destination, transport manager have to make a decision based on the following three variable (Cost, Destination and Urgency):

(Voortman, 2004)

B) THE AIR CARGO MARKET: COMPETITOR AND OBJECTIVE

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1) Main types of competitor of the Air cargo industries

Dewulf stated a number of competitors type within the air cargo market, and found different strategy regarding their characteristics, from the entrepreneurs groups to the stars groups.

(Dewulf, Meersman, & Van de Voorde, 2011)

It assesses the different group regarding three types of strategy regarding their network, product and market strategy and categorise them through these characteristics (Dewulf,Meersman, & Van de Voorde, 2011). All of the six types of carriers are operating on the air cargo markets with several differences regarding their strategy.

However the study that has been done by Dewulf doesn’t take into consideration the importance of the integrators on the market.

a) All cargo carriers

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The all-cargo carrier’s entities are divided into two main types that are the entrepreneur status and the stars status according to Dewulf. The entrepreneur status is defined as one of the six entities within the air cargo market. Companies such as Virgin Atlantic represent the entrepreneur status, in the specific air cargo market companies such as CAL Cargo airlines who operate with only two dedicated aircraft to cargo and only on certain routes (CAL Cargo Airlines,2012). Air cargo sector is split through different managerial governance that is represented on one side by the niche market operator such as charter airlines (Michael Carney, 2006).

On one side, the “Entrepreneur’s” status on the air cargo market does apply a minimum service based on basic product differentiation and seeking to maximise their influence on the market they are on. The case of CAL cargo airlines is quite a good example of it where they only operate on specific routes with a single fleet management. The principal goals of niche market operator being to break the market, meaning that competitive behaviour of these companies are meant to compete on certain route, considering cargo as a basic product where management should go right to the goal without any distinction between them.

On the other side the “Stars” status regroup companies that only operates cargo but on a higher level, operating cargo operations with a wide range of product and seeking to improve the management line to gain more and more market share. Using a scheduled and charter services on several routes, the aim of these operators is to consider freight as being a source of revenue and usable by developing a profitable product line. For all-cargo carriers contained into the “Stars” group, air freight is considered not an ancillary product but as a core capability of their offer. Companies such as Cargo lux who only operate cargo for dedicated freight forwarder has developed distinguish fleet management to sustain the different needs of their customer (Cargolux,2012) compared to the “Entrepreneur” status that operate on a single fleet basis aiming a lower maintenance cost and commutable fleet. Another competitor on the all-cargo air market will be Air Bridge Cargo which is actually “the largest Russian carrier in the international scheduled cargo market.” operating on the Europe-Russian-Asia market with the help of other carriers through agreement such as Nippon Cargo Airlines, Emirates and Cargo lux (Air Bridge Cargo, 2012).

The all-cargo market represent a conglomerate of different shipper that arrange the transportation of cargo shipment into consolidation strategy, meaning that they make their shipment out of different customer to consolidate their shipment into a whole shipment that can be transported via an air container.

b) Combination carriers

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The Combination carriers entities are divided regarding their implication into cargo transported product. A combination carriers will dedicated the most part of his resources to the passenger and consider cargo as an ancillary revenues that can benefit from its network strategy. This group of carriers can be divided into three main types of carriers according to Dewulf.

The first group of combination carriers is named the “Carpet seller”, such as Iberia, that only consider cargo as a basic product offering no product differentiation and profiting from the belly space to transport cargo, the revenue expecting from the cargo is low and the cargo operation are only done following the passenger network. Within these types of combinations carriers, cargo is conveyed to create additional revenue but not considered as a core business; in this particular case the cargo revenue is considered as a plus but not as essential for value added perspective.

The second group is named the ”Professional”, are passenger focused airlines that also operates cargo services within the belly space and through occasional utilisation of Freighter, this group is one level up to the carpet sellers, based on passenger network but with a dedicated sales department for cargo operations. This particular group is cargo sensitive and consider cargo as a real product with perspectives. The “professional” is the middle class of air cargo airlines that consider Cargo as an important part of the business and tends to follow the trends of the market via management improvement and seeking for an increase of their marginal cost, reducing the cost linked to the cargo using the passenger network. Through the development of dedicated product to dedicated customers, the “professional” try to compete with the All-cargo leading companies, offering dedicated product to their customers and responding to some of their particular demand, such as the range of product of BA world Cargo going from “unaccompanied bags” for individuals to “constant fresh” for refrigerated product (BA World Cargo, 2012).

Combination carriers are seen as market breaker or just offering the basic formula but some particular airlines try to stay positive and try to prosper through the implementation of door to door strategy, thus entering the market of integrators8. This is the case of Cathay Pacific that entered the express market and offering Airport to door delivery competing with integrators.

c) Integrators

8 “some combination carriers try to stay competitive by offering time-definite, door-to-door services themselves (Onghena, 2008)

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While most of the above entities are using an airport-to-airport system9, integrators10 are using a system of door-to-door that allow them to operate on a full supply chain basis, this is considered as a huge advantage offering to their customer a wider offer. Integrators such as UPS, FedEx or DHL are able to rest on their network. Through the use of their whole supply chain system, the integrators are able to answer to the different demand of their customer and are able to provide a wide range of destination resting on their ground network (road transportation). Through the flexibility they have shown, the integrator conferred a huge advantage that can be placed at the disposal of cargo companies to finalize their order.

The actual strategy that integrators has undertaken allow them to be part of the different group cited above, through a wide range of product differentiation and a huge network, the integrators can sustain their strength into the air cargo market. The use of their networks makes them an ally of choice in the competition raging between the different entities of air freight sector. Cooperatives strategy and network strategy remains one of the main advantage that integrator can take advantage of.

According to Evy Onghena, form the Department of Transport and Regional Economics at the University of Antwerp, Four main integrators are leading the market, UPS, FedEx, DHL and TNT, coming from different operating area, they finally end up in the air cargo market underlining the interest around the air transport market and developing a high competitiveness regard to the different entities of the air cargo but also dealing with alliances agreement (Onghena, 2008).

The integrators entities have their place in the hand of the airfreight market by offering a high reliability and a high speed delivery network that allow them to face the giant “professionals” or “Stars” of the market using their own aircraft and storage facilities.

“They -Integrators- have developed this unique capital and know-how basis, which they can use for the express delivery of a wider range of cargo shipments”

(Button & Stough, 2000)

2) Different strategy applies to the different competitors

9 “5.3 SERVICES NOT INCLUDED IN PUBLISHED RATES AND CHARGES Except as otherwise provided in Carriers regulations, rates and charges apply only from airport to airport and do not include any ancillary service given by CARRIER in connection with the CARRIAGE.” from Cargo lux condition of carriage (Cargolux, 2012).10 “Freight integrators are transport service providers who arrange full load, door-to-door transportation by selecting and combining without prejudice the most sustainable and efficient mode(s) of transportation.” (Commission of the EuropeanCommunities, 2003).

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Airlines operators have implemented strategic management in order to fulfil a number of conditions that will help them to operate their business through an overall guideline, according to their key strategic issues. Within the Air cargo industry, three main strategies has been implemented, in accordance with Dewulf, Meersman and Van de Voorde research product strategy, market strategy and network strategy remain the three principal strategies (Dewulf,Meersman, & Van de Voorde, 2011).

a) Product strategy

The product strategy that airlines can undertake to succeed and prosper within the market is based on several factors such as product differentiation, yield management, customer relationship management, Third party focusing capabilities and alliances within the market. The product differentiation has been create for certain companies to answer to the vary of demand that air cargo customer have been formulating from the value added product to the live animal through the special shipment such as refrigerated goods that needs special treatment. The product strategy has been established to enhance on one side the competitiveness of the different companies (Delfmann, Baum, Auerbach, & Albers, 2005). On the other side the product strategy also helps to answer the characteristic changes within the demand.

(Button & Stough, 2000)

Product strategy changes with customers’ needs changes, as stated along strategic management within aviation management books, new product lines and new strategy has to be set up to answer customer needs (Kemp & Dwyer, 2007). Yield management also known as Cargo revenue management is one of the key decisions for the air cargo market that needs to be improve in order to minimise cost and maximise the revenue on each route that the company operate(Kasilingam, 1996). Alliances and third party focuses are most likely depending on market strategy that airlines have undertaken along their globalisation process to benefit from the shared network of their associate.

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b) Market strategy

Market strategy within the Air Cargo transport sector is driven by distinctive perspective regarding the market positioning of the company. The air transport market is based on an oligopoly scheme11, where integrators, all cargo and combination carriers are sharing the major part of the market.

Freight Transport Company has to set up their positioning on the market according to the place they want to occupy within the market. Two main positioning can be identifying as differentiation or expertise positioning. According to Porter, with it theory around the competitive advantage, four main types of market strategy can be identifying to achieve a competitive advantage. The following table highlight the two principal directions that airline can take which are either a lower cost position translating a need to cut the cost made within the operation to gain a high competitiveness and respond to the demand or a differentiation that can led to a diversification in terms of customer to reach as many customer as possible.

(Flouris & Dostaler, 2010)

c) Network strategy

11 The oligopoly is an economic situation in which few companies control the major part of a market and target their action to maintain their control.

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(Bauer, 2007)

C) THE FUTURE OF THE AIR CARGO MARKET

1) Future trends

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2) Challenges

Within the spectrum of the market that Dewulf made, some aspect of the market can be taking into account such as the place of integrators within the competition. Providing a complete offer with the door to door system, integrators can definitely compete against all-cargo carriers’ strength and combination carriers’ network benefit.

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Main Findings

a) Industry relatives

b) Different demands different needs

c) Strategic business design and revenue management

• (3000 words)

Équilibre de Nashconnaissant leurs stratégies réciproques, est devenu stable du fait qu'aucun ne modifie sa stratégie sans affaiblir sa position personnelle.

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Air Freight future: a place for improvement and innovations?

a) Analysis on Air Cargo Forecasting

b) Benefit of partnership and alliances

c) Does Air Cargo have space for innovations?

Pendigton –to lhr train check in

Lufhtansa cargo contest

• (3000 words)

http://www.guardian.co.uk/environment/2010/jun/30/blimps-aircraft-freight

http://www.boeingcapital.com/p2p/archive/03.2007/r1v7y2007_35.htm

http://www.wingas.de/2081.html?&L=1

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Conclusions and Recommendations • (1000 words)

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APPENDIX

Appendix 1: Growing deliveries from Aircraft manufacturer

(Dihora, 2011)

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Appendix 2: World Growth Domestic Product and Air Cargo traffic Correlation

(Boeing company, 2010)

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Appendix 3: Cycle within the air transport industry:

(Boeing Capital, 2007)

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APPENDIX: Boeing Company forecast in RTK’s

(Accenture Consulting, 2007)

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Appendix : Leading 25 Air Cargo Carriers – Total FTK (2010)

(Wouter Dewulf, 2011)

(Air Transport and Airport Research, 2010)

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Appendix: IATA industry statistics

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:

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