“Just as airline ticketing technology evolved nearly two decades ago, enabling a direct connection between the passenger and the airline’s distribution networks, SmartKargo technology now provides a similar business solution for the air cargo industry. . The transactional solution connects directly with an online retailer in the e-commerce cart to automate and direct the shipment of the package right to the consumer’s doorstep. ”
– Milind Tavshikar, CEO, SmartKargo
Given the impact of the pandemic on airline revenues in 2020-2021, airlines are looking for new sources of revenue. The opportunity for airlines to generate additional revenue from their cargo units has become increasingly important, although the focus on rebuilding passenger revenues remains preeminent. And since business travel is unlikely to return to 2019 levels over the next 5 years, if ever, long-term impacts on passenger revenues are expected.
Airlines are finding new ways to fill this revenue growth gap by moving not only heavy freight but also e-commerce packages. The growth of e-commerce has exploded during the pandemic, fueling the already growing shift in land-based shopping. As a result, many retailers are closing stores and directing consumers to online options to purchase their products. E-commerce sales are expected to grow at a CAGR of 6.4%, from around $ 5,000 billion in sales globally this year to $ 6.4 trillion in 2024. This rapid growth is fueling strong demand for air freight capacity.
Since consumers want to get their packages quickly, retailers need to ship by the fastest mode of transport to meet customer expectations. Consumers are increasingly willing to pay a premium for the fastest shipping method from their online retailer, further increasing the returns on each shipment for the airline.
This opportunity is now being exploited by a growing number of airlines who see the revenue potential of online transportation through their freight units. What is uncovered is how vast the opportunity is, as airlines that have deployed the technology and processes are reaping huge rewards in the form of revenue and high yield growth.
Airlines, with their regular daily service and multiple frequencies to key markets, are uniquely positioned to meet consumer demand for fast shipping and delivery. And e-commerce packages, typically weighing between 1 and 10 pounds on average, are a great fit for an airline’s domestic fleet. But, how is the innovative direct-to-consumer sales process of an e-commerce package different from traditional air freight?
When an e-commerce package is sent to the airline, the shipment is treated as a single passenger. So far, airlines have captured only a small portion of e-commerce revenue by selling cargo space to middlemen at low and general rates for freight. When freight space is purchased through these intermediaries, mega integrators like FedEx or multinational freight forwarders like DHL typically pay the airline’s lowest general freight rates for transportation.
In 2019, half of all global air cargo volumes were carried in the underbelly of passenger airlines, mostly on international wide-body flights. With the reduction in passenger numbers over the past year, many airlines have mushroomed with a surprising number of all-cargo flights, and have even modernized planes to use cabin space. The traditional air freight activities of airlines largely depend on relationships with those intermediaries who ship containerized or palletized freight, also at lower wholesale or general freight rates.
The flight space on their home network, however, is usually loaded in bulk like the baggage of narrow-body planes. These planes often fly with only 50% of the cargo capacity used on a given flight. And with passengers carrying less baggage in recent years due to baggage fees, more stomach space is generally available today for additional cargo.
In light of these recent changes, airlines are taking creative steps to meet the high demand for air cargo capacity in order to increase their revenue gaps. Airlines that have adopted the technology and processes to automate the e-commerce shipping and delivery process are now seeing exceptional revenue growth from their previously underutilized domestic flight networks.
Competition is another factor for the airline and the retailer. Amazon is buying more and more planes and partnering with airlines to manage their fleets. Amazon continues to increase its capacity. Ecommerce businesses are always concerned about Amazon and are looking for fast and efficient alternatives to shipping their packages to customers. Airlines can meet this need, increase revenue, and deliver a competitive e-commerce offering that allows the retailer to effectively compete with Amazon.
Azul Brazilian Airlines, one of the early adopters of the SmartKargo e-commerce shipping solution for airlines, achieved an astonishing trajectory of freight growth of 48% in 2019 and 36% in 2020, even with the cuts significant thefts suffered during the pandemic. They achieved this goal by building what amounts to a national freight revenue engine, processing massive volumes of 300,000 to 400,000 shipments per month. This equates to sending an Azul e-commerce package approximately every 3-4 seconds. In a short time, they developed a dominant position in the Brazilian market to provide e-commerce packages to 96% of the Brazilian population, using their existing national fleet and a few dedicated all-cargo planes.
SmartKargo technology automates the shipping journey, starting with the online transaction at the retail site. The cloud-based platform provides real-time data visibility and seamless transparency between all parties through mobile apps. EDI messaging facilitates transactional communications that govern shipping and delivery details for every step, from the online shopping cart to the customer’s doorstep.
The Azul Brazilian Airlines use case demonstrates how the SmartKargo technology solution, in conjunction with the strategic goals of Azul’s executive and cargo teams, delivered a remarkable freight revenue engine using the flight network of domestic airline passengers. By focusing on the high growth and high yield e-commerce market, they have been able to increase freight revenue by an incredible 203% since 2017.
This unprecedented growth has landed the largest e-commerce shipping market share in Brazil (60%). Azul has rivaled, if not surpassed, the region’s biggest integrators, namely giants like FedEx and UPS, becoming one of the biggest players in e-commerce logistics in Latin America.
To implement the technology, SmartKargo deploys a team of seasoned airline, technology and e-commerce experts to implement the system and establish business processes alongside the airline’s cargo team. There are a variety of models that airlines choose to achieve their goal of building a successful e-commerce cargo business. Airlines around the world are starting to implement the SmartKargo e-commerce solution, and remarkably, in just a few months. API integrations allow airlines of all sizes to “wrap” the solution around their existing air cargo management systems to extend the new profitable line of business, with little upfront investment.
One of the latest SmartKargo deployments involved Norwegian carrier Widerøe Airlines. Thomas Lone, Cargo Manager of Widerøe, said: “The growth of e-commerce offers a significant opportunity for airlines like Widerøe, especially in these times when passenger travel revenues have declined. SmartKargo integrates all of our partners and allows us to make more full use of the cargo capacity of our aircraft, leverage our strong brand across Norway and generate higher returns through integrated logistics. “
The solution creates a real win-win for airlines who benefit greatly from high-yielding revenue growth, while consumers and retailers are thrilled with the breakthrough they are receiving in speed and efficiency. shipping their products. Retailers need the capacity and improved service levels just as much as airlines need the new revenue engine.