Wednesday, October 03, 2007

People Ain't Packages

My pal Saj over at Fleetbuzz (bes' li'l ole blog in the UK) has a new piece that examines the hangover that we're all experiencing after the BA order, which was a vote on the future of air travel in a lot of ways.

He makes a convincing case that the big twin engine, twin aisle long hauler in point to point service is the future of passenger traffic and that the B747 and A380 may well be the last we see of "4 Engines 4 Long Cattle Hauling".

Of course, the difference between the B747 LargeEconomySizeLiner and the Airbus A380WoolyMammothLiner is that the development costs are a lot more manageable with the Boeing product, as the development tab for the A380 is now at an astounding $18 billion and counting spread over a relatively slim order book.

In passing he makes a point that I think most important, so important I wondered why I never thought of it before, and that is that freight is the purest model of the economics of air travel.

How's that, you say? Simple.

Packages don't care about airport lounges or duty free shops. They don't give a rat's ass about in flight cellphones, internet and movies. Packages don't need sushi or kosher meals or prayer mats. Packages don't block the aisle with oversized carryons and they don't require baggage claims or skycaps. Packages don't tote screaming infants and smelly diaper bags.
Packages don't care about anything because they don't think about anything. Packages have few bodily needs amd all you need to remember is to regulate the temperature for the load. All they have to do is be where they're supposed to be at the right time.
Of course when the load is cattle or horses all bets are off, but that's a different story entirely.

In short, the package trade has the same economics as passenger travel without all that blamed human nonsense.

It stands to reason, therefore, that freight operators are free to seek facilities that offer good road connections, reasonably sized runways and competent navaids, light traffic, modest airport fees, and interested local authorities who'd like to see fresh employers in town. All because the packages aren't wondering why they have to change in Des Moines instead of going straight to Chicago.

The operators are free to seek efficiency. Because packages don't think about this stuff, it means that the operators don't have to fret too much about the cost of fresh interiors or spiffy paint jobs or VIP lounges or cabin staff or lavatories that malfunction because packages don't....well, you get the idea.
That means also that the operators are free to seek the best combination of capital outlay, equipment suitability and running expenses that maximizes profit, and that may explain why the B747-8F has been pretty well received while the A380F was a flop that folded. One significant reason for that may well be the front in access that the 747-8F offers, because every time you make packages turn a corner or go up a flight of stairs, it costs you money. Lots of money.

Looking at it from that point of view, the most efficient way of moving packages may well be a hub to hub model that maximizes efficiency while reducing cost.
When you think about it, the only passenger operators who've come close to this model and made money are the ultrabudget carriers like Southwest and JetBlue, and that is only by rigorous cost control and stripping out everything that remotely resembles an amenity. This only works in limited circumstances. I am quite sure that if Kelleher could have installed plastic laundromat seats in his 737s he would have done so.

Quite simply, absent the human element, Airbus may well have been right about hub traffic, because that's what Federal Express, UPS, DHL. Connie Kalitta and all the rest have been doing since airfreight began.

But once again, it's those blamed people. And as long as people want to travel by air, it's worth remembering that people ain't packages.
Photo credit Panalpina.
Panalpina is one of the world’s leading providers of forwarding and logistics services, specializing in intercontinental air freight and ocean freight shipments and associated supply chain management solutions.The Panalpina Group operates a network of some 500 branches in more than 80 countries; in a further 60 countries, the group closely cooperates with selected partners. Panalpina employs some 14 000 people worldwide.


At 7:45 PM, Blogger candee said...

Here's the problem with this analogy. Sure, boxes don't bitch, but they also don't mind waiting around. A recent study on the overnight delivery guys determined that the amount of time the packages spent in transit didn't affect delivery time reliability or customer satisfaction. In other words, it doesn't matter if the package takes 8 hours to get to into the delivery carrier's box at the final sorting point or 14 hours, as long as it makes it out the door to be delivered when the customer expected it (i.e. 10:30am). This means that all that's required for express service, for example, is that the thing be picked up at end of business day and that it make it where it's going at the beginning of the next day. That means that the basic express carrier model is one trip out from the hub and one trip back each day. That's ABX's primary model. That model produces aircraft that will sit a lot and travel a little. That means a low-capital-cost imperative. (In contrast, of course, if you're FedEx and you stuck it to the Post Office for Priority Mail, you can carry stuff during the day, too, which means a component of your fleet -- but not all -- can spend more hours in the air, leading to economics that favor lower operating costs per hour even if you have to give some of that back in increased capital cost. Hence FedEx's fleet mix.) Passengers DO care about the time spent sitting, because they wanna be home to Momma by a certain time, and they often can't leave until a certain time. This means that the competitive market produces a system that caters to the desire to move right now (other than for purely-vacation travel to destination locations that can be planned well in advance, and are catered to by carriers like Allegiant). This means multiple flights per day between locations, which opens up an opportunity to gain economies of scale from flight frequency and increased aircraft utilization. High utilization means a high degree of attention to variable (operating) cost, against which carriers will pay capital cost to capture those operating savings. So, while in the package biz model you'd fly one Gigantor-Liner per day from NY to Boston and NY to DC, in the real world you fly rotations of smaller jets.

At 6:09 AM, Blogger Robert Luedeman, attorney at law said...

Interesting stuff, Candee and thanks from the Boss for the insightful commentary.
Packages don't complain how they're treated either, and the only time they're like people is when they're perishable stuff like cut flowers or meat.
I guess what I was trying to say was that the product you have to move (people or goods) mandates the vehicle and service you offer. Assuming that they're no different and then investing $18 billion on that basis is the very legerdemain, particularly when the aircraft you build to service your supposed model has no other known use.
As my old crew chief used to say, that's what makes for lawsuits and horse races.


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