Air Cargo The Difference Between Success and Failure

AIR CARGO: THE DIFFERENCE BETWEEN SUCCESS AND
FAILURE?
Franziska Kupfer
Hilde Meersman
Evy Onghena
Eddy Van de Voorde
University of Antwerp
Department of Transport and Regional Economics
{franziska.kupfer ; hilde.meersman ; evy.onghena ;
eddy.vandevoorde}@ua.ac.be
ABSTRACT
During the past 30 years, air cargo has evolved from a by-product to a
potential profit centre for airlines. This paper provides an overview of some
important trends in the global air cargo market on an aggregated level.
Subsequently, an insight into these trends is gained by means of a time series
model using co-integration theory and an error correction model. In addition,
some business economic aspects of the air cargo market are investigated. By
combining several levels of the air cargo market, this paper explains part of
the economic rationality behind the air cargo market structure.
KEYWORDS:
Air cargo, market trends, time series modelling, cargo airlines
Association for European Transport and contributors 2009
1. RATIONALE AND SETTING

Air cargo transport has developed very rapidly over the last couple of years.
Some time ago, air cargo was considered as a by-product of passenger
transport. Currently, however, a number of airlines specialized in the air cargo
market. Also a number of (smaller) airports consider air cargo as their core
business. At the same time, a number of industrial-economic evolutions took
place in the sector, such as
co-operation agreements.
As a product, air cargo is heterogeneous. There is the traditional air cargo on
the one hand, transported in full freighters or passenger airplanes belly, and
express cargo on the other hand. Strictly separating both, however, is
artificial, since there are overlaps. The increasing importance of full-freighter
transport results from a combination of various factors: insufficient freight
capacity linked to more severe security regulation aboard passenger planes, a
tendency towards consolidation and scale increase, and the important
imbalance between some incoming and outgoing air cargo flows.
For the volume of air cargo, measured in tonne kilometres, one can
differentiate between potential and realized air cargo. Potential air cargo
volumes can be seen as the demand for air cargo which is determined by
economic activity and particularly by trade. Thus, when analyzing the macroeconomic characteristics of air cargo it is also necessary to get an insight into
the relationship between air cargo, economic activity and trade, which is one
of the objectives of this paper. Next to the potential air cargo volumes realized
air cargo can be considered. Business economic facets determine the microeconomic environment which will affect the strategies of cargo airlines. The
supply of air cargo is influenced in particular by available capacity, competition
from other modes, especially maritime container transport, and the costs and
yields of the cargo airlines which are also determined by their competitive
position in the sector. For airline companies, additional profit can be
generated by filling unused belly capacity with cargo. Cargo yield, which
traditionally has been below that of passenger transport, has improved over
the last couple of years, approaching that of passenger transport. Guided by
their profit opportunities, cargo airlines develop their network and choose their
(cargo) airport. However, also external criteria concerning the geographical
location, the infrastructure, the service quality, the tariffs and the
(inter)national legal systems are taken into consideration. This paper seeks to
address both the macro- and micro-economic aspects of air cargo.
The previous observations combined with the predicted growth in the air cargo
sector indicate that air cargo can indeed influence airline companies success.
This paper intends to deliver the economic rationality behind the air cargo
market structure to lead to a better understanding of the air cargo sector.
Section 2 presents a general overview of the most important trends in the air
freight market on an aggregated level, focusing on the evolution of traffic and
the share of all-cargo and combi traffic. Moreover, the imbalances in air freight
flows and the share of different commodities in air freight are analysed.
In section 3 the focus lies on the macro-economic aspect of air cargo and its
potential volume. A regression analysis is carried out to discover the
underlying factors that influence the development of air cargo.
The micro-economic aspect of air cargo is treated in section 4. Particularly,
the income and cost side of airlines are analysed on a case basis. First of all,
the development of the operating income and cost per block hour of Cargolux
and a selection of US cargo airlines is examined. Secondly, it is investigated
whether the bankruptcy of certain all-cargo airlines could have been foreseen.
In the last section the overall conclusions are summarized and the agenda for
further research is set up.
2. TRENDS IN THE AIR FREIGHT MARKET

In this section, an insight is provided into the demand side of the air freight
market on an aggregated level. More specifically, it is investigated in the first
place how worldwide air freight evolved over the last 30 years. Secondly, the
proportion between all-cargo and combi traffic and the evolution of both types
of air cargo are examined. Thirdly, an overview is given of the important
imbalances between incoming and outgoing air cargo flows. Finally, an insight
is gained into the most important commodities shipped by air freight for
different geographical markets.
2.1 Evolution of worldwide air freight traffic
Figure 2.1 shows how worldwide air freight transport evolved from 1975 to
2007. It is clear from this figure that there was a strong increase in air freight
during this period: from 19370 million FTKs in 1975 to 158000 million FTKs in
2007.1 This strong growth results from a number of crucial developments at
the demand and supply side of the (liberalised) international air freight market:
a growing world trade, technological progress, increasing value/weight rate of
goods, downward pressure on air freight yields, changing production
processes (e.g. JIT, Make to Order), strategic importance of e-services, etc.
The graph also illustrates the traffic decrease in 2001 due to the September
11 effect. In section 3, it will be investigated which factors in the global
economy are driving the demand for air freight.
Figure 2.1: Evolution of worldwide air freight traffic in FTKs (millions), 19752007
Freight tonne-kilometres (millions)
180000
160000
140000
120000
100000
80000
60000
40000
20000
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
Source: ICAO Journal, 1987-2006; ICAO Annual Report of the Council, 2008
2.2 Share of all-cargo and combi traffic

Air freight can be transported in specialised freighter aircraft, in the belly hold
of passenger aircraft or in combi aircraft2. In this section, the term all-cargo
traffic is used to designate all-cargo flights, i.e. air freight carried by
specialised freighter aircraft. The term combi traffic comprises air freight traffic
carried in the bellyspace of passenger aircraft or in combi aircraft. The
distinction between all-cargo and combi traffic is not the same as the
difference between all-cargo carriers and combination carriers, since the latter
can also use full freighters (e.g. Cathay Pacific, Singapore Airlines, Korean
Airlines, Lufthansa, Air France-KLM).
Figures 2.2 and 2.3 illustrate the evolution of the share of all-cargo and combi
traffic from 1976 to 2006 in tonnage and tonne-kilometres. Both graphs
concern data of the IATA members air transport operations.3 These figures
show that all-cargo traffic has become more important over the last years. The
proportion between all-cargo and combi traffic expressed in tonnage and
tonne-kilometres has evolved from approximately 40-60 to 50-50 in 30 years.
The growth of all-cargo services results from a combination of various factors:
an insufficient cargo capacity on passenger flights linked to more rigorous
security regulation aboard passenger aircraft, a tendency towards
consolidation and scale increase, and the important imbalance between some
incoming and outgoing air cargo flows. (Herman and Van de Voorde, 2006, p.
17)
Figure 2.2: Evolution of the share of all-cargo and combi traffic (freight tonnes
carried), international and domestic, scheduled services, 1976-2006
Source: IATA World Air Transport Statistics, 1981-2007, IATA Members Air Transport
Operations
Figure 2.3: Evolution of the share of all-cargo and combi traffic (freight, incl.
express tonne-kilometres performed), international and domestic, scheduled
services,
1976-2006
Operations
In order to gain an insight into the evolution of both traffic types, the annual
percentage change of freight tonnes of all-cargo and combi traffic is depicted
in figure 2.4. It becomes clear from this figure that all-cargo traffic is more
volatile than combi traffic. This is due to the fact that combi traffic involves
more traditional carriers and is related to passenger traffic. Moreover, in case
of a worsening economic climate, airlines will reduce their all-cargo capacity
more easily than their combined passenger-belly capacity. An example of this
is the period 1979-1983, in which the airline industry was in crisis as a
consequence of the increase in oil prices combined with a stagnating demand
and decreasing revenues. The figure shows a decrease in all-cargo traffic in
this period, while the change in combi traffic remains positive, with a sharp
increase in 1983 as a sign of recovery from the crisis. In the second half of the
1980s the airline industry performed relatively well. However, this changed in
1990 due to a rise in oil prices which induced a crisis in the period 1990-1993.
A slowdown of the economy in different countries but especially in the US and
the UK, gave rise to a decreasing demand. The first Gulf War in 1991
worsened the situation even more and led to the bankruptcy of several
airlines. (Nolan, Ritchie and Rowcroft, 2004, p. 240)
In 1991, all-cargo traffic as well as combi traffic decreased. The strong growth
of all-cargo traffic in 1994 indicates again a recovery from the crisis. The
combi traffic decrease in 1998 was a consequence of the economic crisis in
East-Asia, resulting in a traffic decrease on intra-Asian routes and thus
problems for several Asian airlines. In addition, some European and NorthAmerican airlines saw a traffic decrease on their routes to and from East-Asia.
The figure shows a final traffic decrease in 2001 (all-cargo and combi)
induced by the crisis in the airline industry in the aftermath of 9/11. Rather
remarkable is that all-cargo traffic recovered well in 2002, while combi traffic
still decreased.
Figure 2.4: Annual % change of freight tonnes of all-cargo and combi traffic,
1977-2006
Operations
2.3 Air freight imbalances

While passengers normally make a two-way journey, air cargo is carried in
only one direction: from production to distribution or consumption centres.
This results in imbalances between incoming and outgoing cargo flows. These
imbalances are influenced by export/import imbalances between regions or
countries and may result in large variations in air cargo rates according to the
traffic direction. (Zhang and Zhang, 2002, p. 179)
Figure 2.5 gives an overview of imbalances in air cargo flows between
selected regional markets in 2008. The imbalance from Europe to China is 1 :
2.6 and from USA to China 1 : 3.1. Between Europe and the US, there is no
imbalance since the ratio is 1 : 1. The largest imbalance is found from Europe
to the Middle East (excl. Israel), namely 9.6 : 1. The main reason for this is the
strong growth of this region, which imports many high-value goods by air
freight. As its export mainly consists of oil which is transported over sea, the
imbalance is very large.
Figure 2.5: Export/import air freight tonnage ratio4 for selected regional
markets in 2008
USA to:
Africa
Middle East excl.
Israel
2.6 : 1
14.2 : 1
Europe to:
East Africa
North Africa
1 : 3.4
1.2 : 1
Source: YDL Management Consultants
2.4 Commodities shipped by air freight

Figure 2.6 represents the most important goods categories transported by air
freight for different geographical markets in 2007. On a worldwide level, hightech products represent the largest share. There are large differences
between markets, e.g. the share of capital equipment in the air exports from
Europe (EU-AS and EU-NA) is higher than its share in the air exports from
North America (NA-EU and NA-AS). Capital equipment is the most important
goods category in all the air exports from Europe. This difference is explained
by the strength of European manufacturers of industrial machinery. (Clancy
and Hoppin, 2006)
The air exports from North America to Latin America are dominated by hightech products. For its exports to Europe and Asia, high-tech products and
capital equipment are the most important goods categories with only a small
difference between them.
Asias air exports to Europe and North America, which are the largest air
freight markets, mainly consist of high-tech products. These are also dominant
in the intra-Asian air cargo traffic.
The market between Latin America and North America (LA-NA) is completely
different from the other markets as it is largely dominated by refrigerated
goods.
Figure 2.6: Commodity share of directional air freight markets in 2007

(share of FEU5-kilometres, billions of FEU-kilometres)
5%
1%
1%
3%
1%
1%
22%
14%
15%
16%
25%
5%
1%
3%
1%
3%
1%
2%
16%
19%
15%
16%
3%
9%
17%
4%
1%
13%
31%
19%
3%
41%
12%
15%
24%
28%
18%
27%
8%
37%
36%
27%
26%
19%
32%
19%
15%
10%
12%
2%
15%
11%
8%
2%
3%
6%
World
15.24
AS-EU
2.79
EU-AS
1.53
AS-NA
2.98
36%
9%
35%
32%
5%
23%
21%
14%
4%
11%
2%
2%
NA-AS
1.13
Intra-Asia
1.60
EU-NA
0.80
10%
14%
3%
6%
4%
3%
NA-EU
0.67
LA-NA
0.42
NA-LA
0.39
Primary products
Intermediate materials
Capital equipment
High tech products
Apparel, textiles, footwear
Consumer products
Non-refrigerated foods
Refrigerated foods
Source: Based on MergeGlobal world air freight supply and demand model, MergeGlobal Value
Creation Initiative, 2008, p.36.
24%
10
3%
3. WORLD AIR FREIGHT AND MERCHANDISE TRADE

As for general freight transport, also air freight is the result of economic
activity. Traditionally the world demand for freight transport is related to world
GDP. This relationship seems to work rather well for total freight flows, but is
less straightforward for air cargo. One of the problems is that GDP is made up
increasingly of services. According to the World Development Indicators of the
World Bank the share of services in total world value added was 53% in 1971
and reached nearly 70% in 2006. The evolution of GDP is therefore more and
more driven by the services sector and less by activities which may generate
air cargo. Sometimes the evolution of the world industrial production is
suggested as an alternative for GDP to forecast trends in air freight cargo, but
even this is a weak indicator. This is not only illustrated by figure 3.1, but can
also be statistically formalized by using co-integration theory.
Figure 3.1: World air freight in tkm and world economic activity
600
air freight tkm

GDP
500
industrial production
merchandise exports
1981=100
400
300
200
100
0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Sources:
air freight tkm: ICAO
GDP in constant USD of 2000: Worldbank
Industrial Production: industry value added in constant USD of 2000: Worldbank
Merchandise exports in USD of 2000: Worldbank and IMF
One of the major problems in analysing time series which all show an upward
trend, is to find out whether this trend is deterministic or stochastic6. This is
traditionally done by unit root and/or stationarity tests. Time series with a
deterministic trend are stationary and can be related to each other by simple
ordinary least squares regressions taking into account the deterministic trend.
Time series with stochastic trends and which are therefore not stationary can
only be related to each other by a regression equation if they are cointegrated,
which means that they should have a common trend. The seminal work of
Nobel Prize winners Engle & Granger treats this in detail and Grangers
Representation theorem states that cointegrated series are related to each
other by means of a very specific dynamic model, the error-correction model
11
(ECM), which models the long run equilibrium relation between cointegrated
series and the short run adjustments towards this equilibrium relationship. If
nonstationary time series are not cointegrated, they cannot be represented by
a simple regression and there is no long run equilibrium relation between
them. Only their short term behaviour can be modelled in a statistically reliable
way.
The first step in the analysis is to discover whether the trend in the time series
under consideration is stochastic or deterministic. Traditionally this is tested
by means of the following tests: Dickey-Fuller (DF), augmented Dickey-Fuller
(ADF), Dickey-Fuller with detrending (DFGLS), Phillips-Perron (PP),
Kwiatkowski, Phillips, Schmidt, and Shin (KPSS), Elliot, Rothenberg, and
Stock (ERS), and Ng-Perron (NP). If the time series have a stochastic trend,
the next step is to test whether they are cointegrated or not. There are several
tests for cointegration: Engle-Granger 2-step approach, Engle-Granger-Yoo 3step approach, the dynamic ordinary least squares (DOLS) developed by
Stock & Watson, the unrestricted ECM approach, and the Johansen
cointegration test. Finally, if the series are cointegrated, their relation can be
represented by an error correction model. If they are not cointegrated, there is
no long run equilibrium relation which ties the series together.
Unit roots tests for world air freight in tkm (TKM), world GDP in constant
prices (GDP), and world industrial production in constant prices (IP) revealed
a stochastic trend in the series whether they were measured in levels or in
logarithms. Several cointegration tests were applied indicating no
cointegration between TKM and GDP, and between TKM and IP. This leads to
the conclusion that there is no long run equilibrium relation between world air
freight on the one hand and world GDP or world industrial production on the
other hand.
As air cargo consists mainly in international traffic of high value goods, the
evolution of world air freight can be better explained by an indicator for world
international trade in high value goods. This is approximated by the volume of
world merchandise exports (MERCH) as a global indicator of international
trade in combination with the share of manufactures in the total value of
merchandise exports (SHAREMANU)7. An increase of the latter can be the
result of an increasing share of manufactures in the volume of merchandise
trade, an increase of the value of the manufactures, or a combination of both.
All cointegration tests indicated that TKM, MERCH and SHAREMANU are
cointegrated. For the error correction specification, the best results were
obtained with the logarithm of TKM and MERCH and by adding a dummy
variable for the crisis in 1991 induced by the higher oil prices and the Gulf War
(DUM91) and a dummy variable for the structural impact of 9/11
(DUMBREAK).
12
This gives the following ECM model:

ln TKM t = 1 ln MERCH t + 2 SHAREMANU t + 3 DUM 91t + 4 DUMBREAK t
+ (ln TKM t 1 0 1 ln MERCH t 1 2 SHAREMANU t 1 3 DUM 91t 1 4 DUMBREAK t 1 ) + t
with
TKM
MERCH
SHAREMANU
DUM91
world air freight in tkm (ICAO)

world merchandise export in USD of 2000 (World Bank and IMF)
share of manufactures in the value of world merchandise exports
=1 in 1991
=0 in other years
DUMBREAK
=1 from 2001
=0 before 2001
are first differences, ln indicates logarithms, and is the stochastic error term.
The long run equilibrium relation is given by

ln TKM t = 0 + 1 ln MERCHt + 2 SHAREMANUt + 3 DUM 91t + 4 DUMBREAKt
As the sample is rather small, the long term cointegrating relation is estimated
using the Stock-Watson DOLS-method (Stock & Watson, 1988, 1993). The
results are reported in table 3.1.
Table 3.1: DOLS estimation of the long run relationship between world air
freight and world merchandise exports
Sample (adjusted): 1983 2006
Included observations: 24 after adjustments
Newey-West HAC Standard Errors & Covariance (lag truncation=2)
Coefficient
Std. Error
t-Statistic
Prob.
-0.348759
0.213602
-1.632749
0.1308
LNMERCH
0.986979
0.055337
17.83581
0.0000
SHAREMANU
0.936589
0.268378
3.489818
0.0051
DUM91
-0.065071
0.030437
-2.137904
0.0558
DUMBREAK
-0.075160
0.034519
-2.177367
0.0521
0.209563
0.766090
0.273549
0.7895
DSHAREMANU(1)
DDUM91(1)
-0.002301
0.017582
-0.130859
0.8982
DDUMBREAK(1)
-0.034809
0.049727
-0.700013
0.4985
DLNXMERCH(-1)
-0.056092
0.353517
-0.158669
0.8768
DSHAREMANU(-1)
0.005442
0.507549
0.010722
0.9916
DDUM91(-1)
-0.011760
0.021071
-0.558099
0.5880
DDUMBREAK(-1)
0.014882
0.034023
0.437394
0.6703
R-squared
0.997523
Mean dependent var
5.529040
Adjusted R-squared
0.994821
S.D. dependent var
0.453568
S.E. of regression
0.032641
Akaike info criterion
-3.703331
Sum squared resid
0.011720
Schwarz criterion
-3.065219
Log likelihood
57.43998
Hannan-Quinn criter.
-3.534040
F-statistic
369.1756
Durbin-Watson stat
1.821909
Prob(F-statistic)
0.000000
13
The short run adjustments are estimated given the DOLS-estimates for 0, ,
4 and are reported in table 3.2.
Table 3.2: Error correction model for world air freight and world merchandise
exports
Dependent Variable: DLNTKM
Method: Least Squares
Sample (adjusted): 1984 2007
Included observations: 24 after adjustments
Coefficient
Std. Error
t-Statistic
Prob.
DLNMERCH
1.006034
0.073951
13.60399
0.0000
DSHAREMANU
0.553164
0.290538
1.903929
0.0722
DDUM91
-0.041447
0.017759
-2.333856
0.0307
DDUMBREAK
-0.060238
0.025114
-2.398598
0.0269
RESDOLS(-1)
-0.943221
0.231856
-4.068135
0.0007
R-squared
0.787872
Mean dependent var
0.063426
Adjusted R-squared
0.743214
S.D. dependent var
0.049532
S.E. of regression
0.025100
Akaike info criterion
-4.348839
Sum squared resid
0.011970
Schwarz criterion
-4.103411
Log likelihood
57.18607
Hannan-Quinn criter.
-4.283727
Durbin-Watson stat
1.583792
with
RESDOLS = lnTKM + 0.349 - 0.987lnMERCH - 0.937SHAREMANU + 0.075DUMBREAK
+ 0.065DUM91
The error correction model reveals that the change in world air freight is due
to the current change in world merchandise exports, the current change in the
share of manufactures and an error correction term which is an adjustment to
deviations from the long run equilibrium in the previous period. The
adjustment speed, which is given by =-0.94, is high as it close to -1.
The elasticity of air freight with respect to merchandise exports is not
significantly different from 1 neither in the long run equilibrium relation, nor in
the short run adjustment. So a one percent change in world merchandise
exports will result in a one percent change in air freight. An increase of the
share of manufactures in the value of merchandise exports with one
percentage point, will lead in the long run to a one percent increase in air
freight as 2 is not significantly different from 1. In the short run the impact will
be smaller than 1. There has clearly been a negative impact in 2001 as a
consequence of 9/11 which has led to a structural downward shift in air
freight.
Figure 3.2 gives the actual value of air freight (in logarithms) and the fitted
values calculated with the estimated error correction model. In the most recent
years, the model overshoots the actual values and so there is room for
improvement, especially when the model would be used to make forecasts.
14
Figure 3.2: Actual and fitted air freight values

Air freight (lnTKM)
6.4
6.2
6.0
5.8
5.6
5.4
5.2
5.0
4.8
86
88
90
92
94
96
actual
98
00
02
04
06
fitted
Therefore in a next stage the total demand for air freight can be split into the
major air freight markets (cf. Figure 2.6). Moreover, the transport price of the
best alternative, i.e. maritime shipping, can also be incorporated. At the supply
side there is room for investigating the effect of oil price changes and capacity
adjustments, and the way individual airlines adjust their strategy in order to
determine their competitive position.
15
4. BUSINESS ECONOMIC ANALYSIS OF ALL-CARGO SERVICES

The aggregated air cargo market was analysed with the model explained in
section 3. Now the question arises of how an individual carrier positions itself
in the air cargo business. Market analysis shows that on the level of individual
carriers different business results are achieved and that the carriers also react
to the market in a different way. On the one hand, a full-freighter like Cargolux
has been suffering a loss for already two years, but stays in the market. On
the other hand, however, the American airline Gemini went bankrupt in 2008.
Therefore, there is need for a business economic analysis of the air cargo
sector in addition to the aggregated analysis that was carried out in the
previous section. Firstly, the decision and pricing strategy of all-cargo carriers
will be discussed and a number of business economic indicators will be
calculated for five all-cargo carriers. Secondly, it will be investigated if
bankruptcy of all-cargo carriers can be predicted by the use of a failure
prediction indicator.
4.1 Business economic indicators
The framework for the decision process of airlines is evident. The carriers
decide to operate on a specific route as far as this decision adds to profit
maximization. The important question then arises from which moment on a
business can be said to be sufficiently profitable. How much freight volume
per flight is needed at least, or, which level of turnover (i.e. the average price
multiplied by the tonnage) has to be realized? Inferring from this idea, some
additional strategic questions can be examined: the frequency of flights, within
which time window, the need of availability of return cargo, the concept of
routing (e.g. origin-destination-origin versus triangle flights or concentration on
hubs), etc.
Again, the difference between belly cargo on the one hand and full-freighter
operations on the other hand plays an important role. A number of carriers still
consider belly cargo as a by-product of their core business, which is
passenger transportation. The full-freighter business on the other hand is an
example of what is called non-scheduled transportation in economic transport
literature, i.e. transport capacity is put into service at the moment of the
effective demand. (Blauwens, De Baere, Van de Voorde, 2008, p. 35).
However, there are nuances. These kinds of air carriers seek regularity and
certainty as well, among other things via long term contracts with large
industrial companies and forwarders8. Therefore, in practice, certain carriers
will offer a mix of non-scheduled ad-hoc and scheduled transport. As far as
there is sufficient demand, a number of regular routes will be operated with a
certain frequency. The remaining capacity will be used ad hoc, at those
routes and moments where there is enough demand to be able to operate
profitably.
Every airline aims at a maximum load factor, even though this is not always of
overriding importance. As far as the yield is high enough, a half-full plane can
also be profitable. Among other things the yield is function of the value of the
16
products, the competition and the so called willingness to pay. On the other
hand, it is possible that the same carrier flies the two stretches of an origindestination relation with a high load factor but hardly breaks even due to a
relatively low yield. When strategically choosing the routes, the presence of
sufficient sales potential and return cargo certainly plays a decisive role.
Therefore, it is interesting to calculate the financial-economic importance of
this.
To gain an insight into the benchmarks a number of proxy-variables are
quantified in table 4.1, using figures from the largest European full-freighter
carrier, namely Cargolux. In 20089, Cargolux employed a homogeneous fleet
of 16 B747-400F airplanes and achieved an operating turnover of about $1.97
billion, with a net loss of $61 million. Despite this loss the carrier shows some
stability, especially concerning the results10.
Table 4.1: Business economic indicators Cargolux
Indicator
(Operating)
income/block
hour ($)
11
Costs /block
hour ($)
(Operating)
income/trans
ported tonne
($)
(Operating)
income/tonne
-kilometre
flown ($)
Average
distance
12
(km)
Fleet B747400F
2000
2001
2002
2003
2004
2005
2006
2007
2008
13,009
12,346
12,527
13,808
16,299
18,935
18,172
18,644
21,553
12,434
12,086
11,758
12,782
15,171
17,914
17,198
19,170
22,220
1,721
1,688
1,690
1,882
2,027
2,232
2,368
2,375
2,805
0.195
0.194
0.194
0.215
0.236
0.272
0.292
0.301
0.365
8,818
8,700
8,701
8,734
8,596
8,210
8,097
7,879
7,690
10
11
12
12
13
14
14
15
16
Source: own composition based on annual reports of Cargolux
The calculated indicators in table 4.1 first of all indicate a great stability during
the period of 2000-2002. As from 2003 a clearly upwards movement can be
seen. For Cargolux, both a strong increase in realized income and
corresponding operating costs as well as an increase in operating and net
profit can be observed. In 2004 the airline saw a strong growth in production
(expressed in transported tonnage as well as in tonne-kilometres flown), but
also a strongly increased load factor (measured as FTKs/ATKs - freight tonnekilometres flown/available tonne-kilometres). There is a remarkable strong
increase of costs per block hour in 2007 (+ 11%) and in 2008 (+ 16%). The
operating income per block hour increases as well in 2007 (+ 3%) as in 2008
(+ 16%), but clearly not enough to achieve a positive result in both years.
The indicators in table 4.1 were calculated on the basis of aggregated and
consolidated figures13. Therefore, it is possible that the figures disguise a
number of underlying movements, e.g. concerning new commodity flows, new
customers, etc.
17
Nevertheless, based on the figures calculated in table 4.1 and taking into
account the comments, mentioned above, some additional indicators can be
calculated for the B747-400F airplanes used by Cargolux:
- Based on the figures of 2008, Cargolux should pursue a turnover per
block hour of at least $21.500.
- On the basis of the cost structure of 2008, a turnover of about $0.36 to
0.37 per tonne-kilometres seems right for a B747-400F.
Each of the indicators is quite interesting as it can be compared to the
willingness to pay of the customer, but interpretation is subject to the
constraints already mentioned.
Starting from these indicators, different indicative calculations can be made for
other business cases, taking into account the average distance flown, the
block hours and the average load factor. Besides, one has to bear in mind the
willingness to pay of a shipper which is a function of e.g. the value of the
goods to be transported.
It is obvious that the figures above are calculated for a specific plane, the
B747-400F. Due to economies of scale the prices per transported tonne
should be higher for smaller aircraft types like A300, B-757 and DC-8, which
are often used for air cargo transport. In addition, it concerns calculations for
only one airline. Therefore, it is very interesting to compare the indicators with
some other carriers.
Tables 4.2 to 4.5 show business economic indicators for four American fullfreighter airlines from 2000 to 2007: Polar Air Cargo Airways, Kalitta Air,
Gemini Air Cargo Airways and Kitty Hawk Aircargo. The last two carriers,
Gemini and Kitty Hawk disappeared from the market in 2008. The indicators
were calculated based on data provided by US Department of Transportation
Bureau of Transportation Statistics (BTS). More specifically, Schedule P-12
of the Form 41 Financial Reports is used, which contains quarterly profit and
loss statements for US carriers with operating revenues of $20 million or
more. These data were not yet available for 2008Q4, which explains why the
indicators are only calculated until 2007. To obtain traffic statistics, the T1
database was used, which provides traffic and capacity data by service class
for US carriers. From this database, only the service classes G (scheduled allcargo service) and P (non-scheduled civilian all-cargo service) were taken into
account since these service classes represent the majority of traffic for the
four carriers that are investigated. Other service classes concerning
passenger/cargo services or military all-cargo services are less important or
even inexistent for these carriers. In tables 4.2 to 4.5, operating income and
costs are expressed in two ways: per ramp-to-ramp hour14 and per revenue
aircraft airborne hour15. The ramp-to-ramp hours correspond with the block
hours used in table 4.1 but are only available as from 2003. Therefore, the
operating income and costs are also calculated per revenue aircraft airborne
hour.
18
Table 4.2: Business economic indicators Polar Air Cargo Airways

Indicator
(Operating)
income/rampto-ramp hour
($)
(Operating)
income/reven
ue aircraft
airborne hour
($)
Costs/rampto-ramp hour
($)
Costs/revenue
aircraft
airborne hour
($)
(Operating)
income/transp
orted tonne
($)
(Operating)
income/tonnekilometre
flown ($)
Average
distance
16
(km)
Fleet B747F
17
2000
2001
2002
2003
2004
2005
2006
2007
NA
NA
NA
14,666
11,472
13,870
15,285
15,311
14,992
13,791
15,051
15,739
12,562
15,268
16,726
16,876
NA
NA
NA
15,921
12,479
13,465
15,798
15,897
14,938
17,987
14,865
17,086
13,664
14,822
17,287
17,522
1,012
1,046
1,284
1,246
1,026
1,247
1,428
1,411
0.285
0.273
0.325
0.326
0.254
0.306
0.330
0.333
3,551
3,824
3,954
3,826
4,033
4,079
4,328
4,242
14
15
15
15
12
39
38
37
Source: own composition based on data from US Department of Transportation Bureau of

Transportation Statistics; Flight International n1 6 15-21 April 2008 (World Airlines Directory); Air
Transport Association Economic Report 2001-2008
Polar Air Cargo Airways is an American full-freighter carrier that provides

scheduled freight service covering the Transpacific, Transatlantic, Transasia,
South Pacific, Middle East and South American markets. In November 2001,
Polar was acquired by Atlas Air Worldwide Holdings (AAWH), which also
owns ACMI-provider18 Atlas Air, and in 2007, DHL Express acquired a 49%
stake in Polar. Polar has a strategic partnership with DHL Express, which
involves Polars support of DHL Express with its transpacific express service
on Polars fleet of B747-400 freighters.
Table 4.2 shows an increase in Polars operating income per ramp-to-ramp
hour and revenue aircraft airborne hour, except in 2001 and 2004. For 2001,
this is of course a consequence of the September 11 events. The decrease in
2004 is due to the fact that Polars parent company, AAWH, filed for Chapter
11 bankruptcy protection in 2004. Polar obtained an operating loss of about
$69 million in 2004. However, the company was able to obtain successful
agreements with its main creditors and returned to profitability. It is also clear
from table 4.2 that the costs per ramp-to-ramp hour and revenue aircraft
airborne hour decreased strongly in 2004 (-20%), while in 2006 they showed a
strong increase (+10%). The decrease in 2004 is due to a strong growth of
Polars ramp-to-ramp and revenue aircraft airborne hours, while its operating
19
expenses increased in 2004. The increase in 2006 is a consequence of a

slight growth of Polars operating expenses, combined with a decrease of its
ramp-to-ramp and aircraft airborne hours.
Comparing the indicators of Polar with those of Cargolux, it is clear that both
operating income and costs per block hour show a stronger increase in the
case of Cargolux. This is due to the fact that Cargolux operating income as
well as its operating expenses are of a much higher level than those of Polar.
Similar to what was done for Cargolux, a number of indicators can be
calculated for the B747-400F aircraft used by Polar:
- On the basis of the 2007 figures, Polar should aim at a turnover per
ramp-to-ramp hour of at least $15,500.
- Based on the cost structure of 2007, a turnover of about $0.33 to $0.34
per tonne-kilometre seems right for a B747-400F.
- Considering the average distance ranging from 3,800 km to 4,300 km
in the last five years, a price between $1,250 and $1,430 per
transported tonne seems to be a realistic indicator for the turnover.
Table 4.3: Business economic indicators Kalitta Air
Indicator
(Operating)
($)
(Operating)
income/reven
ue aircraft
airborne hour
($)
($)
Costs/revenue
aircraft
airborne hour
($)
(Operating)
income/transp
orted tonne
($)
(Operating)
flown ($)
Average
distance
19
(km)
Fleet B74720
200F
2000
2001
2002
2003
2004
2005
2006
2007
NA
NA
NA
13,317
13,246
13,129
20,837
22,465
NA
NA
NA
14,433
14,441
14,049
22,978
24,847
NA
NA
NA
9,904
10,740
11,508
19,850
21,406
NA
NA
NA
10,734
11,709
12,313
21,889
23,675
NA
NA
NA
1,127
973
1,051
1,543
1,695
NA
NA
NA
0.290
0.257
0.245
0.424
0.449
NA
NA
NA
3,888
3,793
4,282
3,637
3,772
NA
NA
NA
NA
NA
NA
11

Transportation Statistics; Flight International n1 6 15-21 April 2008 (World Airlines Directory)
Kalitta Air is an American all-cargo carrier that operates domestic and

international scheduled and ad-hoc cargo charter services.
20
Table 4.3 shows a huge increase in Kalittas operating income and costs per
ramp-to-ramp hour and revenue aircraft airborne hour in 2006. Expressed per
ramp-to-ramp hour, the operating income grew by 59% and the cost by 78%.
This is mainly due to a strong increase in the airlines operating income
(+29%) and operating cost (+40%). Moreover, its ramp-to-ramp hours
decreased in 2006 by 19%. In addition, the operating income per transported
tonne and per tonne-kilometre flown also increased strongly in 2006,
respectively by 47% and 73%. This is a consequence of both the increase in
Kalittas operating income and the decrease in its tonnage (-12%) and tonnekilometres (-26%) in 2006.
As mentioned above, normally, scheduled all-cargo services and nonscheduled civilian all-cargo services are taken into account concerning the
carriers traffic information. However, for Kalitta, there were no data available
about scheduled all-cargo services from 2003 to 2006, so for this period only
data referring to non-scheduled civilian all-cargo traffic are used to calculate
the indicators.
The following indicators were calculated for the B747-200F aircraft used by
Kalitta:
- On the basis of the 2007 figures, Kalitta should aim at a turnover per
ramp-to-ramp hour of at least $22,500.
- Based on the cost structure of 2007, a turnover of about $0.45 per
tonne-kilometre seems right for a B747-200F.
- Considering the average distance ranging from 3,600 km to 4,300 km
in the last five years, a price between $1,000 and $1,700 per
transported tonne seems to be a realistic indicator for the turnover.
21
Table 4.4: Business economic indicators Gemini Air Cargo Airways

Indicator
(Operating)
($)
(Operating)
income/reven
ue aircraft
airborne hour
($)
($)
Costs/revenue
aircraft
airborne hour
($)
(Operating)
income/transp
orted tonne
($)
(Operating)
flown ($)
Average
distance
21
(km)
Fleet DC-1030F / MD-11F
2000
2001
2002
2003
2004
2005
2006
2007
NA
NA
NA
9,016
4,732
6,362
5,409
NA
7,936
8,326
7,714
9,905
5,234
7,043
5,965
NA
NA
NA
NA
9,310
4,920
6,883
5,569
NA
7,652
10,927
9,891
10,228
5,442
7,620
6,141
NA
1,185
859
746
852
391
573
501
NA
0.368
0.270
0.201
0.245
0.133
0.175
0.143
NA
3,222
3,182
3,720
3,479
2,945
3,279
3,513
3,642
NA
NA
NA
NA
NA
NA
NA
NA

Transportation Statistics
Gemini Air Cargo Airways was an American ACMI cargo airline that operated
worldwide scheduled and charter services on a wet-lease basis. The airline
was faced with financial problems in 2006 but it emerged from bankruptcy
reorganization in August 2006. However, Gemini filed again for bankruptcy
protection in 2008 and disappeared from the market in August 2008. The main
reasons for the failure of Gemini were the huge oil price increase in
combination with its fuel-inefficient fleet of DC-10-30Fs.
Looking at the indicators in table 4.4, the instability of Geminis operating
income and costs is remarkable. In 2004, all the indicators decrease sharply,
followed by an increase in 2005 and a new decrease in 2006. The decrease in
2004 is due to a drop in Geminis operating expenses and operating income,
combined with an increase in its output indicators (ramp-to-ramp hours,
revenue aircraft airborne hours, tonnage and tonne-kilometres). In 2006, the
airlines operating expenses and operating income decrease, while its output
indicators also decrease.
As in the case of Kalitta, only data referring to non-scheduled civilian all-cargo
traffic were available from 2004 to 2006. Geminis failure in 2008 cannot be
predicted on the basis of these indicators since the figures for 2007 were not
available anymore.
22
Table 4.5: Business economic indicators Kitty Hawk Aircargo

Indicator
(Operating)
($)
(Operating)
income/reven
ue aircraft
airborne hour
($)
($)
Costs/revenue
aircraft
airborne hour
($)
(Operating)
income/transp
orted tonne
($)
(Operating)
flown ($)
Average
distance
22
(km)
Fleet B72723
200F
2000
2001
2002
2003
2004
2005
2006
2007
NA
NA
NA
236
183
163
2,411
2,019
5,648
3,445
284
274
214
192
2,824
2,392
NA
NA
NA
195
23
234
2,286
2,013
5,684
5,978
240
227
27
276
2,677
2,385
567
358
33
30
24
24
409
367
0.632
0.385
0.030
0.031
0.024
0.023
0.380
0.362
898
932
1,120
976
1,010
1,037
1,077
1,014
NA
NA
NA
NA
NA
NA
18

Transportation Statistics; Flight International n1 6 15-21 April 2008 (World Airlines Directory)
Kitty Hawk Aircargo was an American cargo carrier offering domestic

scheduled overnight cargo services, as well as charter services. The domestic
focus of Kitty Hawk is also clear in table 4.5, which includes the average
distance from 2000 to 2007. The average distance is about 1000 km, which is
far lower than the other carriers that were investigated. Kitty Hawk filed for
Chapter 11 bankruptcy protection in 2000 but emerged from this situation in
August 2002. In October 2007 Kitty Hawk filed again for Chapter 11
bankruptcy. The carrier stopped operating all scheduled air and ground
operations and only continued its air cargo charter shipments. In the
beginning of 2008 Kitty Hawk ceased all its operations.
Table 4.5 shows a large decrease in Kitty Hawks indicators in 2002, while in
2006 the indicators grew strongly. The decrease in 2002 was caused by an
enormous decrease of the carriers operating income (-95%) and operating
costs (-98%), while the increase in 2006 is due to a strong growth of both the
operating income (+1,357%) and the operating expenses (+863%). Another
remarkable issue is the sharp decrease of the airlines costs per ramp-to-ramp
(-88%) and aircraft airborne hour in 2004, which is caused by a decrease of its
operating costs by 87%.
23
Also for Kitty Hawk, table 4.5 is based on data referring to only non-scheduled
civilian all-cargo traffic for all years, except 2002. Analysing the indicators in
table 4.5, the strong variations in both operating income and cost indicators
are remarkable. This was also the case for Gemini Air Cargo.
The material above has the advantage to be a concrete basis for analysing
the matching problem of supply and demand. An exercise like this is of
course only indicative, since airlines determine their prices not necessarily on
the basis of the average costs, whether or not within the framework of costplus pricing. The basic rule remains price-fixing based on marginal costs.
However, an important question is on which basis the marginal costs are
calculated: an additional tonne or an additional airplane. Recent research
departs from an airplane as marginal unit24, but it is clear that in practice, the
marginal cost of additional tonnage in an airplane with free capacity for new
traffic will also be used as a basis for price-setting.
In function of the product, from which cargo volume and from which prices and
which turnover can it be interesting for a full-freighter carrier (and its
customer) to fly towards a specific (cargo) airport? When defining a potential
market a carrier bases itself best on existing traffic flows that combine a high
value/weight ratio and specific characteristics (i.e. the need for fast transport
because of the time factor), but are not necessarily transported by air freight
at the moment. Furthermore, one can search for new markets on the basis of
products that show comparable characteristics such as the market of spare
parts, expensive and relatively light products, etc.
It is, however, typical that in the past a number of new niche markets were
captured by integrators. There are various reasons for this. New niches, with
limited goods flows at the start, can be included relatively easily in an existing
network, often at low marginal cost and hence at a low (introduction) price.
Moreover, the integrators offer almost automatically additional services, e.g.
concerning handling and/or warehousing.
For full-freighter carriers and airports that have freight ambitions but no
integrators as their customer, the future competitive struggle will be
determined to a large extent by how and at which speed they will anticipate
new market developments.
4.2 Bankruptcy indicator

As seen in the previous part, cargo carriers can achieve very different results
and have different costs and income, even when operating the same aircraft
(e.g. Polar Air Cargo Airways and Cargolux). With some air cargo carriers
staying in the market and others filing for bankruptcy, the question arises
whether failures can be predicted.
Since the mid-1960s, the focus of measuring financial strength of a company
and with this the possibility of failure, shifted from traditional financial ratios to
more sophisticated financial analysis methods. Those methods, developed
24
after the mid-1960s, often combine four aspects of financial well-being, i.e.
liquidity, leverage, turnover and profitability. A paper of Gritta et al. (2006)
provides a good overview of such methods especially with a view to
applications for the air transport industry.
One of the earliest bankruptcy-forecasting models is the Z-Score model of
Altman (1968), which was estimated by using stepwise multiple discriminant
regression and incorporates a liquidity ratio, two profitability ratios, a leverage
ratio and a turnover ratio. A high ratio in one category increases the Z Score
and thus lessens the danger of bankruptcy. For the bankruptcy analysis in this
paper, however, a variant of the Z Score will be applied to American fullfreight carriers, the so-called Z Score (Altman, 1983). This score was already
used by the U.S. Bureau of Transportation Statistics to analyse airline
financial health. The reason behind the use of this variant of the Z score is,
that the turnover ratio (operating revenues to total assets) can distort the
results of airlines as they usually work with operating leases. Even though
leased airplanes are not included in the total assets, the revenues resulting
from those leases are part of the total turnover. A carrier that leases airplanes
therefore would have a higher turnover ratio than a carrier that owns its fleet
and thus a higher Z Score. Due to this problem the turnover ratio is not
included in the Z Score. It is set up as follows:
Z = 6.56X1+3.26X2+6.72X3+1.05X4
With X1-X4 corresponding to the ratios of the original model (Altman, 1968),
defined as:
X1 = working capital to total assets (liquidity ratio)
X2 = retained earnings to total assets (profitability ratio)
X3 = earnings before interest and taxes to total assets (profitability ratio)
X4 = market value of equity to book value of total liabilities (leverage ratio)
Z Scores with a value of 1.1 or less indicate a high probability of bankruptcy
while a score of 2.6 and higher, points to a low probability of bankruptcy in the
near future. The range between 1.1 and 2.6 is referred to as grey zone,
where no prediction can be made due to insufficient statistical significance.
For this research the Z Score was calculated for the four American all-cargo
airlines Polar Air Cargo, Kalitta Air, Gemini Air Cargo and Kitty Hawk Aircargo.
The results are shown in table 4.6.
25
Table 4.6: Z-scores of selected American all-cargo carriers

2000
2001
2002
2003
2004
2005
2006
2007
Polar Air Cargo
-7.54
-7.89
-0.48
-3.36
-2.24
6.27
5.68
2.36
Gemini Air Cargo

Kitty Hawk
Aircargo
0.89
-2.74
-10.03
-14.72
-9.78
-13.2
-7.27
NA
NA
-0.03
NA
NA
2.88
6.51
NA
2.53
Kalitta Air
NA
NA
NA
11.45
9.33
9.43
8.9
10.89
Z score with high probability of bankruptcy

Z score with very low probability of bankruptcy
Insufficient statistical significance to make a prediction
Transportation Statistics
For Polar Air Cargo, low Z scores can be observed until 2004, as its parent
company Atlas Air Worldwide Holdings was not in good financial health and
filed for bankruptcy protection in 2004. However, the scores increased
between 2000 and 2004 and Polar Air Cargo could recover and return to
profitability. This is also reflected in the Z scores, being above 2.6 since
2005.
Gemini Air Cargo had a low Z score in 2000 as well, which, however,
decreased in the following years in contrast to the score of Polar Air Cargo. In
the beginning of 2006, Gemini filed for protection against bankruptcy for the
first time, but the carrier emerged from it in the summer of 2006 as an
agreement with the largest lender was reached. The very low Z score of
Gemini in 2005 was already a sign for the bad financial state of the carrier in
the beginning of 2006. Although the Z score for 2006 increased, it was still
quite low and the carrier could not recover and ultimately stopped its
operations in the summer of 2008.
The Z Scores for Kitty Hawk Aircargo are difficult to compare with the other
carriers as not enough data were available. However, a Z score was
calculated that points to financial difficulties in 2001, a year after Kitty Hawk
filed for Chapter 11 bankruptcy. The carrier emerged from Chapter 11 in 2002
but soon entered bankruptcy protection again at the end of 2007, before
ceasing its operations in January 2008. However, the Z scores for 2004 and
2005 did not point to any financial problems and the score for the first three
quarters of 2007 (the data for the last quarter were not available) was only
slightly below the mark of 2.6 and did not specifically warn of the probability of
bankruptcy.
The only air cargo carrier, whose Z scores were above the critical value of
2.6 for the whole period between 2000 and 2007 was Kalitta Air, which points
to good financial health of the carrier.
The cases analysed above make clear that the Z score can help to forecast
financial difficulties and probable bankruptcies of all-cargo airlines. However,
as the example of Kitty Hawk Aircargo shows, the Z score is not always
26
reliable as the airline still had a quite high score two years before its
bankruptcy. Another factor hindering the analysis is the scarcity of data for the
calculations. The case of Kitty Hawk Aircargo could not be sufficiently
analysed as data for a number of years were unavailable.
27
5. CONCLUSIONS
Air freight transport has developed very rapidly over the last decade. While
previously, air cargo was regarded as a by-product of passenger transport, a
lot of traditional carriers consider it now as an instrument that adds positively
to the ultimate goal of profit maximization. In addition, a number of carriers
started to specialize in the air cargo market. Their success or failure depends
on a number of factors. The future evolution of world merchandise trade is
crucial and especially the trade in high value goods needs close monitoring.
Special attention should be paid to the imbalances on trade routes, which
results in imbalances between incoming and outgoing cargo flows.
A number of indicators at business level, such as operating income and costs
per block hour and/or per tonne and tonne-kilometre show that every airline
reacts to the market differently and dissimilar results can be achieved, even
when operating the same aircraft. Moreover, it is clear from the analysis that
the yield is more important than the load factor for an all-cargo carrier aiming
at profit maximization. Finally, the Z Score, which was calculated for four US
all-cargo carriers, seems to be a good indicator for the financial health of a
cargo airline.
Further research should aim at a study of the air cargo market on a
disaggregate level, focusing on the different goods categories transported by
air cargo, the major routes and individual airlines. Concerning individual
carriers, a more in-depth analysis at business economic level should be
carried out, leading to a better understanding of the cost and organisational
structure of individual cargo airlines.
The analysis done in this paper shows that the air cargo market is extremely
volatile. The economic crisis of 2008-09, with large traffic and turnover
decreases on certain routes and in certain airports, illustrates this clearly. It is
a fine line between success and failure.
28
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Sons, 368 p.
Altman, E. (1986). Financial Ratios, Discriminant Analysis and the Prediction
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Blauwens, G. De Baere, P. and Van de Voorde, E. (2008), Transport
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Clancy, B. and Hoppin, D. (2004), After The Storm The MergeGlobal 20042008 World Air Freight Forecast,
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Franses, P.H. (1998), Time series models for business and economic
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29
NOTES
1
A FTK is a Freight Tonne-Kilometre.

In combi aircraft, passengers as well as cargo are transported on the main
deck.
3
Contrary to the ICAO figures which concern worldwide air freight traffic, the
data from IATA only involve traffic from the IATA members. IATA data were
used since ICAO does not provide any data about the share of all-cargo traffic
in total air freight traffic.
4
Explanation of export/import tonnage ratio: e.g. USA to South America,
1 : 1.4 for every tonne exported from USA, 1.4 tonnes are imported back via
airfreight.
5
A FEU is a forty-foot equivalent unit (2 TEUs).
6
Detailed information on testing unit roots, stationarity and cointegration can
be found in a number of econometric handbooks such as Hamilton (1994),
Hayashi (2000), Verbeek (2008), Franses (1998).
7
As an alternative the share of office and telecom equipment in the value of
total merchandise exports was considered but this was rejected as this
resulted in multicollinearity due to the high correlation with the evolution of the
volume of merchandise exports.
8
This also has to do with the need to obtain so-called fifth freedom rights.
This is the right of an airline from one country to land in a second country, to
then pick up passengers and fly on to a third country where the passengers
then disembark.
9
In 2005, Cargolux applied new accounting standards. Because of this
change, the comparison with previous years is complicated and/of distorted
and one has to be careful comparing the indicators before and after 2005.
10
When doing the same exercise for other full-freighter carriers one always
has problems with confidentiality of financial data and/or the incompleteness
of the statistics. Furthermore, there is often a distortion and/or impossibility to
compare the data, e.g. due to a diversity of used airplanes and the availability
of only aggregated data.
11
The costs are calculated as the operational income minus the net profit.
12
Measured as tonne-kilometres divided by tonnage.
13
The results e.g. comprise a limited share of other operational incomes and
corresponding expenditures. Related to the income, this share amounted to
about 1.6% in 2004.
14
Ramp-to-ramp time is the time computed from the moment an aircraft first
moves under its own power for purposes of flight, until it comes to rest at the
next point of landing.
15
The revenue aircraft airborne hours are computed from the moment an
aircraft leaves the ground until it touches the ground at the end of a flight
stage.
16
17
As from 2005, the fleet data concern the combined fleet of Polar Air Cargo
and Atlas Air, a sister company of Polar. In 2007, Polars fleet consisted of 6
B747-400 freighters.
18
An ACMI-provider is an airline that provides Aircraft, Crew, Maintenance
and Insurance freighter leasing services. An ACMI-provider wet-leases its
aircraft to other airlines or freight forwarders at a fixed rate per hour.
30
19

Kalitta Airs fleet consists mainly of B747-200Fs. Next to that aircraft type,
the carrier also has B747-100Fs in its fleet.
21
22
23
Kitty Hawk Aircargo operated 18 B727F and 7 B737-300SF in 2006. In
2007, the majority of its B727Fs were stored due to the carriers financial
problems.
24
See also GRACE, 2006.
20
31

Air Cargo The Difference Between Success and Failure

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Air Cargo The Difference Between Success and Failure

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AIR CARGO: THE DIFFERENCE BETWEEN SUCCESS AND

Association for European Transport and contributors 2009

1. RATIONALE AND SETTING

Association for European Transport and contributors 2009

2. TRENDS IN THE AIR FREIGHT MARKET

Association for European Transport and contributors 2009

Freight tonne-kilometres (millions)

2.2 Share of all-cargo and combi traffic

Association for European Transport and contributors 2009

Association for European Transport and contributors 2009

Association for European Transport and contributors 2009

2.3 Air freight imbalances

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Source: YDL Management Consultants

2.4 Commodities shipped by air freight

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Figure 2.6: Commodity share of directional air freight markets in 2007

High tech products

Apparel, textiles, footwear

Association for European Transport and contributors 2009

3. WORLD AIR FREIGHT AND MERCHANDISE TRADE

air freight tkm

Association for European Transport and contributors 2009

This gives the following ECM model:

world air freight in tkm (ICAO)

The long run equilibrium relation is given by

Mean dependent var

S.D. dependent var

Akaike info criterion

Sum squared resid

Association for European Transport and contributors 2009

Mean dependent var

S.D. dependent var

Akaike info criterion

Sum squared resid

Association for European Transport and contributors 2009

Figure 3.2: Actual and fitted air freight values

Association for European Transport and contributors 2009

4. BUSINESS ECONOMIC ANALYSIS OF ALL-CARGO SERVICES

Source: own composition based on annual reports of Cargolux

Association for European Transport and contributors 2009

Table 4.2: Business economic indicators Polar Air Cargo Airways

Source: own composition based on data from US Department of Transportation Bureau of

Polar Air Cargo Airways is an American full-freighter carrier that provides

expenses increased in 2004. The increase in 2006 is a consequence of a

Source: own composition based on data from US Department of Transportation Bureau of

Kalitta Air is an American all-cargo carrier that operates domestic and

Association for European Transport and contributors 2009

Table 4.4: Business economic indicators Gemini Air Cargo Airways

Source: own composition based on data from US Department of Transportation Bureau of

Table 4.5: Business economic indicators Kitty Hawk Aircargo

Source: own composition based on data from US Department of Transportation Bureau of

Kitty Hawk Aircargo was an American cargo carrier offering domestic

Association for European Transport and contributors 2009

4.2 Bankruptcy indicator

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Table 4.6: Z-scores of selected American all-cargo carriers

Polar Air Cargo

Gemini Air Cargo

Z score with high probability of bankruptcy

Association for European Transport and contributors 2009

Association for European Transport and contributors 2009

A FTK is a Freight Tonne-Kilometre.