Cargo airline alliances can improve speed and costs by creating seamless coordination and delivery throughout a global alliance network for international air freight services. Aided by a liberalized global environment, Open Skies agreements, and the prohibition of foreign ownership (leading most airlines to a joint venture rather than a full merger), cargo alliances and partnerships are the future of the industry, say industry experts.
L.E.K. research indicated that immunized joint ventures were responsible for 30% of all global long-haul traffic in 2013, up from 9% in 2003. And the agency predicts that by 2023, 45% of all global long-haul traffic will come from joint ventures. In particular, more than half of all traffic to North America from Latin America will be linked to a joint business within the next decade.
Cargo carriers may enter alliances formed by the passenger arm of their operations (such as the SkyTeam Cargo formation of SkyTeam), or enact interline partnerships with other carriers to expand reach and come together on issues of importance to the industry. One such notable alliance is that between All Nippon Airways and the United Parcel Service, which codeshare to streamline operations and improve communication and customer service.
Better Co-operation on Industry Issues
Alliances and partnerships also allow cargo carriers to leverage the power of the masses when it comes to regulatory issues. In recent years, IATA has encouraged cargo airlines to collaborate with one another and with other cargo value chain participants to work toward improved quality, more efficiency through e-AWB and e-freight, and more effective security measures.
One example is the EU ACC3 regulation, which required by July 1, 2014 all carriers transporting goods into the EU from select non-EU countries to independently validate their operations from those states to the security standard of their air cargo supply chain. IATA’s Tony Tyler encouraged airlines, ground-handlers, and forwarders to look for chances to cooperate – wisdom that can be applied to other partnership opportunities, as well.
“There is only a limited number of validators, so it makes sense for certain markets to coordinate requests to be validated,” Tyler said. “This should maximize efficiencies and minimize costs, as well as increase the chances of the industry meeting this very tough deadline.”
Building a Solid Foundation
L.E.K.’s engagement manager Brett Catlin says that trust, above all, is essential to an effective partnership.
Before selecting a partner, cargo carriers need to:
- Align corporate and strategic goals
- Create a set of key performance indicators by which to measure the success of the alliance
- Rank existing and future alliances by value
A solid foundation also requires carriers to answer a number of questions when structuring or joining a partnership. For example:
- How will service standards and selling practices be aligned?
- Will there be parity payment adjustments?
- How will each party determine its baseline profitability?
- Will the partnership share revenue or profit?
- Who owns pooled resources, and how will they be managed?
- Which routes and regions will be covered?
- How will the partnership address exclusivity?
Look Out for Common Issues
As with any relationship, there are challenges that all parties in a supply chain partnership must guard against and watch for over the course of the alliance.
- Irreconcilable differences between partners, including lack of trust, difference of issues, difficult differentiating operations, high coordination costs, etc.
- Difficulty determining benefits and gains and fairly allocating workload and revenue/profit/asset sharing.
- Barriers to negotiation that include disagreements over the prevailing authority and unequal positions of bargaining power.
- High costs of coordinating and controlling costs and the inability to control operations or properly communicate.
Most, if not all, caveats can be mitigated with a good foundation and the addition of a savvy IT vendor with flexible solutions and services.
Leverage Technology to Manage Partnerships
Alliances can be just as complex as the issues they seek to alleviate, so cargo carriers would do well to look for technology partners that can streamline processes and manage the supply chain.
The value of a powerful system for managing air cargo operations and partnerships include:
- Managing and coordinating cargo capacity
- Seamless supply chain integration
- Optimizing revenue through automatic processing, schedule splits, and maintenance
- Enhanced customer service
- Paperless operations
- Improved asset utilization
- The ability to capture compliant shipment and AWB data and comply with e*freight requirements
- The ability to manage and address varying regulations from different countries and regions
- Increased transparency and more informed decision-making
As the air cargo industry continues to grapple with issues of supply and demand, complicated regulations across the globe, and issues of cost and competition, alliances and partnerships may be just the ticket to growing and competing. With proper understanding of the benefits and risks of alliances, a solid foundation, and a full-featured technology vendor, carriers will be well on their way to structuring sound and mutually beneficial partnerships throughout the industry.