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By KELLY YAMANOUCHI
The Atlanta Journal-Constitution
Published on: 07/03/08
Although the airline industry is cutting back amid record fuel costs, Delta Air Lines is investing in an area that had been easy to neglect: cargo.
Atlanta-based Delta hopes to grow its cargo business to $600 million in revenue this year, from $482 million last year.
Among the investments the airline has made is a $2 million set of four giant coolers and infrastructure in Atlanta to store lucrative perishable shipments such as fresh produce and pharmaceuticals. The coolers are to be in use by July 15.
Although cargo is a behind-the-scenes business for an airline, it can make the difference between a profitable flight and an unprofitable one, particularly for international flights. And as Delta grows its share of international flights, cargo rises in importance.
For example, Delta's Atlanta-Shanghai flight launched March 30 brought in $6 million in cargo revenue by the end of June, said Neel Shah, vice president of Delta's cargo division. That flight moves cargo from China that is often transferred in Atlanta to Brazil, including electronic components manufactured in China, assembled in Brazil, then sold in the United States, Shah said.
Cargo was one of the areas that Delta cut back during earlier financial trouble, including its Chapter 11 bankruptcy from September 2005 until April 2007.
"Delta has never had a major position in the air freight business. It's always been an after-product, or an after-thought," said Ned Laird at Seattle-based Air Cargo Management Group. But with more international flights, "it becomes more important to have an air freight business," Laird said.
When Richard Anderson took the helm at Delta last year, cargo was one of the areas he directed more attention toward.
The company hired Shah, who was vice president of sales and marketing for cargo at United Airlines, which has a stronger reputation than Delta in cargo.
Cargo had been largely ignored by Delta, and "really atrophied during the bankruptcy," Shah said. "It just really declined to the point where customers were taking enormous steps to avoid taking freight out of Atlanta (on Delta). I know this because I was a competitor."
But "I was convinced about the company's commitment to the cargo business," he said.
Still, Shah faces an uphill climb if he wants to make Delta a leader in cargo.
"You can't turn the Titanic on a dime," he said.
Delta's cargo operation has about 775 employees, including about 300 in Atlanta. Shah brought in new management in cargo and is overseeing changes like cutting out redundant steps and bringing in a $4 million revenue management system.
The cargo division also has added other technological improvements, such as scanning technology. It was added to Atlanta in May, and the company hopes to roll it out to other hubs by the end of this year.
Delta's proposed merger with Northwest Airlines, a carrier with a stronger reputation in cargo, could also significantly improve Delta's position in the cargo business. The proposed merger with Northwest would combine Northwest's strength in Asia with Delta's strength in Europe.
"It's a network that none of our customers can ignore," Shah said.
Whether Delta becomes a major player in the international freight business will depend on the decisions it makes in the merger and on its investments in cargo, including what to do with Northwest's fleet of Boeing 747 freighters, Laird said.
Delta needs to improve its standards of service, Laird said. "Their freight service does not match world standards set by the Europeans and the Asians," he said.
And there are serious challenges affecting the air cargo industry across the board.
"The air freight and express industry is really struggling with current fuel prices and in the international marketplace, a lot of freight is being diverted to ocean transportation because of it," Laird said.
The new coolers in Atlanta are a key part of Delta's plan to target more valuable cargo, such as temperature-sensitive pharmaceuticals. In a weak economy, companies may move less valuable shipments from aircraft to ships, but "what you'll never find on a ship is pharmaceuticals," Shah said.
Delta has been using a contracted facility, the Atlanta Perishables Complex, to store perishables. But Shah said handling of perishables will be more dependable when Delta begins using its own coolers in Atlanta to store temperature-sensitive cargo.
Chris Connell, president of Commodity Forwarders Inc. in Los Angeles, said his company hopes to increase tonnage it moves through Atlanta in the next six to 18 months because of Delta's new system for handling perishables.
Delta's move is "a solid step in the right direction to improve the logistical cool chain for air freight," Connell said, as the airline adds "layers and layers back into infrastructure from years of hard time in bankruptcy."
The Atlanta Journal-Constitution
Published on: 07/03/08
Although the airline industry is cutting back amid record fuel costs, Delta Air Lines is investing in an area that had been easy to neglect: cargo.
Atlanta-based Delta hopes to grow its cargo business to $600 million in revenue this year, from $482 million last year.
Among the investments the airline has made is a $2 million set of four giant coolers and infrastructure in Atlanta to store lucrative perishable shipments such as fresh produce and pharmaceuticals. The coolers are to be in use by July 15.
Although cargo is a behind-the-scenes business for an airline, it can make the difference between a profitable flight and an unprofitable one, particularly for international flights. And as Delta grows its share of international flights, cargo rises in importance.
For example, Delta's Atlanta-Shanghai flight launched March 30 brought in $6 million in cargo revenue by the end of June, said Neel Shah, vice president of Delta's cargo division. That flight moves cargo from China that is often transferred in Atlanta to Brazil, including electronic components manufactured in China, assembled in Brazil, then sold in the United States, Shah said.
Cargo was one of the areas that Delta cut back during earlier financial trouble, including its Chapter 11 bankruptcy from September 2005 until April 2007.
"Delta has never had a major position in the air freight business. It's always been an after-product, or an after-thought," said Ned Laird at Seattle-based Air Cargo Management Group. But with more international flights, "it becomes more important to have an air freight business," Laird said.
When Richard Anderson took the helm at Delta last year, cargo was one of the areas he directed more attention toward.
The company hired Shah, who was vice president of sales and marketing for cargo at United Airlines, which has a stronger reputation than Delta in cargo.
Cargo had been largely ignored by Delta, and "really atrophied during the bankruptcy," Shah said. "It just really declined to the point where customers were taking enormous steps to avoid taking freight out of Atlanta (on Delta). I know this because I was a competitor."
But "I was convinced about the company's commitment to the cargo business," he said.
Still, Shah faces an uphill climb if he wants to make Delta a leader in cargo.
"You can't turn the Titanic on a dime," he said.
Delta's cargo operation has about 775 employees, including about 300 in Atlanta. Shah brought in new management in cargo and is overseeing changes like cutting out redundant steps and bringing in a $4 million revenue management system.
The cargo division also has added other technological improvements, such as scanning technology. It was added to Atlanta in May, and the company hopes to roll it out to other hubs by the end of this year.
Delta's proposed merger with Northwest Airlines, a carrier with a stronger reputation in cargo, could also significantly improve Delta's position in the cargo business. The proposed merger with Northwest would combine Northwest's strength in Asia with Delta's strength in Europe.
"It's a network that none of our customers can ignore," Shah said.
Whether Delta becomes a major player in the international freight business will depend on the decisions it makes in the merger and on its investments in cargo, including what to do with Northwest's fleet of Boeing 747 freighters, Laird said.
Delta needs to improve its standards of service, Laird said. "Their freight service does not match world standards set by the Europeans and the Asians," he said.
And there are serious challenges affecting the air cargo industry across the board.
"The air freight and express industry is really struggling with current fuel prices and in the international marketplace, a lot of freight is being diverted to ocean transportation because of it," Laird said.
The new coolers in Atlanta are a key part of Delta's plan to target more valuable cargo, such as temperature-sensitive pharmaceuticals. In a weak economy, companies may move less valuable shipments from aircraft to ships, but "what you'll never find on a ship is pharmaceuticals," Shah said.
Delta has been using a contracted facility, the Atlanta Perishables Complex, to store perishables. But Shah said handling of perishables will be more dependable when Delta begins using its own coolers in Atlanta to store temperature-sensitive cargo.
Chris Connell, president of Commodity Forwarders Inc. in Los Angeles, said his company hopes to increase tonnage it moves through Atlanta in the next six to 18 months because of Delta's new system for handling perishables.
Delta's move is "a solid step in the right direction to improve the logistical cool chain for air freight," Connell said, as the airline adds "layers and layers back into infrastructure from years of hard time in bankruptcy."
