Between them Air France, Asiana, Cargolux, Cathay Pacific, Korean Airlines, KLM, and Singapore Airlines have ordered 20 Boeing 747-400 freighters. Yet even those familiar with cargo operations continue to debate whether these new aircraft can turn a profit for their operators.
The Boeing 747 was designed to be a military freighter, a competitor for the Lockheed C-5 that eventually won the US government contract for heavy transport duties. Boeing turned its airplane into a civilian passenger aircraft. But it also delivered 73 B747 freighters between 1972 and 1991. Furthermore, approximately 60 B747 passenger jets have been converted to freighters - 44 B747-100s and 16 B747-200s.
The 747-400 freighter had considerable appeal when airlines began to order it in late 1990. Cargo aircraft were scarce and the choices were limited. 'Had we been able to find one, we could have paid $35-40 million and wound up with a 1970s vintage B747-100 with ageing structures and engines and high maintenance costs,' says Johannes Einarsson, who was Cargolux's senior vice-president of corporate planning at the time. 'A B747-200 Combi conversion for $50-70 million would have given us a 10-12 year old aircraft, but with no nose door and a restricted payload.'
But what a difference a year made. By early 1992, Lufthansa, Air France and KLM had either cancelled or deferred deliveries for the new jet, saying that its high cost made it impractical to operate in a market with declining cargo yields. Air France took technical delivery of the first 747-400 freighter in October 1993 and immediately parked it in the Arizona desert, where it still awaits its first commercial flight.
These turnabouts seemed like good decisions at the time. The Gulf conflict had just ended, a depressed world economy was strangling freight demand, and airlines were loosing billions of dollars. Simultaneously, aircraft prices had plunged and used B747-100s and -200s began to flood the market in both passenger and freighter versions. Freighters, in particular, could be acquired more cheaply than anyone had imagined only a year earlier, providing an incentive for low-cost cargo airlines to enter the market and further erode yields.
New competition was forcing yields down to the point where most airlines could not see how they could profitably fly new freighters. The major airlines wisely chose to invest their scarce resources in their passenger fleets, knowing that freight customers don't care whether boxes move in old or new aircraft.
In doing so, they chose to favour old aircraft that cost less to own but have higher labour, fuel and maintenance costs. In a depressed market, it was unlikely that a new aircraft would achieve the higher utilisation needed to reduce hourly costs.
However, the decision of these three carriers to abandon the -400 freighter does not alter the economics of the aircraft, which favour carriers with high utilisation and reasonable access to capital, and those that can take advantage of the productivity gains of the -400F's extra range and capacity.
Coincidentally, the first three carriers to fly the -400F - Cargolux, Cathay Pacific, and Singapore Airlines - all operate from small countries with relatively small fleets. Not so coincidentally, they all have good access to capital and longhaul networks.
Freighters are not usually profitable on short-haul routes with intense passenger competition. Shippers along these routes can fly their cargo in the bellies of passenger aircraft at cheaper rates than the freighter operators can profitably sustain. But on long-haul sectors, passenger aircraft cannot carry enough cargo to satisfy the demand. These routes need freighters, and the tariffs are usually sufficient to support them.
The key to profitability with the -400F is having the right route, says Robert Cutler, Cathay Pacific's general manager of cargo. Airlines now fly the aircraft on three main trade lines - transpacific, Europe-Asia and transatlantic.
On transpacific sectors, both Cathay and SIA report that the -400F significantly improves trip time and payload compared to the B747-200 freighter. 'There is a tangible benefit with the 747-400 on the transpacific because we avoid a tech stop in Seoul and we carry more payload,' Cutler says. Cathay flew an average of 102,000kg eastbound and 73,000kg westbound on its -400F during November 1994, for example. During the same month the B747-200F was only able to carry 90,000 kg eastbound without a technical stop in Seoul.
Skipping the stop in Seoul saves Cathay US$12,000 and two hours. 'The extra time lessens the pressure on the ground in Hong Kong, which is critical because of the slot situation here,' Cutler adds.
The two airlines also achieve better crew utilisation over the Pacific. Both carriers fly with two crew members and a relief crew on long flights, but instead of having to position dedicated -200F crews in Anchorage and Los Angeles, they can use pilots from their B747-400 passenger fleets who are already on station. Cathay reports that its -400F crew costs are about 10 per cent less than on the -200F.
Between Europe and Asia, Cargolux flies the only nonstop sector, Luxembourg-Hong Kong. None of the three carriers flies nonstop from Asia to Europe against the prevailing winds. Although it is possible to fly the route without a technical stop in the Middle East, Cutler says it might not be worthwhile after taking into account the costs of crew positioning.
On the North Atlantic, 'You can make the best case for the -400F by looking at the route between Europe and the US west coast where you have low yields in both directions,' says Lucien Schummer, Cargolux's vice-president of commercial planning and information systems. 'One way to deal with low yields is to use the most efficient aircraft.' The west coast route lost money when operating a -2000F but is profitable with the -400F, Schummer says. He adds that Lufthansa has ceased flying its own -200F to the west coast and now shares space aboard the Cargolux -400Fs.
'We make money with the -400F for three reasons,' Schummer adds. 'First, our fuel is 15 per cent less than with the -200F. Second, maintenance costs are lower. And third, we don't have to land as often so we fly more revenue hours.' Cathay's Cutler concurs. The fuel saving with the -400F is 400 gallons per hour for the same weight and distance, he says. 'And our -400 maintenance costs are 20 per cent cheaper than for the -200s. Even though we have no real maintenance costs for the next three years we still accrue for future costs.'
Avoiding unnecessary landings saves taxi time, landing and takeoff costs, extra fuel, and the extra trip time created by the landing, Schummer adds. 'Nonstop flights to and from the US west coast return 2.5-3.5 hours earlier and enable us to introduce other services to take advantage of that extra, commercially available time.
'People say that getting cargo there faster doesn't get you more freight, but that's not true. The shorter trip time means we can leave the west coast later on Wednesday and carry more of the freight that needs to arrive in the main markets of Europe by Friday,' he adds.
With a $150 million freighter, every additional revenue hour helps. So does the ability to achieve sufficient utilisation to bring down unit costs. Fortun-ately, new freighters have consistently offered more range, which has been the key to increasing utilisation. Cargolux gets from one to three hours more flying per day out of its -400F freighters than its -200F's and Cathay about 30 minutes more. SIA has the same utilisation for both types.
Both 747 freighters share the same fuselage, but Boeing moved the ladder to the upper deck in the -400 model in order to make room for an additional pallet in the nose. It also raised the aft section of the upper deck floor to accommodate two taller high-cube pallets on the main deck below. And it created space for four additional cargo containers in the lower holds.
For cargo operators this means an additional 3-5 per cent in revenue for each flight. The -400F can lift heavier shipments than the -200F, but that by itself doesn't necessarily bring in more money. Operators say that using the higher gross takeoff weight to carry more fuel and fly further is its real benefit. All three operators say the -400F has given them far greater dispatch reliability.
Only one question remains: does the B747-400F operate profitably? The operators don't want to address this directly. SIA simply says that in terms of block hour costs, there is no significant difference between the two aircraft types because higher aircraft standing charges are offset by lower fuel costs and maintenance. We're left to conclude that if SIA's -200Fs are profitable, so are its -400Fs.
'In terms of profitability, Cathay cannot compare the -400F versus the -200F,' Cutler says. 'Although our operational costs are similar, it is definitely misleading to compare the finance costs because our internal depreciation and finance charge policies have changed between the acquisition of the two types.' Not much help here.
'The -400F is a good cargo aircraft,' Schummer says. 'All factors considered, it improves the return in the Cargolux network versus the -200F.' A hint that the -400F outperforms the earlier version in at least one route system.
Boeing acknowledges that the profitability of the -400F depends on the individual airline's network and ability to use the aircraft productively to its maximum range. 'If the market can be served by a -200F, then it has the edge,' says Klaus Brauer, Boeing's project director of marketing. 'But if you fly far enough to require a tech stop, then the -400F is more profitable.'
Apparently Boeing believes it's a close call - it still sells the B747-400F, but it recently reopened the Wichita facility where it converts B747-200 passenger jets to freighters.
Source: Airline Business
