Cargo: Getting the target in sight

Cargo traffic is returning, but not all airlines will settle for average growth. Seabury Group's Matthew Harris and Niall van de Wouw explain why a clear view of the target and how to get there is key for those aiming to beat the market

So far, 2010 has been a relatively good year for air cargo. Airlines have been reporting a surge in volumes and revenues compared with the same period last year. Some of them however do not settle for "riding the wave"; they have the ambition to beat the market on revenue and or yield.

Common to these airlines is the implementation of an improvement programme to boost their cargo revenues. Recent results show that improvements of 5-10% are no exception. The question is how did they do it? There are four fundamentals for successfully implementing a cargo revenue improvement programme: set clear and realistic targets; micro-manage local markets; track progress diligently and celebrate success; and support change by having the right processes.

CLEAR AND REALISTIC CHANGE

The first question to address when assessing improvement potential is to examine how well the cargo unit is performing. Defining performance should be done through comparison with current market developments and competitor performance rather than through a retrospective lens. No one source of cargo data will supply a direct answer to this question. Only by combining all internal data with external sources on volume, capacity and yield developments can an accurate picture of performance be drawn. This is often a time-consuming process, but it is essential in reaching realistic targets.

A direct result of this relative performance is the potential upside on volumes and yields or both. Once these targets are set, they need to become common knowledge throughout the global organisation. It is not uncommon for senior management to conduct a global road show to insure that everybody is on the same page. One managing director poignantly addressed this by communicating to staff that "participation is not an option!". In preparing the organisation for the improvement programme it is strongly recommended to avoid the P-word (P= project). Staff often associate a project with work they have to do on top of their normal line of duty. The goal of such programmes is the opposite; the change will be the new normal line of duty.

This means the implementation plan needs to follow and respect as much as possible existing hierarchy lines within the organisation. Station managers and their cargo sales team will not be charmed by head office staff calling them on how they have been progressing on their search for additional revenue streams.

MICRO-MANAGE LOCAL MARKETS

Cargo departments can spend significant time looking for silver bullet solutions, but in nearly all cases this search is in vain. "Beating the market" requires diligently working on numerous smaller initiatives that in aggregate result in dramatic improvements. One airline recently, through a well-executed revenue improvement plan, identified no less than 183 of these initiatives with a target improvement potential of more than $35 million. For this airline, no single centrally executed opportunity could approach the value created from the collection of these initiatives. Before running this exercise it had not been possible to estimate under-realised potential at the individual stations. The deep local knowledge did not exist centrally.

The large number of initiatives requires effort to execute and manage, but in holding local managers accountable for the commitments made by their sales staff, the number of staff being empowered to participate in contributing to revenue enhancement increases dramatically. The local focus spreads risk more diffusely, increasing the likelihood of achieving projected benefits.

Identifying such a large number of granular initiatives is contingent upon micro-managing the markets. One proven approach is to conduct interactive sessions with sales teams to find opportunities. These sessions are characterised by drilling down to the deepest level of detail available, using all internal and market data to develop a complete assessment of opportunities that exist.

The strength of data in this process is its ability to influence discussions and support better informed decisions. A complexity when micro-managing an individual market is the need to leverage a multitude of data sources to create a comprehensive picture of these markets. The combination of internal financial and operational data with external market data creates a set of data points that can be unwieldy to manage, even for the most proficient analysts.

There are further challenges associated with getting information out of databases and merging multiple data sets into usable tools to support decisions. Endless flows of uncategorised tables and "loose" data can create more confusion than solutions. The required qualities and interests to deal with these matters may not be found among sales staff. A talented sales force is strong because of its understanding of the market and ability to sell, not because of its ability to develop Excel models that import multiple data sources. These tasks should be prepared by central analytical resources. Combining these strengths with the central team's global market understanding and analytical skills works well. Over and over again it has proved successful to discuss new market opportunities.

This process is time consuming. However, the success of the sales sessions speaks to the value that such an exercise can drive. Only by having the trends in hand can solutions be discussed and developed locally. Although the development of ad-hoc novel IT tools and solutions may be inaccessible, careful review of the data in the cargo operator's IT systems can uncover a goldmine of information. For example, sales staff at one airline recently gained a clear wake-up call as these analyses highlighted dynamics in their local market that had previously been hidden in the raw data. Simple and intuitive charts shed light on markets where the operator is losing out.

While not always providing a direct answer - local conditions might apply so opportunities on paper are not there in practice - but they do provide trends that stimulate discussion. Many graphical trends lead to the development of concrete tactical responses from the staff to capture market share and lift load factors. This approach enables the sales force to do what it does best: sell. And they can be fun too, allowing colleagues to discuss in an open setting their market tactics and learn from each other.

TRACK PROGRESS AND SUCCESSES

Identifying new opportunities in the volatile cargo market is difficult enough, but capturing their potential value can be even harder. Creating a tracking mechanism and discussion forum to monitor status, and boisterous communication of "wins" across the organisation are key in capturing this value.

A tiered tracking and reporting system can be a positive approach to monitoring progress across regions. When committing to an initiative, sales staffs need to be assigned ownership and made responsible for tracking progress and reporting weekly to their regional managers. This allows regional management to track results with forwarders that operate throughout their area. In turn, regional management then reports back on a monthly basis to the managing director.

This style of reporting overcomes two obstacles faced when implementing such programmes. By pushing day-to-day tracking into the local business, the pitfalls of a centrally driven project are avoided. Ownership of the process moves out of headquarters, where management of such a number of initiatives would be cumbersome, and placed at regional and airport level. Reporting on regional progress in the company of all regional managers also creates healthy competition and an urgency to deliver. Accountability is driven downwards, increasing the chance that the new approach to finding additional cargo revenues becomes embedded.

Another important driver of success is the ability to overcome organisational inertia through a strong communications plan. Success breeds success and quick hits should be implemented as early as possible. Effectively communicating and celebrating success creates momentum. These wins can be cascaded through the organisation via email blasts and "toolbox talks" with operational staff. Releasing announcements over several weeks creates a continuous message of success. The behavioural change this can have, particularly in a decline when standard market indicators show continued market erosions, is huge. The messages breed sentiments that "we're all in this together". When trying to create momentum, no success is too small to celebrate.

SUPPORT WITH THE RIGHT PROCESSES

Local cargo sales managers require steering from central revenue management. Not to tell them how to do their job, but on which commercial opportunities they should focus. Only revenue management can have the total overview of which opportunities have the highest margin for the global network.

An endemic characteristic legacy of organisations, however, is the emergence of mixed and unclear roles and responsibilities that have grown as a heritage from the past. The split of roles and responsibilities between revenue management and the sales departments is often ambiguous. Although some overlap exists (such as setting allotment rules), the creep of central sales support tasks into revenue management, and vice versa, creates an unsustainable division of work catering for suboptimal results. Decoupling revenue management and sales functions ensures the central organisation is set up with sound fundamentals and accountability.

IT investment in decision support tools is often viewed as a "turnkey" solution to making the right commercial decisions. Too often, however, it is favoured over investment in people and processes. The reality of any IT system is that it can be used to enable more efficient execution of work. But it is not uncommon that around 80% of revenue management benefits can be achieved with the right processes and low-technology solutions.Sophisticated IT systems still require users to have a mastery of the underlying fundamentals to be effectively leveraged. And as many former passenger revenue staff, now active in cargo, have experienced, the dynamics of the air cargo industry differ to such an extent from the passenger domain that copying practises from one area to the next require careful thought. Strong IT platforms are essential tools to unlock the full potential, but they do not replace having the right processes in place.

In periods of market volatility, agility is of utmost importance. Focusing on contestable processes, staff training and targeted analysis is generally more effective than a complete network solution. Rolling processes and procedures out to the rest of the network when time is once again afforded allows for the long-term benefits to be realised without jeopardising the banking of short-term gains.

Source: Airline Business