Shahe Ouzounian/LONDON
The integrated express delivery sector of the world air freight market has been responsible for one of the most staggering rates of growth yet witnessed in the airline industry. The statistics for last year from the two US market leaders in the business, FedEx and UPS, are impressive - the two employ nearly 500,000 personnel worldwide, run 196,000 vehicles, deliver 15 million documents and parcels daily and had combined revenues in the region of $34 billion.
In its first year (1973), FedEx carried a mere 186 packages on its first night of operations, aboard a fleet of 14 Dassault Falcon 20 freighters. Today it boasts an air fleet of more than 500 aircraft - including over 130 widebodies. Every day and night FedEx and UPS deploy nearly 1,000 aircraft, from Cessna Caravans to Boeing 747s. Both carriers are now firmly established among the largest airlines in the world, with demand for their services having resulted in vast networks, principally within the USA, but also growing internationally, characterised by major hubs, all linked by air and surface links.
Key service requirements (such as overnight, time definite guaranteed delivery) and increases in shipped volume have paved the way for the growth of fleets dedicated to the integrators. "We work with the volume projections that we are given for specific markets and then solve the transportation problem from there," says Bill Simpson, long range planning manager at Louisville, Kentucky-based UPS. "The overall key to what aircraft we acquire is the operating economics, based on fundamentals such as capital investment, mission type and utilisation," he adds. This has resulted in a fleet of converted secondhand airframes as well as custom-built new types such as Boeing 757 and 767 freighters.
James Parker, vice-president of fleet development and acquisitions at FedEx, also highlights the key driver as demand in determining what equipment the Memphis, Tennessee-based integrator uses. "We have a mass of considerations to take into account and balance, but basically we start off from what our system requires, both in terms of volume and 'customer requirements', where reliability is paramount." Parker compares FedEx's fleet planning to laying the tracks and deploying the rolling stock of a massive global railroad, centring on "hubs" linked by various "gauges" of aircraft size and service frequencies. "The more hubs we have, the lower the general size of the gauge [aircraft] will be and the more aircraft we will need," he says.
In considering which aircraft to acquire and deploy and how they fit into the hub and spoke system, Parker lists "aircraft acquisition cost, direct operating costs [DOCs], reliability, noise emissions and, this is really critical, whatever we look at must fit our unit load device system efficiently," he says. He adds that the Boeing 727 and 737 narrowbodies fit this requirement, as do the Airbus A320 and A321, while the narrower McDonnell Douglas DC-9/MD80/90 does not. Similarly, as far as widebodies are concerned, Parker reflects the current make up of the FedEx fleet - Airbus A300s, A310s, McDonnell Douglas DC-10s and Boeing MD-11s are in, while the 747 is "just too big".
STRATEGY DRIVER
"Utilisation drives our strategy more than anything else," concurs UPS' Simpson, adding that aircraft availability and DOCs are the other major considerations. "In general, we apply high cost, new aircraft to longer range missions, while lower capital cost is the prime factor behind the types we deploy on very short, low utilisation missions."
Where a freighter aircraft is acquired as new, it is a significant investment (list price for the 757 and 767 freighters are $58 million and $107 million, respectively). Simpson claims that DOCs, particularly fuel and crew sensitivities, are critical to the choice. "We look for a payback and service life of between 30 and 40 years with the 757/767 fleet, whereas with the used acquisitions, it's shorter, between 10 and 20 years," he says.
New acquisitions by UPS make up just under half the fleet - the carrier has taken delivery of 70 757Fs and 22 767-300Fs from the manufacturer, while used 727s, 747s and McDonnell Douglas DC-8-70s make up the rest of the carrier's heavy jet operation. They have, in the majority of cases, been converted to all-cargo configurations.
To illustrate the methodology of choosing the newer models to supplement and eventually replace the established fleet, Simpson describes the case for the 767 acquisition. "We started off with the DC-8 [UPS' fleet of 49 -70s represents nearly half of the world's 110 re-engined DC-8-70s]. It's deployed across the entire spectrum of our network, from 1h spokes in the USA to long haul European and Asian flights from the USA, but we realised that as good as the DC-8 is, with its 44,000kg payload, we didn't want to own any more." Simpson adds that, with market growth being a key feature, UPS needed a modern, bigger aircraft which it could utilise reliably and heavily. That is why it chose the 767, with its 54,000kg payload.
Simpson says that as the 767 fleet is delivered, it will take over the bulk of long haul operations from the DC-8, as well as the more sector-intensive schedules within the USA. This will result in reduced daily utilisation for the DC-8 fleet as a whole, effectively extending the economic life of the aircraft, which Simpson says is ideal, "since we don't plan to retire them just yet". The DC-8 is expected to stay on until at least 2008.
Last year UPS began a study to acquire another type to supplement the DC-8 and 767, described as the Widebody Regional Freighter. The project is based on acquiring an aircraft that is mission-specific, so it will be a used and converted model. "We are looking for a low capital cost airframe for very low utilisation deployment on high volume routes," sums up Simpson. On the shortlist are almost all variants of the A300, DC-10 and Lockheed L-1011 TriStar, as well as used 767s.
The types all offer a 45,000kg payload and 20-24 main deck pallet positions. "All the offers are now in, and we should have a decision by the summer," says Simpson.
The 727 is another type that UPS has acquired in the used marketplace but which had a low utilisation rate (2h a night on average, four times a week.) Simpson explains that the 727 is unique in the UPS fleet by being a "one mission aircraft, so it flies one spoke a night". This was too low for UPS - "-remember by re-engineing them with Rolls-Royce Tays, and installing new flightdeck avionics, we made a very significant investment in the type", Simpson says (reportedly $12 million per aircraft).
He adds that before the decision to upgrade the 727-100 fleet to the "QF" (quiet freighter) standard, UPS considered the 737-400 as a potential freighter, but was put off by its relatively high acquisition cost. Once the 51-strong 727 fleet was upgraded, Simpson says that "-we looked at ways to increase the utilisation, and this led us to convert five aircraft into [passenger/freighter] convertibles to enable us to fly passenger charter services at weekends".
Another benefit of the 727 upgrade was fleet commonality, which is always a problem when even aircraft of the same type are sourced in the used market from different operators. This was a particular problem on the DC-8 fleet, all of which were built in the 1960s for a host of different customers, but again UPS created an innovative package of enhancements which were driven by a need to improve dispatch reliability, general maintainability and lower support costs - all 49 DC-8s underwent a flightdeck upgrade, to one common UPS standard.
SMALL RETURNS
FedEx flies some 68 727-100 freighters, but Parker cautions that the smaller variant is now becoming "too small" for a lot of markets. The future is brighter for the stretched 727-200. "It can last another 20 years, and while there are operating cost efficiency issues and maintenance costs are increasing, our utilisation is very low with the type," says Parker. FedEx chose to develop a hushkit through its engineering division FedEx Aviation Services for the 727 rather than the more costly, but more effective, re-engineing route to Stage 3 compliance.
UPS is unique in that it is the only integrator in the world to have successfully deployed the 747 freighter. Twelve of the 747-100Fs, which each have a payload capability of 100,000kg are owned by UPS, alongside four longer range 747-200Fs. Simpson says that UPS has also looked at the 747-400 freighter. "It's a very long range aircraft with a high cost attached. We haven't ordered it since we have found it very difficult to formulate a need for a minimum equipment order, to make sense for us to have them in the fleet," he adds.
Simpson says that its 747 "classic" freighters are "...perfect for the movement of our non-priority, deferred products, with excellent economics on cross-country US sectors. It's just a huge truck with wings - we can even use it on short sectors, such as Louisville-Newark, as well as day routes, in a relaxed time frame mode." The 747-200 freighters are deployed on transpacific routes to lucrative Asian destinations, such as Hong Kong.
Simpson also has high regard for the 757 freighter, which constitutes the largest component of the UPS fleet. "It's reliability is absolutely awesome, as are the operating costs-we get amazing cycle economics on the 757, with a high rate of utilisation," he says. He says that it is also ideal for multi-sector services linking spokes and hubs with each other.
INCREASED UTILISATION
Like UPS, FedEx has used utilisation to judge how a specific aircraft type, depending on its size, is acquired and deployed and taken the initiative to develop techniques to use assets more efficiently. "Utilisation in the domestic fleet has traditionally been very low, but over the last 15 years we have developed a series of measures to improve this situation," says Parker. This has resulted in the "large aircraft" (A300-600 freighter with a 54,000kg payload and the DC-10-10 with a 65,000kg payload) being used on two specific missions, both product driven.
The first is the "overnight mission," for products that have to be delivered the next morning, which is tied to a limited amount of trucking, while the "daytime mission" has the aircraft deployed with second-day products, which have a larger component of less costly trucking. Parker describes this method of increasing freighter productivity as "double turning". The A300's suitability for this type of deployment justified the order for 36 new build A300-600Fs from Airbus, claims Parker.
In parallel with the A300 deal, FedEx has acquired the smaller A310-200 in large numbers from carriers such as KLM, Lufthansa and Swissair for conversion into freighters. Thirty-five are now in service, serving "a 727-type mission", according to Parker. "You can compare it to deploying multiple 727s," he says. The A310 [40,000kg payload] is used in a feeder role in the USA, as well as from FedEx's hub in Subic Bay in the Philippines.
FedEx is also a big operator of the "Douglas tri-jets" with some 40 DC-10Fs and 32 MD-11Fs in service. The carrier is boosting its fleet with the acquisition and conversion of ex-airline examples of both types including 49 ex-American and United DC-10-10s (for upgrade to MD-10), as well some ex-American and ex-Swissair MD-11s.
FAT FEEDER PERFECTION
"The DC-10-30s and MD-11s are almost exclusively used on intercontinental missions and between hubs, as opposed to 'intra-theatre' as feeders," says Parker, adding that they operate at very high levels of utilisation - up to 14h a day. "The DC-10-10, on the other hand, is perfect alongside the A300 on fat, feeder routes".
Parker points out that the DC-10 does not suffer from extensive ageing aircraft requirements, particularly when compared to its contemporaries such as the L-1011, A300 and 747-100. While reliability has been a concern, the MD-10 modification "-will address that, as well as bringing cost benefits such as a two-man cockpit and FANS [Future Air Navigation System] capability," Parker says.
The MD-11 is, says Parker, "-an ideal fit, meeting our ULD requirement for the system and is a lower 'gauge' than the 747. Therefore we can meet the frequency minimums into the markets we serve cost efficiently."
Source: Flight International
