AIC TALK 丨Des Vertannes: Air Cargo Will Be the New Pivot of Airlines

Introduction：

International Advisory Panel (IAP) is the brain trust of Aerotropolis Institute China (AIC). It brings together world leading experts in airport development, air transport, supply chain management, urban planning, biomedicine, branding, digitalization, etc. The expertise of IAP provides AIC with a global vision, keeping our clients abreast of the world’s best practices and international industrial trends.

In this episode, we invited Mr. Desmond Vertannes, the former Cargo head of the IATA and current Fellow on AIC’s IAP (International Advisory Panel), to share with us his insights. He believes that air cargo will be the new pivot of airlines; the growth of e-commerce is going to have an overarching influence on how the air cargo industry shapes airlines and the rest of the supply chain; airport can play a vital role in the success of e-freight.

Ever since the burst of the Covid-19 early this year, the airline industry has been stuck in a hard winter. Borders shut down, airports are empty, and the airline industry is almost paralyzed.

Statistics show that in this April when the aviation crisis reached its peak, passenger demand plunged by 90%. Though slightly recovered four months later in July, pax demand continues at critically low levels, -79.8% below July 2019 levels. Stronger cargo revenues partially compensated for the loss in passenger revenues as air cargo witnessed only a 14% decrease in revenues from that of last year despite a reduction in available capacity of -31% versus last year.

“The crisis in demand continued with little respite in July. With essentially four in five air travelers staying home, the industry remains largely paralyzed. Governments reopening and then closing borders or removing and then re-imposing quarantines do not give many consumers confidence to make travel plans, nor airlines to rebuild schedules.”

——said Alexandre de Juniac, IATA’s Director General and CEO.  

In this episode, we invited Mr Desmond Vertannes, the former Cargo head of the IATA and current Fellow on AIC’s IAP (International Advisory Panel), to share with us his insights on the post-pandemic development of air transport industry, China’s international logistics performance, and e-freight projects.

 Question 1:

What would be the primary trend for the aviation industry?

Des Vertannes

The aviation industry has had numerous challenges during the past four decades whether it’s been environmental catastrophes, wars, oil crisis, financial crisis or acts of terrorism. We navigated through these periods of turbulence and emerged stronger. However, nothing has ever prepared us for something of this scale, its impact on humanity and global trade. 

The pandemic left governments around the world no other choices but to close their borders and ban residents from traveling. Consequently, the aviation industry grounded to a halt. Airports became ghost villages, deserted of flights and passengers with the exception of those being repatriated before they were stranded overseas.

As with every previous disaster, there were people needing urgent help. This time, on an unprecedented global scale, commodities predominately PPE (personal protection equipment), ventilators, pharmaceuticals, or other life-saving goods were needed in extraordinary large quantities to help those suffering with COVID-19. Inevitably, air cargo was the only logistical supply chain that could speedily and efficiently help to save and preserve human life around the world in such time critical circumstances, regardless of the skyrocketing prices or rates.

Major industry witnessed the true value of the air cargo industry amid a global crisis. With no passengers demand to generate revenue, airlines that were bleeding cash turned to freighters by converting their passenger aircraft to enable them transport urgently required medical supplies to pandemic-ridden countries.  

Going forward, I’m hoping all governments and airports finally realize the significant role air cargo plays and begin to invest in better infrastructure, road transport accessibility and technology. As for the industry, the e-commerce companies and consumer behavior will drive the evolution of collaboration and integration to fully digitize and provide a seamless end to ends time definite supply chain. .

Question 2：

What was China’s performance in the past two decades in the international aviation industry?

Des Vertannes

China with the US has become the engine of global trade, particularly in the past two decades. Many Chinese companies have also invested and strengthened their presence around the world.

Chinese airlines have played an increasingly pivotal role within the global air cargo industry. China Eastern and Air China are important members within the airline alliance groups, especially Star Alliance and SkyTeam. China’s demographics and domestic routes makes it hugely attractive to foreign airlines and its ‘Belt and Road Initiative” is a huge success with many nations across the entire world.

In respect of air cargo, China contributed 25-30% of global international air cargo business in 2019. That’s an enormous piece of the cake that major carriers, be it Emirates, Lufthansa, United, American, Cathay or British Airways, would like a slice of.

Over the past two decades, the world’s manufacturing heartland has shifted to the APAC, thus the primary demand for cargo capacity coming out of export from China. The minimal import volumes made it uneconomical for freighter airlines who had to cover the cost of both outbound and inbound legs. Collaborating with Chinese carriers helped mitigate that cost and optimized the use of their capacity as the Chinese airlines or their subsidiaries could provide access to numerous and sizable domestic markets.

China’s strong and continuous economic growth has fueled growth in its middle class population to numbers matching that of the entire EU region. Largely within the younger age group, these new consumers are increasingly purchasing goods from outside China, therefore, the gap between China’s exports and imports are slowly narrowing. Despite the geopolitical tensions and political sound bites emerging as a result of this pandemic, China will remain a dominant power in global trade and commerce.

On China’s participation in international committees, Chinese airlines can certainly increase representation and become more vocal, especially within organizations like IATA, where many working groups exist to innovate and develop new standards or practices for the aviation industry. These working groups cover technology and digitization such as e-freight, sustainability, operations, safety and security including audits.

The advantage I see to expanded Chinese participation within all these associations is that their experiences and new found learning can transform the individuals to becoming expert advisers when they return to their companies and regions. They can become the catalysts to stimulate dialogue between Chinese industrial players and major international associations and institutes.

Question3：

Would the air cargo industry be different from what it was before the pandemic and what’s the biggest difference?

Des Vertannes

Assuming airlines overcome the deep financial struggles and people repeatedly travel again, we will witness mindset changes within the major airlines. They will realize the vital contributions made by cargo segments and hopefully place more emphasis on their air cargo portfolio.

Once through this horrific pandemic period and the airlines re-mobilize their fleets, the boards of the major, inter-continental airlines will place renewed focus on their air cargo departments or at least consider adopting a specific cargo strategy. Forming more tangible alliances on the cargo side of their business will happen. As for airlines who have dedicated cargo businesses, they will need to look outside the normal airport to airport parameters or merge with new supply chain companies to extend their value proposition, particularly in technology.

In the post-pandemic era, airlines have to counter a different aviation environment. People for the next 2-3 years will remain reluctant to travel (at least till a successful vaccine is in pay). However, commercial demand for various commodities, electronics, and high-end fashion goods will remain, leading to continued growth in on-line shopping. Thus the growth of e-commerce is going to have an overarching influence on how the air cargo industry shapes airlines and the rest of the supply chain. 

Question4：

Will international organizations like IATA or ICAO change their focus on projects relating to the air cargo industry?

Des Vertannes

IATA is a standard and rule-making body for its airline members, enabling them to transact and operate throughout the world under the protection of universal standards vital for the safety and security of passengers, crew and those exporting and importing goods by air.

Looking into the future, industry associations have a fresh challenge, because this time their opponent, the pandemic is invisible. 

Safety, as one example means to ensure that products don’t explode on an aircraft. Despite the experience of SARS and MERS in the early 2000s, Covid-19 brings virus and hygiene back under the spotlight. Their next task is to mitigate the threat of this virus being transmitted within the air cargo supply chain just as they have implemented rules and procedures to ensure passengers can travel in a safe Covid-19 way.

This new challenge will motivate all the associations and regulators to improve on the existing multifaceted processes and undertake to reduce the numerous touch points involved in the transportation of cargo especially with paper. I do hope regulators in particular realize the enormous advantage of deploying technology and align to the recommendations from organizations like ICAO, IATA and TIACA and implement digitization as a means to simplify the entire process. This will be a start.

Question5：

How to successfully implement e-freight?

Des Vertannes

Good technology infrastructure is the foundation for success of e-freight. The airport can play a vital role in this aspect.

Been nominated to become one of China’s first fully e-freight airports with full support from central government, Zhengzhou should take the initiative to drive this project. As landlord, they can mediate between all the actors in the supply chain, airlines, forwarders, GHAs, shippers, customs and state security and pilot the technology already available to make this happen.

The local regulators, specifically customs and securities, should enforce a deadline when use of paper documentation ceases altogether. The most significant documents that accompany an air cargo shipment have had an electronic version developed and approved universally for use. Any party not able to comply or use e-freight can still feed their business through third parties, but that reality will inevitably force them to make the necessary investment, so to preserve their service integrity. 

（Interviewed on September 16, 2020）

Who’s Desmond Vertannes

Desmond (Des) Vertannes's career in aviation has spanned nearly five decades. Though he retired full time in June 2014 as Global Head of Cargo at IATA, he continues to provide strategic advice to selected companies and address key industry events. At present he is a Non-Executive Chairman of the Board at an industry technology company 'e-Cargoware', and on the panel of Experts advising AIC.

Des began his career with British Airways (BEA) in February 1970 serving them for 14 years. Among his many roles were that of Cargo Manager Gulf States and Saudi Arabia and Cargo Sales Manager-UK. In 1984 he established his own forwarding business before joining Air Canada in Feb 1991 as GM Cargo -EMEA. In April 1999, he was headhunted to lead the evolution at ground handling company 'Menzies Aviation' performing dual roles of CEO of Air Menzies International (AMI) and Managing Director of Menzies World Cargo with the task of integrating the 6 separate businesses purchased by the company into the GHA. He returned to the Airline sector when invited to take the lead cargo role at Gulf Air in Bahrain in Jan 2006. Prior to his role at IATA, Des was Executive Vice President Cargo at Etihad Airways.

His contribution to the air cargo industry has been globally acknowledged. Des was inducted to TIACA’s Hall of Fame in 2017 and been presented with 'Lifetime Achievements Award' by Stat Times, Air Cargo News and Payload Asia. He was also bestowed with the prestigious Martin Schroder Award in the Netherlands. 

What is the IAP of AIC?

International Advisory Panel (IAP) is the brain trust of Aerotropolis Institute China (AIC). It brings together world leading experts in airport development, air transport, supply chain management, urban planning, biomedicine, branding, digitalization, etc. The expertise of IAP provides AIC with a global vision, keeping our clients abreast of the world’s best practices and international industrial trends.

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