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Old Dec 22, 13, 4:45 pm   #1
 
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Why is UA lagging in cargo & what impact will it have on 2014?

There's always a ton of talk around here about the flyer experience (naturally), but one area I haven't seen a lot of talk about is UA's cargo operations. While air cargo has been suffering in general, UA's cargo unit has plummeted since the merger. Last quarter, cargo revenue dropped 19.1% to only $199M.

Compared to DL and AA, UA is underperforming either carrier by 10%+ year-over-year, and has lost more in terms of absolute dollars than DL and AA combined. More than $113M shed YTD, against 2012.

This is more than just a random number... With UA trying to cut $2B in costs, shedding 9-figures worth of highly-profitable revenue can have serious effects (margins on cargo are 50%+, since it's just added-on to the passenger routes). At the same time, many of the cuts to Asia routes may be choking off cargo feed, with cargo revenue apparently not included in the TPAC JV with ANA.

Further, it seems like this number may be harder to turn around... Shipping industry analysts are only predicting global ~2% growth in air cargo in 2014, mostly to be sucked-up by middle-eastern carriers, and AA's cargo strategy seems to be leaving it the only North American carrier growing contracts at a significant rate. (~+17% vs 2012, according to this article.)

So given that boxes of freight don't complain about devalued miles or rip-off club beers, why would UA be struggling so badly in this area of their operations compared to the competition? And will UA passengers have to swallow further cuts than even the planned $2B if this area of the business continues to shed hundreds of millions of dollars annually? A bottom-line loss of ~$100M this year isn't really something you can soak up with broken cashews and $6 TPAC beers...
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Old Dec 22, 13, 4:48 pm   #2
 
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They will make it up by cargonization of passengers
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Old Dec 22, 13, 5:02 pm   #3
 
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UA essentially got out of the cargo business when the (profitable) pre-merger CO cargo operation was outsourced to match the UA side of the house. At a time when DL and AA are actively seeking to grow their respective cargo operations, UA considers it non-core and, like everything else at this company, is a target of aggressive cost cutting.
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Old Dec 22, 13, 6:44 pm   #4
 
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Quote:
Originally Posted by EWR764 View Post
UA essentially got out of the cargo business when the (profitable) pre-merger CO cargo operation was outsourced to match the UA side of the house. At a time when DL and AA are actively seeking to grow their respective cargo operations, UA considers it non-core and, like everything else at this company, is a target of aggressive cost cutting.
That may be, but what on EARTH would the rationale be? Unless they were doing something really wonky, it's always been my understanding that cargo for passenger carriers was pretty much "free money". Sure, if fuel costs go up, your margin gets squeezed. But 50% (or 40% or 20%) of something is surely better than 100% of nothing??

What are they filling the holds with, at this point??
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Old Dec 22, 13, 6:59 pm   #5
 
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Quote:
Originally Posted by Darlox View Post
That may be, but what on EARTH would the rationale be? Unless they were doing something really wonky, it's always been my understanding that cargo for passenger carriers was pretty much "free money". Sure, if fuel costs go up, your margin gets squeezed. But 50% (or 40% or 20%) of something is surely better than 100% of nothing??

What are they filling the holds with, at this point??
Not much space to fill when you're flying 757s from EWR-Europe, 777s from LAX-SYD, and ERJs from ACY-IAH.
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Old Dec 22, 13, 8:22 pm   #6
 
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Was at OGG cargo Friday night. Two cats waiting to fly to Manchester, England (!) via Denver and EWR were very happy it wasn't too busy.
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Old Dec 22, 13, 8:47 pm   #7
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Originally Posted by Darlox View Post
....(margins on cargo are 50%+, since it's just added-on to the passenger routes). ...
Margins on cargo are seeing significant downward pressure right now and the operations with dedicated cargo services - both those which also have passenger service and those who only do freight - are able to better handle the lower demands.

Some useful reading on the topic:
http://www.aircargoworld.com/Air-Car...growth/2415348
Quote:
In 2014, IATA expects a significant improvement in cargo growth to 3.7 percent. But yields for cargo markets are expected to fall by 2.1 percent.
...
The ability of airlines to match cargo capacity to demand is limited by the natural growth in belly capacity that occurs as airlines respond to passenger demand. As a result of this mismatch, cargo yields are expected to fall by 4.9 percent this year.
http://www.tiaca.org/images/TIACA/PD...20Industry.pdf - Talks about freight-specific operations, particularly in Asia.

http://www.boeing.com/assets/pdf/com...cargo/wacf.pdf - This is in their efforts to sell more all-cargo aircraft.

Quote:
Averaged over the past two decades, freight yield has declined
4.2% per year. The most recent decade saw a slight yield
increase of 0.9% per year, compared to the 9.0% average annual
decline recorded in the preceding decade
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Old Dec 22, 13, 8:51 pm   #8
 
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what they lose in one area has to be recupd in others... guess thats why we cant get a full can of soda!
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Old Dec 22, 13, 9:09 pm   #9
 
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Originally Posted by sbm12 View Post
Margins on cargo are seeing significant downward pressure right now and the operations with dedicated cargo services - both those which also have passenger service and those who only do freight - are able to better handle the lower demands.
With that mix of references, I can't quite tell whether you're agreeing with me, disagreeing with me, or just attempting to add data...

In essence, those reports indicate:
* North American airlines are expected to post the strongest performance.
* Long-haul hub-hub Asia-NA routes should have the highest yields
* Yields are down globally, but nowhere near unprofitable territory except for small cargo-only carriers.

... so it would seem that UA should be positioned to take advantage of the most cargo revenue retention among North American passenger carriers given its TPAC network and prevalence of widebody a/c on those routes.

Yet it's getting its clock cleaned by the carrier with the WORST North American TPAC network.

Also, any company that would cut a business line because yield went from 50% to 45% probably needs to have its head examined. Particularly when its core business has a margin of ~2%. There has to be something deeper happening here causing UA to shed cargo contracts.
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Old Dec 22, 13, 9:40 pm   #10
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Originally Posted by Darlox View Post
With that mix of references, I can't quite tell whether you're agreeing with me, disagreeing with me, or just attempting to add data...

In essence, those reports indicate:
* North American airlines are expected to post the strongest performance.
* Long-haul hub-hub Asia-NA routes should have the highest yields
* Yields are down globally, but nowhere near unprofitable territory except for small cargo-only carriers.
I didn't quite draw the same conclusions as you from the same data, I guess. Asia-NA has a lot of potential but there are a number of cargo-only operations in those markets which are going to compete better than UA will.

I agree that the operations are not money-losing, but I wouldn't necessarily focus on it as an area where I expect to make a lot of money in UA's position. They can continue to carry cargo where it makes sense within their route network but the dedicated cargo carriers are going to clean up on this well before UA sees huge gains.

I also see comments like this one and question your assertion that anyone is going to do spectacular in the market between N. America and Asia:
Quote:
The outlook for Asia-Pacific airlines is downgraded largely due to slower growth among the region’s emerging economies. Asia-Pacific carriers are the largest players in global cargo markets and the most affected by its flat performance.
And the Boeing doc seems to agree that passenger airlines are playing second fiddle in the market:
Quote:
Continuing a trend of many years in the Asia Pacific region, all-cargo and combination carriers will take the greatest number of large freighters, which are uniquely suited to long-haul, intercontinental markets.
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Old Dec 22, 13, 10:57 pm   #11
 
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there are a number of items to look at when comparing numbers between each carrier and YOY.

global yield is down, increase in capacity for air cargo is rapidly growing, and it didnt help that UA Cargo went through 2 merger operations of their IT platform in 7 months.

As for UA Cargo not much of a player, quite the contrary, UA is very much in the cargo business.
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Old Dec 22, 13, 11:36 pm   #12
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Originally Posted by USFFlyer View Post
Not much space to fill when you're flying 757s from EWR-Europe, 777s from LAX-SYD, and ERJs from ACY-IAH.
Hey, if the TATL 757 fuel stops in Canada become more regular they can increase margins by carrying cargo for both New York and Newfoundland.
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Old Dec 23, 13, 12:21 am   #13
 
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UA essentially got out of the cargo business when the (profitable) pre-merger CO cargo operation was outsourced to match the UA side of the house. At a time when DL and AA are actively seeking to grow their respective cargo operations, UA considers it non-core and, like everything else at this company, is a target of aggressive cost cutting.
They screwed up the entire business when they were merged with CO. But with the down gauging of international routes, and domestic routes, its a lot harder to haul a load of cargo on a 737 or worse, a 145, than a 757.

One area where United was particularly strong was the Hawaii-mainland, where UA was able to haul gobs of cargo back and forth. Obviously, its harder to do that when they replaced 767s and 777's with 737s, which lately have had to drop even some self loading freight to make it.
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Old Dec 23, 13, 2:40 am   #14
 
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I often see lots of USPS Mail being loaded onto UA flights. I wonder if that contract is a profit maker? Happy Holidays and Safe Travels
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Old Dec 23, 13, 3:05 am   #15
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Quote:
Originally Posted by CALMSP View Post
there are a number of items to look at when comparing numbers between each carrier and YOY.

global yield is down, increase in capacity for air cargo is rapidly growing, and it didnt help that UA Cargo went through 2 merger operations of their IT platform in 7 months.

As for UA Cargo not much of a player, quite the contrary, UA is very much in the cargo business.
So why has UA Cargo so significantly underperformed AA and DL? Do you really blame IT platform issues? Or do you dispute Darlox's figures?

Quote:
Originally Posted by xkr0p View Post
what they lose in one area has to be recupd in others... guess thats why we cant get a full can of soda!
What an inane comment. You can have a full can of soda if you ask.
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