William J. Flynn, President and CEO of Atlas Air Worldwide Holdings, believes air cargo remains at the heart of the global economy.
Recent figures and surveys reveal a modest upturn in the air freight market. Are you optimistic about the future?
I am guardedly optimistic. There are headwinds out there, but there is also the lower cost of oil, which is a good thing until it becomes deflationary.
If you look back over the past four years there has been a stagnant market in air cargo. There has been very little growth across the sector. The market was hit by the global economic meltdown in 2008-9 and there was snapback in 2010, which came as a surprise to everybody. But then the growth stopped and it was only in the last few months of 2014 that we began to see some more positive signs.
Everybody was left scratching their heads for a while, trying to understand why world trade was growing but air cargo remained stagnant. A couple of things played their part in this.
The first is miniaturization and convergence. Desktops became laptops, for example. At the same time, smartphones emerged that brought a host of technologies together that were previously the realm of separate devices. Before, you had a camera, a watch, a phone, a video recorder and maybe an MP3 player. Now your smartphone combines all those function"”and more"”in a single device.
The second thing is the change in packÂaging. You tend to download software now and those things that are still packaged are done so in a way that is cost-effective and sustainable. Many smartphones have simple cardÂboard packaging.
So why are you only guardedly optimistic?
Air cargo is at the center of the global economy. The air cargo market has grown substantially in the past 30 years or so. It is realistic to expect it to continue to grow by around 5% a year in the long term.
Going forward, the trade in perishables will grow and there are positive signs in north-south trade across the globe, be it Latin America to North America or Africa into Europe.
We also have an opportunity in retail. If you look at that market, it is the companies that can react very quickly to changes in style and in the market that are winning. So even though we may be talking about t-shirts that cost no more than $20, air cargo allows a quick response to style changes and for products to be redirected. It"™s an important development as it makes air cargo valuable to low end goods.
There is also the growing number of consumers in Asia. As this market develops, tastes will change and new opportunities will open up. So I think air cargo will continue to grow. It is such a vital part of supply chain strategy for so many different industries.
We need to improve the value proposition, focus on taking out cost and work out how to best serve the rising number of consumers
What needs to be done to improve the customer offer?
We need to improve the value proposition, focus on taking out cost and work out how to best serve the rising number of consumers.
We lose too much time and money in the various hand-offs between the origin and destination. The industry should be looking at how the integrators do it. It"™s really about better use of information and data and then aligning your operations to reflect that.
And if you take cost out then the net yields will improve. It is about being more efficient.
Are you concerned about passenger aircraft bellyhold capacity entering the market?
The traditional split in air cargo of 60% going via freighters and 40% going via the bellyhold of passenger aircraft hasn"™t changed much.The figures are slightly different from Asia. About 80% of goods from the region use freighters. Across the Atlantic passenger bellyÂhold is dominant because of the sheer number of frequencies.
There is a huge order book for passenger aircraft. But when you look at the aircraft on order and the design, it is clear that they are being set up for point-to-point services. People want to fly from Atlanta to Beijing direct, without having to connect. But that"™s not how the economics of air cargo work. It"™s not how cargo moves.
And from a shipper"™s point of view, passenger-centric flights are not so predictable. They are more prone to delays and to fluctuations in the market. If you are running a tightly engineered supply chain then you wouldn"™t want to rely on bellyhold.
What"™s the best way forward for cargo security?
The air freight industry has, in general, invested heavily in security procedures. We promote threat-based security programs that focus on higher risk areas and we work with our regulators to ensure that they"™re as proactive as possible, rather than simply being reactive and potentially imposing very costly programs as situations arise.
At Atlas, we employ a highly experienced security team and have a strong commitment to both physical and cyber security. We strive to stay on the leading edge of cyber security in consultation with both industry and the government.
We are absolutely focused on the safety and security of our aircraft, crews, cargo and passenger"”and on compliance with the regulations and requirements that we have as an airline.
Is the cargo sector doing enough to help aviation"™s environmental efforts?
The aviation sector"”including all-cargo"”is doing a lot to reduce the environmental impact of its operations.
From the standpoint of greenhouse gas emissions, according to the Environmental Protection Agency, commercial aviation operations constitute less than 2% of US emissions.
US airlines improved fuel efficiency by 120% between 1978 and 2013, and are committed to even more improvement. Like other major US all-cargo operators, Atlas is certainly doing its part. Perhaps most notably, our business strategy is to invest in the newest technology. We do this to deliver the best fuel efficiency for our customers, as well as for environmental reasons.
We operate nine 747-8F freighters. The 747-8 is cleaner, quieter and emits fewer greenhouse gases than any other 747. It has the newest GEnx-2B engine"”allowing for a 30% smaller noise footprint, a 15% reduction in carbon emissions, better performance retention, lower weight, less fuel conÂsumption, fewer parts and less maintenance. We pay very close attention to fuel efficiency and fuel burn, and employ flight procedures designed to reduce fuel consumption and its resulting environmental impact.
We support the ongoing efforts of ICAO to reach a global standard to control carbon emissions and strongly support ATC modernization, which can be one of the most effective means to help the environment.
Our business strategy is to invest in the newest technology to deliver the best fuel efficiency for our customers, as well as for environmental reasons
You have a long career in supply chain logistics. Has it been a good industry to work in?
I can"™t think of a more exciting industry to be in. We play an important role in the global economy and we bring social benefits as well.
If you consider the growth in agriculture in countries like Ethiopia and Kenya, it wouldn"™t have been possible without air cargo bringing the goods to market. Their growth has been made possible by the commitment of the air cargo industry.
The Atlas Air Worldwide Holdings Inc. business model
You are involved in a wide variety of areas, from cargo to passenger charters and even military cargo. Why is that?
Atlas Air founder Michael Chowdry didn"™t invent Aircraft, Crew, Maintenance, Insurance (ACMI)"”otherwise known as wet leasing"”but he was certainly a pioneer in applying the business model to long-haul widebodies. That was our core business for the first 10 years and then we acquired a scheduled cargo carrier in Polar Air Cargo Worldwide.
Following the restructuring of Atlas Air in 2004, we began to diversify the business but we have done it in a way that has leveraged our expertise. In 2010, we moved into the passenger market operating VIP 747s for SonAir, which is part of the Sonangol Group, the Angolan national oil company. Basically, we fly US and African oil workers between Houston and Luanda three times a week. This is done on a Crew, Maintenance and Insurance (CMI) basis, as SonAir owns the aircraft.
From that experience, we were able to start flying personnel for the US military in 2011 and from that we moved on to commercial passenger charter operations.
Atlas Air Worldwide Holdings is the name of the company traded on NASDAQ. It has a number of subsidiaries. We are the 100% owners of Atlas Air, Inc. We have a 51% interest in Polar Air Cargo Worldwide whose largest customer is DHL Express. They have a 49% interest in that subsidiary and 25% of the voting rights.
Finally, there is Titan Aviation Holdings, which is our dry leasing arm. The focus here is on freighters and we have a client base that includes Aerologic, Emirates and TNT.
Do you look at each subsidiary as a separate entity or are there economies of scale involved in the back office?
Certainly there are shared services across all the entities, such as finance and technology. So we get the scale, the efficiencies that come from that.
But the business is divided into three reporting lines. The first includes Atlas Air and Polar. Together, these account for about 75% of our flying and it includes all the common components of their businesses.
Then there is the charter portion of the business, which accounts for the remaining 25% of flights.
This includes our military and commercial charter businesses. And finally there is Titan Aviation Holdings.
Where will you invest in the years ahead?
We will concentrate on investing in our fleet, both for the wet leasing and the dry leasing businesses. That will certainly center on freighters.
We are more opportunistic with passenger aircraft, although we do see good revenue there.
The idea is to modernize the entire fleet around the B747 platform. We will also take B777s, which is an excellent aircraft. But the 747-8 has a nose-door capability that is utilized an awful lot more than you would think.
We may also continue to expand our 767 portfolio but that expansion is likely to come from passenger to freighter conversions.
William J. Flynn
1980-2000: Several positions at Sea-Land Service
2000: Senior Vice-President, CSX Transportation
2002: President and CEO of Geologistics Corporation
2006: Joined Atlas Air Worldwide Holdings as President and CEO
Flynn is also a Director of Republic Services, Ports America and Airlines for America. He served as Director of Horizon Lines (2006-2012). He is currently Chairman of the National Defense Transportation Association
Education: Bachelor"™s degree in Latin American Studies from the University of Rhode Island. Master"™s degree in Latin American studies from the University of Arizona.
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