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Air cargo climbs.

AIR CARGO CLIMBS

ALASKA'S AIR CARGO INDUStry ended the decade on a high plain and could soar even higher in the 1990s if Pacific Rim markets continue to strengthen. "Air cargo (expansion) for the past 10 years has been greater than passenger growth; it's continued to grow by astounding numbers," says Andy Ammann, cargo traffic supervisor for Japan Airlines (JAL).

As the major transit point for international cargo flights, in fact, Anchorage has seen its annual freight landings soar from 1980 through 1989. Cargo, much of which transits the airport on refueling flights, grew a hefty 221 percent, from 1.8 million pounds 10 years ago to 7.4 million pounds for the first 11 months of 1989.

The new U.S.-Japan bilateral route agreement, signed in November, is of particular interest to the state because of Alaska's ideal global position as an international refueling hub. "We expect many of those flights to come through Alaska," says Gina Marie Lindsey, executive director of the Alaska International Airport System.

Two Japanese carriers that refuel in Anchorage - JAL and Nippon Cargo Airlines - already are preparing to divvy up the new routes from Japan to Chicago, New York and other eastern destinations. "We're asking for four or five new flights. But we're not sure," says Nippon's Hiroshi Nagai, manager of administration and flight operations. "The bilateral agreement is going to help Anchorage a whole lot."

Of major interest to local officials is a provision in the agreement that establishes a new route for a U.S. cargo carrier. Not only does Lindsey believe United Parcel Service will win the landing rights, but she thinks UPS will select Anchorage as its hub to service Japan. "They are by no means a shooin," she says. "But they are widely considered the favorite. Their operations are expanding and their volume is increasing."

While declining to elaborate on the company's future plans for Alaska, Doug Kuelpman, UPS' public affairs manager for air operations, has acknowledged that UPS is thinking about expanding its operation here when its agreement to lease MarkAir facilities expires in 1992. As far as picking Anchorage as its transit point, should the carrier win Japanese landing rights, Kuelpman explains, "Anchorage already is our hub. We are now doing statewide distribution, and our business is growing. We just need to make sure we have enough facility for the air operation expanding through Anchorage to the Far East."

In Anchorage to dedicate Federal Express' new international package-sorting facility in October, Fred Smith, the company's founder and president, said he fully expects his competitor to expand its Far East operations in Alaska. But he added that UPS would have a tough time gaining route authority from the Japanese because "they don't give them out liberally." That was before announcement of the bilateral agreement establishing a new cargo route, however.

By far, the biggest air cargo event of 1989 was Federal Express' acquisition of Flying Tigers and the opening of a world-class package facility at Anchorage International Airport. Not only did Anchorage need a spiritual lift in the wake of a difficult economic recession, but city and state officials are optimistic other businesses looking to piggyback on Federal Express' worldwide distribution network will want to make a home in Alaska.

Federal Express had no more than begun work on its $11 million package-sorting sorting facility when it began making plans to expand to accommodate the Flying Tigers fleet of 747s. There is talk of more projects, including a large maintenance hangar near the new facility to service the company's jumbo jets. On his trip here, Smith said he could make the hangar available to other carriers, and that came as more than good news to airport officials. Currently, there is no facility large enough to handle the big jets.

Federal Express also wants to build a so-called "parts bank" at the airport, similar to Federal Express' IBM warehouse at its hub in Memphis, Tenn. Time-sensitive cargo such as computer parts, electronic equipment and medical supplies can be briefly stored in such a facility to be shipped to any point on the globe in a matter of hours.

Federal Express alos is expanding its in-state distribution network, going head to head with UPS. "Federal Express is definitely interested in opening up as much of Alaska as possible to overnight service," says Brian Bell, the company's senior manager for Alaska. "Now that we have new flight schedules, we're in a position to provide all of Alaska with overnight service in a couple of years."

The Federal Express-Flying Tigers merger also opened the door for a new general cargo carrier in Alaska in 1989, Florida-based Amerijet International Inc. The firm services Central and South America, as well as Houston, Phoenix, San Diego, Tucson, Los Angeles, Oakland, San Francisco, Portland, Seattle, Spokane and now Anchorage.

When Flying Tigers gave up its Seattle-to-Anchorage route in August, Amerijet quickly filled the service gap, using a 727 to haul general cargo between the cities five times a week. In the spring, Amerijet plans to replace its 727 with a larger DC-8, which would double load capacity to 90,000 pounds per flight.

Amerijet Vice President Chuck Shea says freight forwarders who use Seattle as a gateway to Alaska were concerned about "reliable, consistent" service and direct competition with Federal Express in the wake of the merger. "Despite all the words, Federal Express is a small-package airline and that's where its business is," he explains. "Flying Tigers dealt with the wholesale side of the market."

Alaska Airlines added a third all-cargo cargo flight in 1989, in part because of Amerijet's emergence on the scene. "We have a competitor. They're dealing with the air freight forwarders and they connect very well with them," says Jerry Johnson, director of cargo and charter marketing for Alaska Airlines.

With the new emphasis on rapid delivery, Johnson says Alaska Airlines can no longer depend on passenger service alone. "I guess the market is shifting," he says. "We've gone to running all-cargo flights because the market demands time-sensitive service and overnight service. And a lot of that is because of Federal Express' advertising. Everyone expects everything overnight."

Says Federal Express' Bell, "Certainly Federal Express has set up a new meaning for air freight delivery, what we call air express. Alaska is now just catching up with those standards. Other freight forwarders are trying to match that service or lose out in the long run."

Cleanup Fleet. It was not competition from another carrier that led Alaska Airlines to add a third cargo flight last summer. Rather, freight requirements stemming from the Exxon Valdez oil spill, the largest in U.S. history at 10.8 million gallons, spurred the move.

The so-called "Exxon Air Force" was responsible for a 60 percent boost in origin and destination freight passing through Anchorage International Airport during fiscal year 1989. In most cases, Exxon was forced to use independent foreign carriers because scheduled airlines were reluctant to give up their established customers to cash in on the spill.

"We had some British planes here I had never seen before," says Mark Butler, marketing director for the Alaska International Airport System. "We became a major destination point this year because of the oil spill."

Northern Air Cargo, Alaska's only major all-freight air carrier, added two planes to its fleet of DC-6s to handel the oil spill clean-up effort. The company attributes about half of its 10 percent increase in business last year to the spill. "We did a lot of ground work for them (Exxon) unloading a lot of the bigger planes," says Wilson Hughes, president of Northern Air. "Our yard would be packed with absorbent pads and barrels and barrels of that (fertilizer) that eats oil."

Fish Freight. While the oil spill benefited charter airlines, it put a damper on international carriers who export Alaska fish to Asia, particularly Japan, which has an appetite for salmon roe. The spill forced the state to close numerous fisheries last summer, including Kodiak's, which accounts for about half of JAL's roe cargo.

"The oil spill affected us; we saw almost no cargo from Kodiak," JAL's Ammann says. The carrier's roe cargo fell last year by 50 percent to about one million pounds.

International carriers want more Alaska seafood products to export, and some are even looking for ways to bring stability to a seasonal industry that carries a big year-round demand in the Pacific Rim. Although currently illegal in Alaska, fish farming may be one way to plug the seasonal gap. Explains Ammann, "The future of air cargo here for export is seafood."

"From a business standpoint, I'd love to see it because it would stabilize the market year around," says Hank Weil, Northwest Airlines' district manager for cargo services. "It would be a heck of a deal for the state, although I know there is some resistance."

Says Ammann, "We're seriously looking for a year-around product like farm salmon, which might be the answer. Right now (everything) is seasonal. We're shipping salmon roe in the summer and, in the winter, crab, sea urchins and shrimp."

Korean Airlines has no position on efforts to create an Alaska maricultural industry, but wants more seafood products, especially Pacific cod, to export to Korea. "We would like to see more winter products because in the summer the planes are so full from Los Angeles and New York we can't get anything on them," says Francis Walker, an airline sales and marketing representative.

Overseas Impact. On the international front, Anchorage enters the new decade as the undisputed U.S. cargo hub champion. By weight, more air freight passes through Anchorage than any other city in the nation, and Alaska serves as transit point for 70 percent of all cargo between North America and the Pacific Rim.

"International cargo is extremely strong," says Butler of the state airport system. "It is one of the fastest growing businesses in the world, and the fastest growing area in that business is the Pacific Rim. We are the number one U.S. Pacific Rim airport."

Through the first 11 months of 1989, Anchorage International Airport reported 7.4 million pounds of landed freight, a 14 percent increase over the same period in 1988. While the new Federal Express and JAL were the freight leaders; Northwest, Nippon and Korean Airlines showed strong gains last year.

Northwest boosted its weekly flights to 37 last year, compared to expansion from 30 to 32 for the previous year. "There's no question about it, there's a boom in air cargo," says Northwest's cargo chief, Weil. "Basically, the Pacific Rim and business in the Pacific Rim are hopping. Our planes are full now, where a few years ago they were full only eastbound."

Weil attributes the pickup in westbound freight to the weak dollar and strong yen. "And there's more pressure on Japan to buy things from the United States. We're servicing that growth in the Pacific Rim," he adds.

Northwest currently has eight 747 freighters working in the Pacific Rim. Weil says the biggest obstacle to expanding is the availability of new aircraft - Boeing reportedly is backlogged for several years. "Growth in 1990 is going to be limited only because of our capacity. We have a few things cooking for three or four years down the road," Weil explains.

Since 1986, Nippon has steadily increased its landings in Anchorage. Last year, the airline upped its weekly flights from 6 to 10 and expects to double the traffic this year with the new U.S.-Japan route agreement.

Korean Airlines, with 29 weekly flights into Anchorage last year, is looking to add one or two flights this year, Walker says. "We are adding more flights because of the demand in the United States, Asia and Europe."

But like Northwest, KAL's ability to expand is limited by the lack of new aircraft. "I just had to turn down 20,000 pounds a week because we don't have enough aircraft. Boeing is behind in its deliveries to us," says Walker.

JAL actually lost cargo flights in 1989, but expects to increase its operations here after the new U.S.-Japan routes are divided up among the Japanese carriers. "To be competitive, we initiated a non-stop flight from Japan to San Francisco, which used to stop here," Ammann says. "Right now, if we wanted to make a large shipment in either direction, we would have space problems. Our aircraft are full and our competitors are in the same boat. It looks like demand is still high, and there is a possibility of carriers raising rates."

Interstate Traffic. On the domestic front, Northern Air Cargo, MarkAir and Alaska Airlines continue to vie for the biggest share of the Alaska cargo market, according to statistics provided by the state. Together, they accounted for about 62 percent of all cargo passing through Seattle in 1989. Domestic cargo at the Anchorage airport during the first 11 months of 1989 was up about 9 percent over the same period in 1988.

Alaska Airlines actually reported a 4 percent decline in freight coming into Alaska. Contributing to the decrease were competition from Amerijet and "flat" markets. "I just don't see any redhot cargo areas right now," Johnson says.

Through the first three quarters of 1989, Alaska Airlines also suffered a 14 percent decrease in outbound freight, primarily because of a decline in available seafood products, according to Johnson. "The main thing that affects that is the amount of seafood - it wasn't a barnburner of a year because of the oil spill. It slowed down the amount of salmon. And it also was a poor year out of Kotzebue," he explains.

Johnson says Alaska Airlines is looking for an overall increase in cargo shipping in 1990. "We're hoping for an increase of about 5 percent overall-in fishing, mining-there seems to be a real pickup in the mining business. We're running a flight once a week to the Red Dog mine. And we see more food stuff to feed the tourists.

"The big mystery is petroleum," he adds. "It has been lackluster, but we keep hoping the route to Prudhoe Bay will catch fire. We are sort of plodding along trying to maintain our market share. We're hoping we get traffic rights to Siberia, and we're hoping to get that market. Once we get in, I'm sure a significant cargo market will be developed."

After riding the Exxon Valdez freight tide in 1989, it could be a flat year in 1990 for Northern Air, says the company's skipper, Hughes. "But the day we sacrifice the grocery store in MaGrath for the Exxon Valdez is the day we start our decline."

With about 20 regular stops and 50 "flag" stops on its schedule, Northern Air handles about 40 percent of the Bush freight. The all-cargo carrier maintains the largest fleet of DC-6s in the world. "Fish for us was clearly up this year, with the canning capacity in Kodiak, Cook Inlet and Bristol Bay," Wilson says. "We committed two planes."

While dwarfed in size and traffic by its sister airport in Anchorage, Fairbanks International Airport experienced its own "miniboom" in fiscal year 1989, an intrastate freight increase of about 8 percent, says airport manager Chris Birch. He attributes the increase to a "continued mild upward trend in the economy" and marketing efforts to get "a bit more traffic to flow through here."

But nearly all of Fairbanks' cargo is in-state, a long-standing situation Birch would like to change. "We have yet to cash in on the merits of Alaska's strategic location in the world," he says.

"I'm optimistic that at some point the global positioning of Fairbanks will entice one of these international air carriers to locate here. The cargo figures we are seeing from the Pacific Rim show Alaska is in a position to benefit from that, serving as a global truck stop for refueling. There's going to be plenty to go around. I think cargo is real upbeat."

PHOTO : Cargo-filled containers, or igloos, are loaded on a Federal Express jet.
COPYRIGHT 1990 Alaska Business Publishing Company, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:Alaska air cargo industry
Author:Tyson, Ray
Publication:Alaska Business Monthly
Date:Feb 1, 1990
Words:2677
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