If you haven't seen this June 13, 2006 article from TheStreet.com, it's worth looking at if you're still trying to figure out the difference between the cargo and pax airlines.

The Link:
http://www.thestreet.com/_googlen/st.../10291189.html

The first line:
Fuel costs and labor disputes have led to tremendous distress at passenger airlines in recent years, but the cargo carriers never seem to complain.

 

This article is actually a good representation of the macro issues and UPS/IPA contract negotiations.

Another day of retro pay....

 

One thing the author didn't mention in the comparison of pax vs. cargo is what I call revenue density. A passenger airliner can carry the same weight as cargo aircraft but the revenue to weight ratio doesn't compare.

A 185 lbs human expects to pay, say $300, for a ROUND TRIP plane ride from city A-B. A cargo carrier, like Fed Ex, UPS, or DHL, on the other hand can get a floor to ceiling stack of overnight letters in the same footprint at about $20 per letter - and that's a one-way trip!

Because the cargo aircraft has more "revenue units" in the cargo holds, it has a much better ability to apply a fuel surcharge as the costs are distributed over more "revenue units".

Revenue and profits are much easier to produce by cargo carriers with energy costs going through the roof - now if you get just get them to the negotiating table. Is it any wonder that UPS and Fed Ex are dragging their feet to the table?

Another day of retro pay indeed!

 

When you only have one or two competitors, the odds of someone starting a price war also diminishes. And for someone to set up a nationwide package delivery service would take a huge capital outlay. We, dont have to worry about some rich guy buying a couple of airplanes and cherry picking our best routes. It's much easier for our managment to look good because as long as you don't poke the other guy with a nuke, there's not to much to srew up competition wise.

 

That's a good analysis HSLD!

 

HSLD,

Don't forget, that's a full widebody doing something like STL-MEM/SDF in some cases too.

I think there are a lot of other little things that add up too. Buying "old" planes dirt cheap, not putting many cycles on it relative to a pax airline which extends the life, and the list could go on forever...

Oh, and the fact that people don't give a crap about the fuel surcharge because that contract absolutely has to be there tomorrow!