Running an urgent air cargo business is like being a venture capitalist — the risks are too high
February 22, 2023
What is special about the niche of urgent cargo charters? These transportation services become necessary for the client in case of force majeure. Here is a typical example: the production line of an automobile concern in Germany was stopped at night due to a lack of spare parts necessary for the assembly of cars, which are located in Italy, they need to be brought within a couple of hours since a downtime of the line will lead to huge losses. And then the task is to quickly provide the aircraft, organize all paperwork, prepare the crew and start the flight in 1.5-2 hours. 24/7 365 days a year. The same situation with other types of cargo that we transport — military cargo, dangerous goods, animals, medicines, and fuel — their transportation requires urgency and special conditions. This specificity of services leads to some peculiarities in doing business.
Either you have the knowledge and experience, or you have an endless supply of money, otherwise, you won’t be able to start an aviation business. There is a joke about aviation: if you want to become a millionaire, you should invest a billion in an aviation company.
Starting my own business, I realized that we would not survive if we follow the classic way of company development through aircraft lease agreements with payment guarantees. After all, this would mean that we need to pay a fixed amount of money every month, regardless of whether we fly or not. Instead, I was looking for companies that would agree on mutually beneficial terms. And found them, and we had a unique relationship. We gave them the possibility of extra income, in addition to regular programs.
If you enter this business in a classical way, you will need a lot of resources. In such case, the chances of failure are very high, which is why I do not recommend entering this business without understanding how it works.
“We were selling the flight at night, operating it during the day, and returning the plane to the homebase airport in the evening”
Paying a fixed monthly fee, whether you fly or not, is a money-losing model in the urgent air cargo niche. Fixed-term charters are an unpredictable business, there are statistics, but they are like a “black swan” — you can calculate up to a certain point, and then everything changes. We work in a niche where little can be predicted, respectively — guaranteed. The guaranteed payment model is initially unacceptable for us, although this is the standard model for regular programs. What we did instead: we picked up planes any day of the week when they were on stand-by at a company that operates regular cargo transportation. They were saying: tomorrow or the day after tomorrow the plane is free, and we take it to work. It is impossible for a regular air cargo company because of the bureaucratic process. We have a flexible management model, so we can take a plane for a few days. Thus, the partner increases the efficiency of the fleet, and we have the opportunity to earn.
The idea seemed crazy, but it worked. We were using the gaps in the schedule of regular flights in the daytime (from 6 UTC to 18 UTC). We were selling the flight at night, operating it during the day, and returning the plane to the homebase airport in the evening. This is how our relationship developed. We used to work like this in the beginning, but then we switched to a more stable model, as such a scheme cannot be sustained for a long time as it makes the team burn out and makes you live under constant pressure not to let down either the client, or the partner who landed you the plane, or your own team charged with difficult work.
We came up with this idea, which was risky and difficult to perform but allowed us to enter the market with minimal financial costs. Why did it work? Thanks to the reputation in this market: personality means a lot here since everything is built on trust. In addition, we had partners who were ready to try new approaches, a non-standard idea, and flexibility within the team, which allowed us to adapt to rapid changes.
“They had planes, money, crew, but there was no understanding of how urgent charters market works — so they were just losing money”
Basically, the transportation of goods in Europe is carried out by regular routes, and only a small percentage — by charter flights. And the difference in the way they operate is huge. The regulars have permanent contracts, the same route, and the crew knows what to do. But charters are a completely different story. You have to have your online support and sales work 24/7. To handle the scope of work, you need to have a team of at least 2-3 salespeople and 5 dispatchers working on each plane. These are quite large expenses. Companies that do not work on this marker understand that it is almost impossible to enter a charter niche if there is no experience, and there are no dispatchers or salespeople who work under constantly changing conditions and a high level of risk.
There are examples in the market when companies tried to move from regular charters to urgent ones, but these attempts were not successful. They had planes, money, and crew, but there was no understanding of how urgent charters market works — so they were just losing money.
It seems to me that they simply did not know that to receive one order in urgent charters, you need to process over 40 applications — this is a peculiarity of the market. Imagine that you need to dig a garden and you come with a shovel, you dig, but it seems to be not working, and then you understand that you can’t do it with a shovel, you need a special tool, and if there is no such tool, then the task becomes unrealistic.
In the high season, there can be up to 100 applications per day, and to get an order, you need to quote all of them and get feedback from the client. And each quoting includes 10 to 15 actions, namely: to check on cargo loadability, check on weather and NOTAMs of each airport, check the flight time, and airport opening hours, choose alternate airports and check the crew flight duty time. And all this should be done quickly.
As we get about 100 applications every day, we need to minimize the processing time for each one in order to give the client a quote quickly. This is where new players get burned: their application processing takes a lot of time and they do not always know where they can save. But in urgent cargo, if the processes are not optimized, you simply cannot cope with the volume of tasks. You need to quickly grab the opportunity if it arises.
“We are waiting for a new wave, like surfers”
There is a low and a high market, and our approach may change during the week. If we see that the pricing policy is not working for some reason, we change it.
The market is dumping, but this is not an objective situation, and it happens because market players behave this way. We have chosen the position not to be led by the market. And we can manage to do so as our internal market analysis system gives us the real situation on the market and we change prices depending on objective indicators. It’s like playing poker: you have to count well to know what cards other players have.
We make money on the high market, but when it is low and we cannot make money, then we accept that at least our partner will earn so we give a price without margin. And our success depends on how effectively we use the opportunity. Therefore, we are waiting for a new wave, like surfers, and we take everything we can out of it.