But experts say the airlines, pushed by a new generation of managers and a new generation of technology, have never been more interested in getting better returns from their bellies.

In a bid to reverse the long downward slide in yield, several airlines are looking at implementing sophisticated new cargo-focused systems aimed at tying together the way the carriers manage their capacity with the way they sell their services. With air transport at the heart of some of the latest trends in logistics management, any changes that spread through the airline industry's cargo side could have a strong ripple effect on supply chains around the world.

Most objective measures say air cargo yield has been declining at a steady pace of between 2 percent and 3 percent a year since 1970, soon after the first widebody passenger aircraft added bellies with gaping space suitable for industrial pallets to the combination airlines' freight mix. "The trend reflects airline productivity gains, technical improvements and intensifying competition," aircraft manufacturer Boeing said in its 1998 World Air Cargo Forecast.

Over the last two years, that trend has accelerated even further, with cargo yields dropping 5.4 percent in 1998 and another 4.5 percent last year, according to Boeing estimates.

"What (carriers) were getting a few dollars for a few years ago, they're getting cents for now," says Hugh Doyle, managing director of the freight program at Unisys.

It's not like the airlines have far to look for successful models: revenue management systems have become ubiquitous among passenger carriers of all sizes over the last 20 years. Yet strict management of yield has failed to catch on widely in the cargo industry: of the top 20 belly carriers, only five have installed such systems and those are limited in scope or are based on outdated technology.

Observers say the cargo business has lagged behind the passenger side in part because there have been no standards for judging the costs associated with belly cargo. But many believe the combination airlines have to come up with stronger revenue management systems to justify the large investment that new technologies and new aircraft demand.

The MergeGlobal consulting firm warns in its 2000 air freight forecast (Air Cargo World, May 2000) that all-cargo service by the combination airlines is increasingly endangered by the declining freight returns. Airport-to-airport "profitability will suffer unless and until yields stabilize and begin to rise slightly faster than inflation. Otherwise, the economic case for adding freighters will become more difficult to make," the firm wrote.

The airline industry's push for higher yield is a driving force behind the time-definite services spreading among the carriers, the guarantees that are being extended and even to the carriers' moves to link their networks in far-flung alliances.

Revenue management "is the buzzword of the cargo industry right now," says Richard Savage, vice president of cargo for PROS Revenue Management, one of four vendors selling cargo revenue management systems. "I think we're really in the middle of a paradigm shift in the cargo industry and I think revenue management technology and e-commerce will be the drivers of it."

Cargo revenue management systems can't just be turned on by the flip of a switch - which partly explains why they haven't taken the industry by storm. The systems require a fundamental shift in the mindset of an airline, where the carrier's sales staff may simply have to turn down a shipment just because their computer says so.

"Refusing a shipment is really foreign to people in their way of thinking, but it's something you need to do with a cargo revenue management system," says John A. Burland, logistics sales manager for Lufthansa Systems, which is also selling a cargo revenue management system. "It's breaking the bonds of the past."

In their drive to fill their bellies, many carriers now rarely think about whether a half-filled plane can sometimes provide a better contribution to the bottom line than a full aircraft. At the field level, whatever incremental revenue can be generated up until the last minute before a flight departs is typically seen as worthwhile.

"It's the only business left where at your highest point of demand - the day before departure - you're selling at the lowest price," says Savage. Revenue management systems, however, forces carriers to be more selective across the network.

"The software doesn't perform magic; what it does is it forces you to make consistent, objective, profitable decisions." says Micky Mirchandani, cargo marketing director for Sabre, a former subsidiary of American Airlines parent AMR Corp.

"All carriers are starting to compete for the high-value cargo, so it's more important to determine how much is available at that level and being able to discriminate to improve your bottom line," says Cathy Stukel, vice president of revenue management for American Airlines Cargo.

Cargo carriers have long been wary of revenue management systems partly because of the drastic organizational changes required to successfully implement them. But the systems must tie into the corporate culture of a carrier, says Richard Lung, director of revenue management for United Airlines Cargo.

"I see the CRM system more as an enabler rather than a tool to say no," says Lung.

United is one of several large cargo carriers still evaluating a mix of systems, including developing one in-house. The process has been slow because of the tons of historical data required to formulate successful demand and supply models. United hopes to select a vendor by the end of this year.

"We are anxious to get this done, but we had to have good information feeding into the system. We had to lay the foundation," Lung said. "If you put a system in place and you don't change anything else, you're not taking full advantage of the system."

The handful of cargo carriers that have begun using revenue management systems acknowledge the transition can be far from smooth.

"It's been a success story but it's not been a slam dunk either," says Edward R. O'Meara, senior director of cargo revenue management for Continental Airlines. "It's a very difficult process because you're changing a lot of roles."

In 1998, Continental became the second U.S. combination carrier to install a cargo revenue management system. The manufacturer, Atlanta-based Talus Solutions, claims its CargoRMS product has already led to a 4.4 percent improvement in revenue. But the system remains somewhat limited: Continental hasn't yet extended it to its domestic network and has delayed rolling out its long-term component, sticking instead to short-term transactions on international flights.

"I see it as an extra tool you don't use blindly," says O'Meara. "You always have to keep the customer in mind and that's the thing with revenue management: you don't want to do something stupid that hurts your customer."

Other combination carriers have also started cautiously down the path of cargo revenue management. American Airlines broke down barriers six years ago in purchasing a system called Cargomax from Sabre. But since then, American hasn't taken full advantage of available upgrades and has used Cargomax primarily to help determine how much it can overbook select flights.

For example, American has not added functions that can help determine the mix of block space allotments and can issue "accept/reject" recommendations.

The system is also based on specific flight legs rather than on origin-and-destination, which would maximize opportunities across entire networks.

Sabre, which in March was spin off from AMR, now offers all these capabilities as part of Cargomax III. But AA Cargo is still mulling over its revenue management options, which include going straight to Cargomax III or a proposed Cargomax IV or holding a competition to evaluate all the existing vendors. In the meantime, Sabre says the impact of revenue management on American Cargo's bottom line has tailed off, from as high as 10 percent in the mid-90s to just 2 or 3 percent in the latter portion of the decade.

"We've done a few things to tweak the system, but we haven't done any major functional changes since it was implemented, which is now driving our desire to move on to another system," says Stukel.

Cathay Pacific Airways has also called upon Sabre to manage its cargo revenue. But Cathay has also taken a limited approach so far, focusing purely on the long-term block space picture and strictly on international flights from Hong Kong. Cathay has indicated it's not interested in managing last-minute transactions because almost all of its cargo space is committed ahead of time.

"They have cargo booked up to 2001," says Mirchandani. He says Cathay has reported a 2 percent improvement in revenue from Cargomax II but is more interested in reaping "the last ounce from long-term optimization" than going with Cargomax III.

The only other Pacific carrier with a system, Singapore Airlines, limits cargo revenue management to outbound freighter flights and has kept the "accept/reject" decision manual. But PROS plans to expand the Web-based system it has built for Singapore to include the carrier's entire network and to automate the accept/reject decision. If rolled out at Singapore as planned, the prosRM eCargo system could be the first that manages an airline's entire network and encompasses both the short- and long-term selling opportunities.

"We can identify flights that have low demand so we can push demand into them by rerouting or by targeting them for the sales force," says Savage. "We do what a human can't do - we snapshot the entire route system."

Talus, which has also developed a highly customized short-term system for KLM Royal Dutch Airlines, hopes its newest customer, Swisscargo, will also eventually go with the complete package. "What's sexier is what the mix of short- and medium-term business should look like," says Greg Pesik, senior vice president of Talus' transport, travel and hospitality division.

But implementation of CargoRMS at Swisscargo has just started and will take 12 to 18 months to complete. And a lot can happen to potentially postpone or even derail a cargo revenue management project that is still in the works. Just ask Lufthansa Cargo.

Lufthansa has scrapped plans to upgrade its Sparrow system, a leg-based system built three years ago by Lufthansa Systems and PROS but now owned and operated entirely by Lufthansa Systems. The original plans called for Lufthansa Systems to develop Sparrow II, which would have added an automated accept/reject functions to the current load factor and overbooking forecasting capability.

Lufthansa is now looking at other options, but still hopes to use the technology to manage its entire network, rather than just select flights from Germany.

"We stopped it at the end of last year due to several reasons, internal and others. We're now looking for a provider to develop a new tool," says Martina Goergen, director of capacity and revenue management for Lufthansa Cargo. "The reason we stopped Sparrow II is we had some problems internally with the negotiations with the provider and also with the development of the surroundings. ... (But) we are still sure we need a cargo revenue management system - there's no doubt about that. We only need some more time to check against the new procedures" that have since been added to the organization.

The Lufthansa setback underscores the acknowledged need for revenue management systems and the delivery in the real world. Over several years, Lufthansa and other major cargo carriers have waged internal debates over the merits of such systems and, for the most part, the questions remain unresolved.

Does cargo generate enough revenue to merit such an investment? Are there too few customers controlling too much of the cargo for such a system to pay off? Is too much of the cargo pre-allocated through long-term block space deals for such a system to make sense? Could these systems lead only to further yield erosion because supply far exceeds demand in most cases?

Although several companies have decided this is where the future lies and have invested heavily in developing cargo revenue management technology, other high-profile players have elected to remain on the sidelines.

"We've stopped pushing it in the last few years," says Unisys' Doyle. "We've stopped investing in it."

Doyle warns that the service standards at most belly carriers aren't high enough for cargo revenue management systems to improve the airlines' profitability. "If you apply a yield management system to poor service, it has a very counter effect," he says.

"Does it create scenarios where you're charging less in certain cases? Yes," acknowledges Talus' Pesik. "Does it lower yields? I'm not sure. It tries to set the optimal price, whether it's higher or lower."

Proponents note that plenty of skepticism surrounded passenger yield management systems when they were introduced in the 1980s. "Airlines said the same thing 20 years ago; now there's not a single passenger airlines in the world that can't survive without a revenue management system," says Savage. "It's the key dynamic in how they survive."

Still, passengers and cargo are, well, different. For one, cargo isn't a retail consumer market and, most of the time, it isn't as volatile. "On the passenger side you can use clever technology because there are a million transactions a day," notes Doyle.

"Of course it's a little bit mindset, but the main reason (the technology has been slow to catch on) is cargo demand has two dimensions: weight and volume," says Lufthansa's Goergen. "It's much more complex. And the forecast for cargo is also more difficult because cargo can show up in many different kinds."

Then there's the basic concept of demand: passenger load factor figures almost always surpass their cargo counterparts. "There's a lot of people who don't think this makes much sense at all," says W. Garner McNett, Jr., president of Dallas-based Cargo Data Management. "There are people who think it's crazy."

For all the complexity of the cargo business, the greatest barrier to true yield management at combination airlines may be the factor they most dislike discussing: passengers are the mainstay business and attract the greatest corporate attention, even at airlines that have significant cargo divisions.

"Cargo is not as glamorous and is viewed more as a byproduct or an afterthought," acknowledges United's Lung, who moved over to cargo revenue management this spring after spending several years on the passenger side of revenue management, financing and operations. "Typically you have lots of investment opportunities within the airline ... and cargo is not viewed as your core business."

"It was really a top-down sell at Continental," said O'Meara. "Other carriers face the daunting task of going the other way."

The vendors themselves know what it's like being second fiddle. Cargo sales lag far behind their passenger products, especially when it comes to revenue management, which has attracted millions of dollars in investment but hardly any contracts.

Sabre, for example, counts less than 1 percent of its $2.4 billion in annual revenue from cargo. A similar small fraction of Lufthansa System's $384 million of annual sales is cargo-generated. Talus, which was formed in 1997 from the merger of Decision Focus and Aeronomics, has the largest proportion of cargo business, but the bulk of these sales have been to forwarders, truckers and integrators.

The integrated cargo carriers have already gone through something of a yield management revolution. Faced with a yield-killing price war in the early 1990s, the major American express operators started paying more attention to the actual returns from their highly-sought shipper contracts when profit margins started sliding in the midst of a shipping boom.

TNT Express Worldwide fought something of a battle with its own sales staff in the Pacific when it put up its own Asian freighter network and found mostly low-yield freight rather than high-yield documents and packages coming on board.

Just a couple of years ago, Airborne Express threw up its hands at high-volume catalogue business and stopped carrying much of that lower-priced parcel traffic during the holiday rush.

"You see a major shift in yield for these carriers in 1995-96 and we believe it had to do with the distance-based pricing that first United Parcel Service imposed, which was followed by other carriers," said Joseph Guerrisi, director of the MergeGlobal consulting firm. "UPS and Federal Express have managed their yield much better than they have in the past. Both of them have very sophisticated modules in their systems that help them know about their shippers in a very detailed way."

The express airlines will surely try to translate their yield gains in the U.S. domestic market into international business, putting more pressure on the forwarder-airline axis. Experts say that the new promise and competition created by electronic commerce will also push combination airlines to make further tough decisions about their own businesses.

"I think 2001 will be the year" for CRM systems, Savage says. "E-commerce is going to be the driver. E-commerce gives you the ability to take the result of revenue management and quickly distribute it to the users hand and quickly establish dialogue with your key customers and alliance partners."

Revenue management vendors claim they don't feel threatened by the new Internet-based transportation companies, including the dozens of auction sites that have popped up in recent months, but foresee them as opening up new opportunities. The rapid ascension of the dot-coms has already forced cargo carriers to take new looks at information technology and ponder various investments and adjustments to keep up with the new economy. Those with stakes in cargo revenue management are hoping that all this new activity will bring some badly needed momentum to their marketing efforts.

"It's a rationale for having a system," says Pesik. "How much capacity do we allocate to the Internet brokers and at what price? What do I allocate to (Global Freight Exchange)?"

"The world is really turning upside down from an IT standpoint ... and the booking game is really tied to the revenue management game," says Mirchandani.

But cargo carriers face huge risks and barriers in implementing revenue management systems. And it may take years before the benefits are fully realized.

"A major issue (many carriers) face is the inability of their existing systems to adequately integrate with a revenue management system," says Mike Navin, strategic sales specialist for airlines at Syntegra, a large technology provider that has elected against building its own system but hopes to provide carriers capability to facilitate such integration.

"Their systems typically are neither able to provide the data required for effective utilization of revenue management, nor to use the information provided to them. To correct this would involve expensive and time-consuming developments to their existing systems, which therefore acts as a serious deterrent," he said.

"The systems have been expensive and tend to require data collection on the airlines' part," says Mirchandani. "The only real value is when you're able to analyze and compare today's and tomorrow's flight."

© 2001 Journal of Commerce, Inc. All rights reserved.