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aviainform | Intersection Demand and Network Economics |
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The intersection between air freight demand and network economics is highly dynamic. Our syndicate possesses the advantage of accumulated domain knowledge.
Air freight Demand and capacity provision is essentially different: Demand is true Origin and Destination; capacity is sector-by-sector, facing an analytical challenge:
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Trade occurs between Origin (The Seller) and Destination (The Buyer). These Traders care about transportation time and costs, but not routing!
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Capacity (and costs) is created every time an aircraft moves. Each trip usually carries multiple trade flows of multiple sellers at same origin(s) and multiple buyers at the same destination(s).
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Demand is one-way; capacity is round-trip based: traffic moves from the seller to the buyer but aircrafts must somehow return to the starting point for the next trip.
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Demand is a function of transactions; capacity is a function of network economics: (Air-) Freight transportation is required between traders to complete their economic transaction. But most capacity in air carriers network configurations is designed to generate more revenue than cost. These so-called “round-trips” do depend on the air carriers’ ability to serve these routes. Typically, Air Carriers must rely on bi-lateral agreements rather than true economics to configure their networks. Exceptions do only exist on a limited number of “Open Sky” agreement markets. |
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Demand fluctuates due to changing economic conditions, trading relationships and transportation decisions (e.g. switching between air and ocean); Capacity fluctuates due to changing perceptions of air carriers own costs, income opportunity or even on “wishful thinking”. Today there are still too many state-controlled and financially heavily subsidized air carriers, seasonally competing with uncertain capacity.
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Therefore tariffs offered are regularly driven by subjective input rather than pure economic cost factors. Air carriers which are serious about air freight additionally facing the challenge of their initial costs e.g. in Euros while the majority of revenue is generated in US Dollars, causing further pressure through currency fluctuations.
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The nature of these issues requires in-depth analysis capabilities but there is very little detailed, publicly available data. Only industry experts such as ourselves therefore have a common understanding and the expertise about industry economics, data sources and decision makers which allows efficient, meaningful and quantitative answers to client questions.
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