Executive Summary

There have been massive expansions in the air cargo industry in recent years. A variety of factors have contributed to this expansion. Future projections indicate that the growth will even be immense as time passes by. Taking a look at Memphis and Hong Kong International Airport will help in understanding one or two things in the industry. Hong Kong is the largest air cargo airport in the world, while Memphis follows in second place. The objective of the study is to analyze the factors that have affected both companies either positively or negatively. The study will also outline the business models and logistics of both airports. It is evident that the air cargo industry has several technological advancements. These advancements are introduced in order to bring efficiency and increase profitability aspects. Competition is one of the factors that influence how operations are conducted in the industry. Corporate social responsibility then follows in suit. For HKIA, the strategic position of Hong Kong has helped in its operations in Asia. Increased exports from China have also played a vital role. Its business model revolves around security, safety, efficiency and quality. For Memphis, the marketing strategies being used have been very important for success. The business model is based on pursuit of frequent and affordable services. Both companies need to have a greater insight into their challenges in order to have favorable opportunities in the future. The research involved is not comprehensive since the data involved has only been derived from secondary sources. Incorporating primary sources would be more sufficient.

 

 

 

Introduction

The air cargo industry has been expanding over the years. This expansion prospects have been contributed by a variety of factors. They range from changing life styles, effective marketing strategies by companies involved, efficiency, increased global trading among others. Life spans experienced by products are also decreasing, and online businesses are also becoming a necessity as they enhance economical delivery of goods. By 2030, the traffic in this industry is expected to have tripled. To have a greater insight into the scenario, we can have an analysis of two major airports involved in this global industry. The companies to be involved in the study are Hong Kong International Airport and Memphis International Airport.

HKIA is the main airport situated in Hong Kong. It is located in Check Lap Kok Island which has been reclaimed over the years for the reconstruction of the airport. It has been in operation since 1998, and has been an important trans-shipment centre and a gateway for Mainland China destinations. Currently, it is the world’s busiest passenger and cargo airport. In 2012, it transacted 4,062, 261 metric tons worth of cargo. This was a 2.2% increase compared to 2011. The increase seems to be taking place almost every year.

 

Hong Kong International Airport	2011	2012	2013*
Air cargo Throughput (‘000 tones)	3,938	4,025	1,626
Year-on-year (YoY) growth (%)	-4.6	+2.2	+2.3
No. of passengers handled (million)	53.9	56.5	23.9
YoY growth (%)	+5.9	+4.8	+3.9

Source: Hong Kong International Airport

Exports by air amounted to HK$1,154 billion, which was 33.6% of total Hong Kong exports (Lassale, 2013). Increase in traffic has been a trend in the airline since its inception. Facilities found within the airport have contributed significantly to the growth of this air cargo hub. The airline has received several rewards in the international scene due to the favorable services that it has been offering its consumers. The Chinese air cargo industry is not one of the easiest to operate in based on its structure and mode of operation. Among them is competition posed by all the airline companies involved. HKIA faces stiff competition from other companies that are also on the rise. These companies include the likes of Shanghai Pudong International Airport and Beijing Capital International Airport. All the companies in the industry are developing a variety of techniques to help them remain in business for as long as possible. China also has an open economy which means there is no trade barriers involved. This creates an opportunity for the companies involved to attract consumers from all over the world. The regulatory environment is favorable including a low tax rate on profits (16.5 %), no interest tax, no capital gains, and no withholding tax among others.

Memphis International Airport on the other hand is based in USA, Shelby County. It hosts FedEx Express which is involved in processing most of the airline’s packages. The company was the largest worldwide since 1993 to 2009. In 2010, it was toppled by Hong Kong, though it remained the busiest in USA in terms of cargo traffic. It had 3,916,535 metric tons in 2012, which was a 2.5% increase compared to 2011. The air cargo industry in United States operates under a free market system. This has enabled Memphis to operate in the global industry effectively. There is immense competition from both local and international companies. This includes airlines like Miami and Ted Stevens Anchorage which had transacted 2,449,551 metric tons worth of cargo, in 2012 (McKinnon, 2012). The country’s government is highly involved in this industry. Among the main reasons is the security aspect. There are risks involved with the industry like placement of explosive devices in cargo being loaded, shipment of hazardous materials, smuggling, sabotage and hijacking. Terrorism is also eminent in this industry. Recent occurrences are the September 2001 attacks, which prompted the government to enact the Transportation and Aviation Security Act.

Table shows how revenue generated from courier services is increasing (Hong Kong)

Business Receipts	2007	2008	2009	2010	2011
International Courier Services (US$ million)	1,744	1,908	1,760	2,387	2,690
YoY % growth	+7.7%	+9.4%	-7.8%	+35.6%	+12.7%

Source: Hong Kong International Airport

 

Objectives of the Study

1. Examining the main key drivers of air cargo hub’s strategic positioning and business performance.
2. Determining factors that influence how operations are executed in both airline companies.
3. Factors that have influenced the air cargo hubs either negatively or positively over the years. This will also have an insight into the traffic growth that the companies have been experiencing.
4. Outlining the business models used by the two air cargo airports.
5. Logistics services provided by both airports

These objectives will be attained by conducting a secondary research. This involves examining documents that have already been published by previous researchers in the same field. An insight into the companies’ websites, journals, periodicals and magazines will also be helpful in gathering the relevant information necessary for exploring the objectives. Only information that has been reviewed will be used due to accuracy prospects. Some of the information published might not be true hence fails to reflect the actual situation as it is.

Literature Review

Technology in the Air Cargo Industry

The airline industry has been faced with technological advancements over the years. There are certain things being adopted while others are being minimized in the process. All these are taking place in order to make this industry better than it was some years ago. Technological changes are usually triggered by various aspects or events. There are a number of technological change drivers in the industry. Some of them include electronic booking systems which help in bringing about efficiency. Increased use of high yielding management systems and software such as ARP and TQM. This allows for profit maximization by optimizing network hubs through complex economic concepts. There is emergence of more modern planes with less noise and air pollution. These planes are faster and can travel for longer distances, which helps avoid unnecessary stops hence making transportation of cargo more efficient (Alexandria, 2009). This has resulted in the restructuring of airline routes. These factors coupled with the nature of the current global market, tend to set the stage for the success of the industry. Neglecting the innovation aspect would hinder the profit within the industry to be fully actualized.

Marketing and Operation strategies in the Air Cargo Industry

Companies in this industry have devised various marketing strategies to help keep up with the current competition. Among the most common strategies being adopted by large companies is developing strong pillars in both the domestic and international market. This scenario is quite vivid on how Hong Kong and Memphis International airports are operating. Hong Kong has established itself as the leading company in both the domestic and global market. A similar scenario is being experienced with Memphis which is the largest air cargo in USA by traffic and second largest in the world. Strategies employed by both companies are favorable for all the markets that they are involved in. The strategy of trying to conquer all the available markets is triggered by the nature of this business. It is usually performed on cross-border perspectives hence the need for universal strategies. Another thing is that, if one market was to fail, the others would compensate in terms of revenue generation.   Advertising has been adopted as the key promotional tool in these companies. This is due to the impact that it creates to the target audience. It is also one of the media outlets with the ability of reaching as many individuals as possible (Torrenzano, 2010). Advertising provides a variety of ways through which these companies can reach their audience. This is through the television, print media, and internet among others.

An operation strategy that is being widely adopted is the reduction of costs. This is mainly achieved by trying to reduce operation costs emanating from fuel. Fuel consumption contributes to a massive cost in this industry hence needs some attention. Reduction of fuel consumption can be achieved through innovation of engines and other relevant parts. Companies achieve this by working closely with the manufacturers of the planes.  Reducing distribution and selling costs has also been of paramount importance. Aspects such as online-booking have made this a possibility. Some airlines are also renegotiating agreements with their service providers. Cost reduction is vital since it will help these airlines to offer favorable prices to their consumers.  The more favorable the prices, the higher the chances of capturing a larger market share in the future.

 Factors that Influence how Operations are executed

There are a variety of factors that influence how companies involved in this industry execute their operations. Among them is competition. The industry is competitive and no one wants to be left behind. As a result of competition, airports tend to adopt what is being done in other companies. Failure to do this would result to giving other companies a competitive advantage. Another factor that is highly regarded is the technological aspect. When it comes to technology, every organization wants to be on the fore front in its implementation. This aspect has resulted in the adoption of ARP systems in the cargo airline industry. Technological aspects are used to make work easier and deliver quality services. Lack of its adoption would lead a company to extinction.

Corporate social responsibility is another aspect that influences operations within the industry. It is the aim of all the airline companies involved to bring satisfaction to the consumers. For this to be achieved, most of the decisions being made should be clients friendly. Failure to attain this would result to customers shifting to competitors (Alexandria, 2009). Consumer loyalty is determined by the satisfaction levels that they attain.

 

Analysis and Discussion

Factors Influencing Running of Business in both Airports

There are a variety of factors that influence the operations being conducted in both Memphis and Hong Kong International Airports. These factors might be unique or universal in both airports. For HKIA, the geographical position contributes significantly to its operational success. It is located at the Pearl River Delta region. Hong Kong is located strategically to serve the main land China and the rest of Asia. It is in a central position hence enjoys the flexibility of airline networks. The export business in Asia and specifically in China, is improving with every day. Future projections show that this region will increase its export prospects significantly in the near future. Based on HKIA strategic position, it is likely to enjoy more from the increased exports in Asia. Increase in the Asia population also results to increased importation in order to meet the demands of the growing population (McKinnon, 2012). HKIA becomes the most preferred airport by business personnel due to its reputation.  Such aspects can explain why the airport has come to be the leading pack in the air cargo industry all over the world. China’s economic growth prospects unveil even a brighter future for this airport in terms of increased cargo transits.

HKIA success has also been attributed to the facilities found within the airport. It is built on 1248 hectares island, which is in the vicinity of Chek Lap Kok Island. In history, it is still the largest civil engineering project. With its size, it has the ability of holding a large capacity of cargo without causing any inconveniences.   This has helped the airport to rise as the leading hub in terms of number of transits being executed on a daily basis. The charges offered in the airport have also helped in its success. The government has removed all the trade barriers in order to enable the operation of an open economy. This aspect has resulted to reduced taxes on both imports and exports. As a result, more individuals are being attracted in the region hence increasing the airport’s market share.

For Memphis, one of the success factors has been the marketing strategy. The airport has invested a lot in advertising. All these efforts are initiated to make sure that it has the ability of reaching out on any potential consumers. The promotional aspect is done at both the domestic and international level. The airport does not seem to neglect any of these markets while conducting its marketing aspects. It has a clear understanding of how cultural and geographical differences are significant to consider under such an approach. As a result, it has no universal strategies. A strategy is only adopted based on its suitability to the market. Having invested significant amounts in this area has made it possible.

Another success factor has been derived from the production locations. Some of the production activities that had been taken to the Far East are shifting back to USA. As a result, the demand for air cargo is altered. Memphis is getting the ability of increasing its market share. This explain why its cargo capacity increased by 2.5% between 2011 and 2012. USA government also moved to process free trade agreements with Panama, Colombia and South Korea. This has increased the air cargo volumes for both directions. Most production companies in United States are also adopting the just-in-time inventory production. This creates the necessity of relying on air cargo to cater for unplanned contingencies.  This has improved the operational aspects of Memphis in the recent years.

Challenges being Experienced in both Airports

Hong Kong is facing competition from other airports in China. For some time now, HKIA has been serving main land China without any significant threat. However, airports in the mainland China have started to develop. This development possesses significant threat to the company since it might lose some of its customers in the main land China. There is need for maintaining attractive policy and favorable infrastructure (McKinnon, 2012). This will definitely come with increased cost.

Another challenge emanates from air and noise pollution. Pollution has been prevalent in china due to the manufacturing aspects that have been initiated. The government has been involved in various legislations in order to deal with the situation. HKIA needs to invest sufficiently in order to pull through. This increases the company’s cost hence diminishing the profitability aspect.

For Memphis, security has turned out to be the main challenge. Since the 9/11 attack, the government has put up several measures that ensure all the cargo being transported is thoroughly scanned. This means that the cargos in the airports take a lot of time before they are transported. The delays do not go well with the customers. This mainly affects clients dealing with perishable goods that need to be transited as quickly as possible. With such systems in place, Memphis stands to lose some of its customers who will opt for other transport mechanisms.

Another challenge has been mergers being formed by other airline companies. The mergers will offer a more competitive dynamism in future. This is due to combination of resources and technical knowhow (Torrenzano, 2010).

Business Models and Logistics

Both airports have business models that have helped them attain their current status. HKIA’s business model is triggered by the airport’s vision, which is being the engine of economic growth in the Pearl River Delta (PRD) region. The business model revolves around security, safety, efficiency and quality. Security is enhanced in terms of making sure that consumers’ products reach their desired destinations in the best way possible. The airport ensures that any forms of theft or cargo loss are eliminated. The security aspect also comes in by ensuring that all goods in transit are authorized. This means that illegal goods like firearms and drugs cannot be transported. Safety is directed towards the staff that works in the airport and customers. In recent occasions, the number of injuries being reported has reduced significantly. Strategies being used have been key contributories. Quality and efficiency is based on the services that are being offered to make sure that there are no delays, and every client gets value for his or her money. All this aspects are meant to provide favorable experience for all the stakeholders involved.

Logistics in the airport include fuel supply, aircraft maintenance, aircraft catering, ground support equipment and business aviation facility. HKIA has three combined caterers that deliver a capacity of 138,000 meals every day. They provide a complete range of catering services from preparation, assembly of dishes, food delivery and storage of utensils. Aircraft maintenance is enabled by world-class facilities and technical knowhow. There is one engine run-up facility, 14 maintenance stands, 4 aircraft maintenance hangars and a compass calibration pad (McKinnon, 2012). The goods are usually received through the 1^st terminal. They have to undergo thorough check-ups before they moved to the packaging department. Here, they are put in different carton sizes, bubble wraps, straps and protective fillers.

Memphis’ business model on the other hand is based on pursuit of frequent and affordable services. The airport’s model is that of being a leader in most areas that it is involved in. Among them are community partnership, airport management, minority participation and economic development. All these aspects can be viewed from its offerings and its day to day operations. This explains why despite the airport being in a mid-size city has turned out to be the leading figure in USA. The logistics are quite similar to those of HKIA apart from other companies involved in the process. Most of its packages are processed by FedEx Express.

Recommendations

HKIA

For HKIA, some aspects need to be integrated in order to propel the airport to greater heights in the future. Among them, is maintaining favorable policies and infrastructure. This is due to the eminent competition that is looming from the main land China. This region contributes a lot to the capacity of the airport. Recent government insurgence has seen an increase in the number of airports in the region. If HKIA does not maintain its standards and make them even better, it stands at the brink of losing some of its clients to these airports (Torrenzano, 2010).

It should also aim at minimizing noise and air pollution at all costs. This is because the country’s government is very ardent on this issue. Failure to institute precautionary measures at an early stage might bring inconveniences in the future. There is need for the airport to establish favorable relationships with the authority, so that it can benefit from future legislations.

Memphis

One major thing that Memphis needs to do is identifying a strategy that will neutralize the mergers being formed in the air cargo industry. This industry is not regulated by the government. Companies involved have a free will on their pricing strategies. Formation of mergers would see the companies gain ability of being price leaders. This will not be good for Memphis since they will be vulnerable if the prices are taken too low. Neutralizing the impact of these mergers will be vital for future prosperity (Williams, 2009).

Memphis should also target companies providing just in time inventory. These companies are on the rise in USA. Based on their business model, their demand for air cargo services is likely to be high. If Memphis puts up structures to ensure that they capture these companies, the growth prospect will be quite good.

Conclusion

The objectives of the task have been met in the discussion above. It is clear that both HKIA and Memphis are doing well in the air cargo industry. Both also have the potential of further growth in the future. This expansion prospect is contributed by both internal and external factors. The knowledge derived from this text can be used by other students to help increase their scope and understanding of the subject matter. It is also relevant for the airports involved since they can use it in making some critical decisions. Individuals willing to undertake similar research in future can use the text in their literature review.

However, the research has some shortcomings associated with it. This includes use of secondary data as the only source of information. Information entailed in the research comes from journals, reports, websites and magazines that had been published earlier. It is not easy to ascertain whether this information is true, and is not biased in any way. Future researchers would be advised to complement the research with primary data sources like interviews and questionnaires. There are several implications that are likely to emanate from this research. Among them is that any interested party can add knowledge reading through the text. Another thing is that some researchers will be prompted to undertake a similar research in the future.

 

References

Alexandria, V., 2009. Strategic planning in the airport industry. Washington, D.C:             Transportation Research Board.

Kalman, B., 2013, June 19. Air Transport Industry in Hong Kong | HKTDC. HK Economy |         HKTDC Research. Retrieved October 8, 2013, from http://hong-kong-economy-           research.hktdc.com/business-news/article/Hong-Kong-Industry-Profiles/Air-Transport-           Industry-in-Hong-Kong/hkip/en/1/1X000000/1X0018JT.htm

Lassale, J., 2013. Airport and Global Infrastructure. USA Airport Outlook 2013,8(4), 39.

McKinnon, A., 2012. Challenges, Opportunities and Global Competitiveness. The Air Cargo        Industry In Hong Kong, 3(7), 28.

Torrenzano, R., 2010. Developing an airport performance-measurement system. Washington,        D.C.: Transportation Research Board.

Williams, P., 2009. ACRP synthesis. New York: Transportation Research Board.