AIR CARGO FORECASTING, MANAGEMENT, LOGISTICS AND OPERATION IN

SINGAPORE AIRLINE

Author: Azamov Sardor (228660), Mimi Khalidah Ismail (233683)

Affiliation: Universiti Utara Malaysia

Address: International Business Department, School of International Studies, College of

Law, Government, and International Studies, Universiti Utara Malaysia,
06010 Sintok, Kedah, Malaysia

Telephone: +60174138781, +60137377650

Email: s228660@student.uum.edu.my, mimi_khalidah@sois.uum.edu.my

ABSTRACT

Singapore Airlines Cargo is one of the chief among air freight operators in the world. In order
to improve strategic development initiative, the company has identified importance of
forecasting accuracy as its strategy to its operational effectiveness and efficiency. The main
reason behind the accurate forecasting, permits the company to have the appropriate resources
availability, at the right time and place. The purpose of this paper to take on an evaluation of
recent month-to date forecasting used by Singapore Airlines Cargo. The study comprised of
historical data on freight and cargo operation from 2013 to 2016 covered profitable routes of
the company. A research carried out, using World Air Cargo Forecast (WACF) analysis on the
forecasting of Singapore Airline Cargo freight demand. Data in the form of historical cargo
operation over a three-year period together with most profitable routes included in the study.
Initial analysis between years presents that air cargo forecasting could be problematic, because
of the demand instabilities. Those demand fluctuations, influential especially to economic
factors and external market. The study adds contribution to current literature on air cargo
forecasting and examines the problems of air cargo forecasting.

Keywords: Air Cargo, Forecasting Approaches, Operations

1. INTRODUCTION

Airline cargo business is more complex than passenger airline service. Despite rising fuel
prices (Barber, 2010), growth rates of nearly 6 per cent are predicted annually up to 2029. This
makes the market one of the fastest growing within the airline industry (Zhang & Zhang, 2002).
Passenger figures for air travel, by contrast, are expected to continue declining (Goll & &
Rasheed, 2011; Zhang & Zhang, 2002). Although the importance of air cargo to the airline
industry cannot be underestimated, the industry faces considerable challenges. One which has
begun to attract the attention of scholars concerns capacity plan (Amaruchkul &
Lorchirachoonkul, 2011; Bish et al., 2004), or more specifically, capacity "overbooking"
(Kasilingam, 1997; Low et al., 2010; Rothstein, 1985). The practice is popular within the
industry because it allows air cargo companies to minimize losses of revenue from unsold
capacity. They achieve this by selling, months in advance, more cargo capacity (volume and
weight) than may be available to freight forwarders, (Amaruchkul, et al, 2010; Popescu, et al,
2006). Fluctuating levels of uncertainty over the proportions of "shows" to "no shows" prior to
departure are therefore serious business considerations. Henceforth the question of forecasting
and forecast modelling inside the air cargo industry is critical to operational efficiency.

This paper presents about a study commissioned by Singapore Airlines Cargo, which is one of
the major operator in Asia Pacific, in the market for air cargo and freight. Presently, the
Singapore Airlines Cargo is rank 7th position. Singapore Airlines has long been one of the most
highly recognized airlines, and its cargo division is no different. With dense operations
throughout Southeast Asia, the company has expanded service in North America, Europe and
the Middle East. Singapore Airlines Cargo operates 13 Boeing 747 planes, but no new orders
are reportedly on the horizon. (PIERCE, 2011). During 2002 SIA Cargo was able to reach 4.83
% and it was ranked four in among global freight carriers. On the other hand, by 2010, SIA
Cargo market share dropped and ended up by 3.57 %. (Smeritsching, 2013) In a market
comprising approximately 600 active airlines worldwide with cargo capacity, Singapore
Airlines Cargo's share of the market places the company into the top quartile.
2. PROBLEM STATEMENT

An in-depth study has been undertaken in order to explore and untangle the factors influencing
demand forecasting and consequently to improve the operational performance of an air cargo
handling in the Singapore Airline Cargo. The study use Singapore Airline Cargo as the scope
for this paper.

Demand forecasting is one of the critical issue almost every organization from manufacturing
to shop retailers. Nevertheless current an indefinite economic environment, measurement of
forecasting become major obstacle. (Andrey Davydenko, 2013). Recently, most studies aimed
to identify the real life implication of demand forecasting more than operational performance
of companies and trading environment. In real-practice world, the demand forecasting process
does not provide necessary level of accuracy, to effectively cope with the high demand
uncertainty. This has a negative impact on the whole range of air cargo operations, but
especially on the management of the workforce, which is the most expensive resource in the
air cargo handling industry. Besides forecast inaccuracy, a range of additional hidden factors
that affect operations management have been identified. A number of recommendations have
been made to improve demand forecasting and workforce management. (Uriel Magaña, 2016).

The paper was carried out to evaluate how efficient and effective time series method used by
Singapore Airlines Cargo in forecasting which has found one of the effective method under
WACF to measure forecasting. (Acar and Gardner 2012; Fildes & Kingsman, 2011; Poler et
al. 2008; Stapleton, Hanna, & Ross, 2006), retailing (Lau 2012) and the trading environment
(Adebanjo 2009). Uncertainty like this likely to impact on demand management (Croxton et
al., 2002), and hence the ability of cargo operators to be able to effectively balance customers'
requirements with the capability of their supply chain.

3. RESEARCH AIM AND OBJECTIVE.

This research aim to evaluate the existing forecasting techniques used by Singapore Airline
Cargo business in order to achieve the efficiency and effectiveness of the services. The study
mainly focus on SIA operation. The study's objective was to recommend a forecasting method
that specifically enhanced precision of forecasting by the SIA Cargo. Air cargo forecasting is
regarded as a key capacity-planning component in air cargo and freight operations.
4. RESEARCH METHODOLOGY

The aim of the paper focuses on the evaluation of forecasting to enhance the operational
efficiency of an air cargo operators. The objective of the paper to undertake an evaluation of
forecasting methods utilizing error accuracy measures in specific airline freight carrier. The
study conducted within Singapore Airlines Cargo. It included data in the form of historical
period between years from 2013 to 2015.

2014/15 2013/14
$ million $ million
Airline operations 12,498.7 12,444.7
Cargo operations 2,234.8 2,248.3
Engineering services 437.8 508.5
Others 37.2 42.4
Total revenue (excluding Tiger Airways) 15,208.5 15,243.9
Table 1 Revenue by business segment1

As it can be seen in the table, air cargo operations are among main contributors of Singapore
Airlines. This is surprising finding that airline operations not really rely on only passenger and
other services, as well impact of cargo operations are fair enough.

The challenge faced by Singapore Airlines Cargo related mainly to accurately projecting for
allocated cargo capacity. However, observing increasing focus on customer service within the
industry (Meng, Liang, & Chen, 2010) a case study approach was adopted in the study. Case
studies (Eisenhardt K. M., 1989; Eisenhardt & Graebner, 2007) are a popular means of
conducting supply chain management and logistics research (Ellram, 1996; Seuring, 2008)

Nevertheless in order to provide better understanding, relevant information and current up to

date data the paper also included annual reports, book and electronic resources. Most
obviously, where data which is obtained from several sources, caution should be shown when
drawing general lessons for the industry as a whole. The study was evaluated on the
understanding that, strives to propose broader lessons to enhance best practice in the air cargo
industry. Usually, manufacturing industry uses “unit to produce” to forecast demand, however
air cargo industry based on calculation of “tons to handle”. On the other hand, it has found in
real life airline outsource practice demand forecasting function as well as actual physical cargo

1
Annual Report 2014/2015
operations management in order for ACHC(Air Cargo Handling Companies) to become
partially 4PL. (Win, 2008)

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Imports – Airline X

2013 Budget 3503 3696 4247 3450 3627 3900 3565 3565 3750 4030 3900 3875

2012 Actual tonnage 3500 3917 4260 3459 3642 3883 3547 3458 3323 3720 3600 3720

2011 Actual tonnage 4276 4367 4915 4384 4721 4375 4410 3860 3885 3993 3431 3741

2010 Actual tonnage 4316 4080 4665 4006 5212 4419 4369 4252 4752 5510 4238 4147

2009 Actual tonnage 3736 3515 3991 3384 3916 3742 3685 4091 3906 4746 4623 4203

Exports – Airline X

2013 Budget 3720 3500 4402 4200 4185 3900 4805 4805 4650 4185 3900 3937

2012 Actual tonnage 3550 3653 4390 4610 4165 3842 4735 5065 4508 3813 3690 3813

2011 Actual tonnage 3683 3865 4627 4235 4582 3928 4510 4133 4349 3904 3871 3888

2010 Actual tonnage 3857 3666 4387 3636 5267 4987 5306 5132 5129 5026 4314 3872

2009 Actual tonnage 2974 3618 3790 4102 4421 4231 4028 4254 3884 4051 4300 4100

Table 2 Historical or ‘activity’ analysis to produce forecast figures of tons to handle per month2

Historical data analyzing is one of the method that have been using, till now. Most business
activities or manufacturing product all based on the forecasting. Forecasting, is roughly product
produced to satisfy demand of the customers. As it has presented in Table 2 it can be identified
through analysis of actually tonnage annually. Historical data analysis, handful when the
forecasting for future demand is 12 months or a year.

Each year forecaster at ACHCs calculate or in practice referred as budget based on the tonnage
of cargo to handle per airline and per month. This process mainly used historical data and some
data from airline (as it has used in this paper) as result, sometimes it is difficult to find those
data from the senior management of ACHC and airline staff who is responsible airline
operations. The outcome of such information will use in adjusting the forecast as it built from
forecaster’s judgment, previously known as ‘judgmental adjustment’. Table 1 shows the
historical analysis to generate budgeted tonnage to handle.

2
Source: Adapted from ACHC
5. DATA ANALYSIS AND FINDINGS.

5.1 Time series models

As it has stated earlier to evaluate cargo forecasting in Singapore Cargo Airline time series
analysis used. It is one of the method that has used in to analyze World Cargo Forecast to
provide comprehensive and up to date data for world air cargo. Strategy of time series model
include historical trends into the future using time as the key independent variable. Time series
estimation is one-variable model and it requires data to be forecast. Often, during the
forecasting, the forecaster has interpretations and observations on only a single data series and
it is suggestible to develop forecasts without any shortage other explanatory variables. In this
kind of situations only the past values of this variable are accessible for displaying and
forecasting. Overall, time series data can be represent by trends, seasonal effects and cyclical
effects. (Boeing World Air Cargo Forecast Team, 2016)

5.2 Model selection

To analyze time series model, firstly it is necessary bring up together a time series forecast is
to analyze a time series of historical data for the specific airport (in this case Singapore Airlines
Cargo where it operates from Changi International Airport) or market to determine the growth
rate of trend. The simple process includes dividing the trend in a time series is to plot the
historical data in graphic form on an x and y axis. The traffic data will be present on the vertical
(y) axis, while time, as the independent variable, will be plot on the horizontal (x) axis. Then,
can be draw a curve or trend line that reduces the overall distance of the plotted points. In usual
forecasts, it is possible to extend this line into the future to forecast the future traffic of the
airline. The rate of growth either positive or negative, it can be measured from the slop of the
line. It is usually recommended that, stating growth in terms of compound average growth.
Growth rates, useful when it is applied to the base year in order to plan the future project for
the traffic. Base year is the year that used for comparing in the quantity of a business activity
or economic index. Recently to be effective many popular software programs can be used. For
instance, Microsoft Excel, to draw the process of the developing historical trend line. However,
it should be to take account, by using this technique, it does not include economic,
demographics and industry factors during the historical period. (Boeing World Air Cargo
Forecast Team, 2016).
5. 3 Findings

Going through in early paragraphs, it has found and evaluated that the chief goal of the time
series method, one of the tool that can be used in making statements about future outcomes.

Time series method of forecasting, when discovering a broad time period and information can
about demand or forecasting can be extracted by measuring data at various time intervals, like
monthly, quarterly, yearly and any other time interval (in this case annually and a 3 year time
interval.

In addition, data, points variances can be calculated and compared from year to year. As basis
server of future forecasts can reveal seasonal fluctuation patterns. This kind of information is
necessary usually when the cargo demand fluctuate seasonally.

Nevertheless, using of time series method, as linear model of trend analysis. It can be useful
for cargo operators, during the measurement show an increase or decrease in demand.

6. CONCLUSION

Nowadays current business environments, organizations will depend extensively on several

management tools and techniques like forecasting in order to make strategic decisions.
Forecasting is a serious business activity in that it allows the organization to align the pace of
resource distribution to changes which are expected within an ever changing business
environment (Makadok & Walker, 2000; Durand, 2003). At the end the outcome is forecasting
enables organizations manage their fixed costs and enhance efficiencies and performance.

It is important for air cargo that forecasting is important. The main challenge for air cargo
operators is not only competition between rivalries, demand management as well which is with
high uncertainty is also crucial. Perhaps there are about 600 active cargo operators worldwide
with cargo capacity. With this knowledge, the study sought to undertake a commissioned
evaluation of current 3 year forecasting utilized by Singapore Airline Cargo.

In conclusion, these are main three findings on the air cargo industry:

 The interpretation of the research through analysis found that theoretical

propositions relates with demand forecasting and operational performance.
  The generation of the outcome of the paper can be applied in business practice
to increase demand forecasting in air cargo.
 The paper is add value to the previous research findings as additional reference

Generally, looking at the future of the industry itself and to how researches and studies can
help to support its growth, a dynamic way forward may be to advance methods to feed
information on forecasting sharpness into cargo pricing mechanisms to reduce them more
clearly. The researchers believe that, this paper may serve to evaluate of SIA Cargo handling
in future.

7. CONTRIBUTION TO THE KNOWLEDGE AND SOCIETY

The evaluation on the forecasting method are useful for academic world. In term of academic,
this evaluation help future study to investigate in depth how the techniques works and
differentiate this method to other exiting technique. Some methods or approach like economic
modelling, judgmental evaluation, trend analysis, and potential analysis are often being used
to forecast the demand in airline cargo services (Boeing World Air Cargo Forecast Team,
2016). With this study the academician can have more resource to conduct researches and help
widen the knowledge field.

Despite from that, the evaluation also give new benefits for the business environment. The
evaluation help SIA to forecast precisely on the demand trend of its client. The company can
know when the peak season and draw out plans in order to give full service. Any delay could
cause billions dollar lose. Other than that, the evaluation helps to widen its market. SIA can
find new market to expand its market share rather than continue stay in same market. Sometime
saturation in market environment could happen. This will give high competition to SIA and the
business cannot growth.

In conclusion, the evaluation on forecasting method used by Singapore Airline Cargo give good
benefits to academic and business world. From this study, future needs can be fulfill as the
study give guideline to have good opportunity and advantages.
References