Management Outside the Box

Building an aviation hub and spoke cargo network

Let’s say you run a package and freight transportation company let’s call it FWS, and one of your subunits, let’s call it FWS Cargo Care, specializes in custom time-critical deliveries.  Maybe FWS-CC is having trouble competing in the market because the type of shipments it specializes in is being dominated by independent air carriers.  Sure the FWS-CC can contract the air carriers to provide air service for you but then your customer can just skip the middleman and contract directly with the air carrier and then you lose business.

Let’s also assume that FWS is preparing to phase out its fleet of Cessna 208 CargoMasters during a fleet upgrade.  Now not only do you have the hassle of selling the soon-to-be phased-out aircraft but you also have the expense of removing the livery from each aircraft prior to its sale.

To most people what I just described is two separate problems that have no connection.  What I see is two problems that can solve each other.  Why not expand the sub-unit’s offerings with the ability to offer air transport of the customer cargo for faster delivery by selling the soon-to-be phased-out aircraft to FWS-CC?  Not only does this allow FWS-CC to offer expanded services and compete with other carriers, but now FWS doesn’t have to deal with the hassle of removing the livery and selling the aircraft.

How it would work

Full disclosure I’m based in North East Ohio so I will be basing this hypothetical on that location.

So in this hypothetical situation, FWS-CC is based in NE Ohio, and there is an air cargo company, let’s call it Empire Aviation, based out of the local airport where the owner is always willing to entertain offers to sell his business.  It also just so happens that Empire Aviation has just built a large hanger with plenty of office space and has a sub-unit, let’s call it Empire Aviation Aircraft Maintenance, of its own, dedicated to aircraft maintenance and they are certified on Cessna 208’s among others.

So FWS-CC buys Empire Aviation and makes its hanger its central hub.  Then FWS sells its fleet of Cessna 208’s to FWS-CC who then build out a hub and spoke network across the U.S.  So we’ll base the range of the 208’s on 1,000LB cargo load which would give the aircraft a maximum range of 909 nautical miles.  Obviously, each hub needs to be less than 909 nautical miles, but for most situations having hubs close to that range would be acceptable.

So FWS-CC has its main hub in NE Ohio which would cover the entire east coast minus the very southern tip of Florida.    So we’ll put a hub on the western side of Tennessee to cover the south to Texas.  For southwestern coverage, we’ll put a hub in the northeast of New Mexico.  Then for central northern coverage, we’ll put a hub in southern Minnesota.  And finally, for northwestern coverage, we’ll put a hub in central Wyoming.

So we have air hubs in the following places:

These locations are within range of a Cessna 208 at 1,000lb weight with room for margin and provide coverage for the entire continental United States.  Now FWS-CC can offer aircraft from any location on demand from the nearest hub nationwide, and the FWS-CC staff can coordinate ground transportation from pick up to the aircraft and delivery from the aircraft utilizing its preexisting ground freight network, all while offering faster delivery to their customers.

Budget concerns

There is also the issue that most companies will have pre-existing contracts that will have to be dealt with during the acquisition.  While FWS-CC could say they will not honor the contracts and insist that Empire Aviation either complete them or buy them out with their own funds, it would be better to honor those contracts in an effort to maintain them.

Why would FWS-CC want to keep those contracts?  Those contracts are an instant revenue stream, FWS-CC can hit the ground running with revenue and expand its business with other contracts by showing how they have serviced other contracts.

If I were given control of a business unit like this here’s how I would set things up. 

  • Empire Aviation would become a subsidiary of FWS-CC, its core business would be servicing existing contracts and gaining more contracts nationwide.
  • I would have Empire Aviation livery on the aircraft to ensure the separation of the business units.
  • I would base Empire Aviation aircraft at the same hub locations as FWS-CC aircraft when a contract calls for aircraft in a given region.
  • Empire Aviation could set up its own hubs as needed if it would better serve the long-term customer contract, FWS-CC could also use the hub locations.
  • I would keep Empire Aviation’s existing fleet (minus any passenger aircraft) and expand the company’s network by purchasing additional Cessna 208 CargoMasters from the new owner FWB and only changing the FWB livery to Empire Aviation livery on those aircraft.

By utilizing the larger corporation’s assets and backing Empire Aviation could offer better service to customers and expand faster than its competition by leveraging greater lines of credit.  With Empire Aviation expanding and growing its business, FWS-CC will have a profitable revenue stream that it doesn’t have to maintain so that it can focus on its core business of on-demand cargo delivery.

Conclusion

This was a thought experiment, it arose from a conversation I had with a coworker years ago and has been rolling around in the back of my head ever since.  I do believe there are companies out there that can benefit from a model as I’ve laid out here, the hub and spoke model is the best way to offer localized service with a nationwide reach.

To my knowledge FWB, FBW-CC, Empire Aviation, and Empire Aviation Aircraft Maintenance are not active business entities in North East Ohio.  While this hypothetical was based on real entities using my knowledge of the ground and air cargo business in NE Ohio, names have been changed, and details have either been changed or omitted completely.

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