The problems and potential for air freight on the west coast of British Columbia

This paper has been undertaken for B. C. Airlines, a small regional air carrier located in Vancouver. This Airline is performing primarily a passenger feeder operation from relatively small and inaccessable communities and towns to major areas such as Campbell River and Vancouver. This firm is facing financial difficulty because of decreasing revenues and increasing costs. B. C. Airlines feel that their greatest potential source of revenue is air freight. The objectives of this paper are to determine: the potential demand for air freight on a regular basis now and in the near future, the rates that firms can pay for these services, the competitive advantages that air freight can provide, and the extent to which these can be realized, the potential for backhaul including investigation of the fishing industry, and the non cost problems related to air freight demand. The paper begins by reviewing several methods used previously by other researchers to determine air freight potential. The advantages and disadvantages of each and their application to the West Coast of B. C. is considered. The investigation in this paper is based on the total distribution cost concept. This concept suggests that all factors and costs influenced by distribution should be considered when selecting a transportation mode. Hence the cost of transportation which is usually the determining factor, now becomes only one of several important considerations. A detailed discussion on the potential advantages of using air freight is undertaken. Within the context of the Total Distribution Cost Concept the investigation of these advantages is the basis for the field interviews with each firm. The costs, the characteristics, the advantages, and the disadvantages between surface transportation alternatives and between air freight are compared for specific firms and specific industries in selected areas. These factors are considered within the bounds of the operations and markets of the firm and area being analyzed. The cost analysis performed for each firm measures the increased cost involved in using air freight, and the extent to which inventory and related cost factors can be reduced to recover these costs. The remaining variables which are not quantifiable are discussed in detail for each firm to determine their effect on the cost analysis and the Total Distribution Cost Decision. The determination of the potential for backhaul freight involves a detailed analysis of the West Coast Fishing Industry, B.C. Airlines, and specific firms and industries in each area studied. In each case subjective evaluation as well as statistical data is used to determine whether or not air freight is a suitable alternative to existing transportation modes for freight moving to Vancouver from outlying areas. The most significant conclusion is that the additional cost of using existing air freight services, will not be offset by competitive or intangible advantages, or cost savings, that may be realized by air freight use. Generally, this same conclusion is valid even if air freight rates could be reduced by one half. Hence there is no large potential demand for air freight capacity. A second conclusion is that B. C. Airlines should not reduce: their freight rates in an attempt to increase business. In fact they should increase their rates because those firms presently using air freight will pay more for their service. The third conclusion is that because of airplane size, route structure, and most important, primary resource locations, the potential backhaul for air freight is very small. It is unlikely that this situation will change in the near future.Business, Sauder School ofGraduat