Airlines mishandle 30 million pieces of luggage globally every year, according to SITA, an information technology and communications consultancy for the air transport industry. That adds $2.5 billion to airline overhead in the direct costs of locating and returning lost bags. Looked at it from another perspective, each mishandled bag costs an airline $128, according to the International Air Transport Association. That’s a cost figured into everyone’s ticket purchase.In contrast, Luggage Express, one of several interrelated business units of Universal Express, a logistics and transportation company, has moved 31 million suitcases since its inception seven years ago. How many of these have been misplaced and not arrived on time at the intended destination?
None. Absolutely zero
So how do you achieve zero tolerance, not just aim for it? “Backup system upon backup system upon back up system,” explains Richard A. Altomare, Universal Express CEO and president. “Even if an emergency happens, say a snowstorm hits an area where there needs to be a pickup, I know I’ll have a carrier somewhere willing to get there to get it somewhere else that will in turn get it to where it’s supposed to be when it supposed to be there. Sure, it’ll cost me more than what I’d make on that one delivery, but that isn’t the point. Customers don’t care what money we’re making, they care that we can do what we claim to do. And, we do.”
Of course, having successfully taken the company from the brink of bankruptcy, Altomare has demonstrated that his logistics network of private postal companies and independent delivery businesses can be profitable. But his motivations extend beyond the bottom-line.
“The government and airlines industry are spending all this money on increased security since 9/11,” Altomare points out. “Has it made our airlines and terminals safer from a terrorist attack? No, because less than 8 percent of the luggage that is loaded on a plane is actually opened and the contents thoroughly checked. So maybe terrorists can’t get on a plane with liquids or box cutters, but they can still smuggle a bomb on board with their luggage. The screening that’s done today doesn’t result in safer travel. All it results in is more TSA – which now instead of Transportation Administration stands for “Too many people Standing Around – so that it takes you three hours waiting at the airport before you can take a one hour flight.”
Luggage Express solves this problem by totally removing baggage transport from the airline system. “Commercial passenger airlines aren’t in the cargo business, “Altomare argues. “They do this as a convenience, but they don’t really know how to do it. The big thing now, for example, is RFID (Radio Frequency Identification) tags for baggage. Well, all that does is tell you where the luggage may have ended up after it got lost. It doesn’t help anyone standing at a carousel waiting for luggage that wound up somewhere else. It doesn’t eliminate the largely manual system for loading and unloading baggage. More importantly, it doesn’t eliminate the security risk of what could be smuggled into a plane through that baggage.”
He adds, “The general public doesn’t realize the subsidies we pay both in terms not only of the ticket price itself, but the taxation, government loans, and long-term debt that supports moving suitcases around in a highly inefficient way. It gets worse when the government gets involved; they’re going to do with the airline industry what they’ve already done to trains and busses – ruin it. The best solution is to outsource baggage transportation to a company that knows how to do this. Think about the fact that today everybody has these wheels attached to their luggage because they know they have to drag it around the terminal. This adds weight to the luggage itself. So an average bag now weighs something like 40 to 50 pounds. And you load all these bags for each person flying. Which means that you burn all that much more fuel, which these days isn’t cheap and isn’t going to get cheaper, to lift the plane with all this weight. If you eliminate the baggage, you reduce your fuel costs. That savings alone would be enough to lift the airlines out of bankruptcy.”
Indeed, Universal Express estimates that outsourcing baggage handling and charging a fee for such service could take the airlines industry from its present operating loss of $1.4 billion to profitability estimated between $14 to $26 billion through a combination of fuel savings with reductions in labor and logistical costs. The company also contends that an additional baggage security fee on passengers who opt to still bring their bags and other personal carry-on belongings to their airport would result in recovery of security expenses directly from those imposing the cost. This would save billions of dollars paid to the TSA by the airlines to cover the cost of passenger and baggage screening.
Moreover, it would close a large gap not only in the security of people traveling on airlines, but the security of the terminals themselves throughout the nation. The benefits to the traveling public include not only greater confidence to travel by air, but greater convenience with shorter lines and elimination of the unpleasant experience of security guards opening and going through personal luggage.
So why hasn’t the notion of outsourced baggage handling been embraced by the airline industry?
“In 1986 I ran for Congress and part of my platform was to get rid of highway tolls. Take the costs that the government incurs to collect the tolls and administer the physical toll booths themselves and put it towards maintaining the roads, but I didn’t win and I didn’t get rid of the tolls,” Altomare notes by way of explanation. “It’s hard to change what people are used to doing, particularly when it threatens to affect an entrenched bureaucracy and people’s jobs.”
This is not to say that Altomare hasn’t increased the general awareness of Universal Express. One way he is getting the word out is through highly visible promotions. One example is the delivery of a Luggage Express suitcase that contains the puck used to start every home Florida Panther hockey game. “We have a number of sponsorships with major sports teams, including NASCAR, the New York Rangers and New York Nets in hockey, as well as the New York Knicks and the New Jersey Nets in the National Basketball Association,” Altomare says.
Another is by directly engaging with policymakers. “I recently met with Senator Hillary Clinton to discuss issues of airline security. To accommodate her busy schedule, we met on the train as she was going from one place to another. I pointed out to her that I saw people I assumed were Secret Service agents posted to watch the doors and even the bathrooms. Then I asked her if she thought every piece of baggage that had been carried on this train had been thoroughly checked to ensure there wasn’t a bomb on board. I believe I got her thinking that this is why we need to separate the system that transports people from the system that transports their belongings.”
Complementary Business Units
It is a system that has proven profitable to Universal Express, which is headquartered in Boca Raton, Fla., with a satellite office in Manhattan, N.Y., directly employing about 400 people. According to The Bull and Bear Financial Report, “At the close of its 2006 fiscal year, Universal Express reported assets increased 180 percent to more than $6 million while revenues increased 100 percent over the previous year. The company’s market capitalization soared to $89 million from $4.6 million in 2005. The pace of that performance has continued into the 2007 fiscal year, with the company reporting a positive cash flow and assets increasing to $7.5 million.”
What makes this particularly remarkable is that the company grew from the ashes of a failed venture originally called Packaging Plus Ventures. “In 1988 when I took over, the company was in reorganization and $8 million in debt. The original idea was to franchise independent postal stores and though we were second to Mailboxes, Etc., which is owned by UPS, we were near bankruptcy. I was looking for something that could unite the various stores and utilize the services of our competitors – FedEx and UPS – to create an alternate distribution network. Instead of direct franchising, the model I looked at was FTD, a sort of trade association of independent stores that shared a delivery service under an identifying brand. I didn’t want the expense of buying delivery trucks and uniforms for the drivers, but I figured I could build value in putting a logo on someone else’s truck that could deliver to someone else’s store that also had the same logo.”
This grew to an affiliation of 4,000 independent companies that became the UniversalPost Network; there is also now a UniversalPost International Delivery business unit based on the same principle. This laid the foundation for Luggage Express, which delivers baggage to and from airports, and the related company, Virtual Bellhop, that delivers directly to the traveler’s destination. “I got the idea after I went to Scotland on a golf vacation, but I ended up not playing because my right elbow popped out carrying around my wife’s luggage,” Altomare notes. “That was when I figured it would have been worth it to me to pay for someone to move my luggage so I could have enjoyed what I was intending to go on vacation to do.”
A similar notion is applied to one of the latest Universal Express companies, MadPackers, a “door to dorm” service where student belongings are packed at the home and delivered to the student’s dorm room at school. “It takes the stress out of the first day of school,” Altomare says. “Instead of carrying boxes across campus and up and down stairways into a student’s room, it makes it easier to get the student settled in. It’s less headache not only for students and parents, particularly those baby boomer parents who had their kids late in life and aren’t as young as they used to be when those kids go to college, but also for school administrators.”
To further solidify and control its distribution capabilities, Universal Express completed the acquisition of Miami Florida Airport Trucking Company last September, which was integrated into its rebranded Luggage Express Found. Its mission is to deliver lost or misplaced luggage to airports nationwide. “It’s obviously a play on “FedEx Ground,’” Altomare says with a chuckle. Also recently acquired was Universal Jet Aviation, “Which just happened to already have the same name as ours,” Altomare notes.
In addition, a pending joint venture with a New Jersey-based gas and oil concern could evolve to a nationwide retail chain. The intent is to control as many factors as possible that can affect the promise of flawless on-time baggage delivery. As quoted in The Bull and Bear Financial Report, Altomare says, “Virtually every facet of our business relies on the price availability and delivery of fuel, whether it is our luggage division, our trucking component, our aviation division, or our courier network.”
The luggage business is Altomare’s passion, and not just for reasons of making money. “About six months before 9/11 I was on an airplane where a person of Arab descent (and lest anyone accuse Altomare of racial profiling, it should be noted that Dubai and Saudi Arabian investors are partners in Universal Express holdings) asked permission to go in with his movie camera to film what was going on in the cockpit. I was outraged that he was allowed in. As a marine veteran of 12 years combined with my New York street sense, all I could see was someone with a potential weapon – the camera as a blunt instrument – entering a space that no one but the pilot in charge and crew should have access to. I wrote a letter of complaint, but got no response. Two days after 9/11, though, the FBI was in contact with me to see if the pictures of the hijackers matched those of the man I’d seen allowed into the cockpit. It’s my sincere hope that we get a lot smarter and faster about how luggage moves to and from airports so we won’t be thinking about it only after something terrible happens to us again.”