The announcement by AirNet Systems Inc., the nation’s largest courier of canceled checks, that three big banks are cutting back their use of its services reflects the ongoing decline in check volume.
In a filing last week with the Securities and Exchange Commission, the Columbus, Ohio, company disclosed that the banks (which it did not identify) had said they planned to cancel air transport services at six locations. Two of the terminations are scheduled to take effect this month, and the other four next month.
The terminated services accounted for about $500,000 of AirNet’s revenue in the second quarter, the company said.
A spokesman said Monday that executives would not comment beyond the regulatory filing.
In the filing, AirNet cited the declining use of checks and growing electronic alternatives, and it reiterated that the trend will cause a “significant reduction” in its revenue from the banking industry.
Bank industry observers said that even though the shift to electronic clearing is causing pain for vendors such as couriers, the migration should save banks money in the long run and improve customer service.
“What pays for the transportation cost is the float value of those transactions,” said David Walker, the president of the Electronic Check Clearing House Organization, the rulemaker for image exchanges. “That’s a lot of float value. That covers a lot of transportation cost.”
According to the Electronic Check Clearing House Organization, of Dallas, 283 million checks valued at $583.3 billion cleared electronically in August, either as images or image replacement documents. A year earlier only 28 million items cleared electronically.
And as image exchange volume surges, AirNet’s earnings are declining. The company reported in August that its second-quarter net income had dropped 3.7% from a year earlier, to $2 million. Its revenue grew 7.2%, to $44.4 million, but the increase came largely from higher fuel surcharges. Excluding the surcharge, revenue in its bank services unit fell 5%, to $24.8 million. The banking unit accounts for two-thirds of AirNet’s revenue.
The loss of volume seems to be accelerating. AirNet reported that the weight of canceled checks shipped per flying day fell 9% in the second quarter, compared with an 8% decline in the first half of the year.
Last week AirNet said that it is planning changes to its route schedules and is exploring other pricing and cost reduction strategies. It said it has found cost cuts to offset 20% of the revenue loss.
It also said it hopes to increase other services for banks, such as interoffice mail delivery, which provide revenue at significantly lower yields than the check business.
Bob Meara, a senior analyst at the Boston research and consulting firm Celent LLC, said that even though the industry clearly is migrating toward image exchange, the path is tricky.
“It is a tightrope for large banks,” Mr. Meara said. “Cost saves that seem somewhat intangible come only with prodigious investment. For a lot of banks, their costs are going to go up before they go down. That’s a tough pill to swallow.”
But with short-term interest rates higher than they were a year ago, banks have more motivation to act, he said. “Float wasn’t that big a topic when interest rates were in the gutter.”
