Cathay Pacific

Cathay cuts cargo capacity growth

PUBLISHED : Tuesday, 20 December, 2011, 12:00am
UPDATED : Tuesday, 20 December, 2011, 12:00am

Cathay Pacific Airways, the largest global cargo airline, has cut capacity growth to 10 per cent from the planned 17 per cent next year by deferring delivery of two new freighters amid a bleak industry outlook. Six of the 10 Boeing 747-8 freighters, which were to join Cathay's fleet by the end of next year, will now be delivered in two phases - four by next year and two in 2013. However, four of these freighters, delivered earlier, have already been deployed on the transpacific routes.

Three of the freighters were seen parked yesterday, reflecting the sluggish air cargo market.

The freighters can hold 16 per cent more cargo than B747-400Fs and can carry up to 134 tonnes, as they have a wider fuselage and are more fuel-efficient. But the larger capacity also makes it more difficult to fill them to capacity in market downturns.

The outlook for air cargo demand appears dim for the first quarter of next year, especially as the Lunar New Year falls on January 23 rather than in February, which is usually the case. The earlier-than-usual festive season means mainland factories will close for holidays in January.

Freight forwarders, the brokers between airlines and companies shipping their goods, are refraining from signing minimum-guarantee contracts with airlines for new cargo space, as they are struggling to find shippers to fill the existing contracted cargo space.

'We will be very prudent in negotiating the terms with airlines,' said an executive from a Hong Kong freight forwarding firm, who did not want to be named. 'We will slash the committed volume and the contract price for next year.'

Cathay and other airlines usually sell cargo space using contracts and spot prices to secure more balanced sales due to the peaks and troughs of air cargo demand. Some freight forwarders are set to suffer big losses this year, as they had signed contracted volumes at HK$20 a kg kilogram of shipment earlier this year, while the spot price has now dived to HK$15 a kg for long-haul routes to Europe and the United States.

The air cargo business is highly cyclical. In the last downturn in 2008, Cathay had to park two freighters as cargo demand from North America fell sharply.

Currently, Cathay has yet to make a decision on grounding its freighters. Including the HK$5.5 billion cargo terminal under construction at Chek Lap Kok airport, Cathay has set aside HK$20 billion for its investment in freighters and cargo-related facilities by 2015.

The airline remains bullish on the long-term outlook of the cargo business in the region because of the mainland's growth potential.

In the longer term, global air cargo traffic is expected to expand at about 6 per cent annually, with much of the growth coming from Asia, according to a Cathay company newsletter last month, which quoted chief executive John Slosar.


Shares of Cathay Pacific have plummeted by this percentage this year, compared with a 22 per cent fall in the Hang Seng Index