Cathay Pacific

Cost of fuel may force airlines to pull out of air cargo market

Firms on tight budgets that convert ageing aircraft into freighters lack the funds to buy new fuel-efficient equipment

PUBLISHED : Wednesday, 13 February, 2013, 12:00am
UPDATED : Wednesday, 13 February, 2013, 5:28am


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Air cargo and passenger airlines using older fuel-guzzling long-range freighters could pull out of the air cargo market this year as they battle falling yields and persistently high fuel costs, according to industry observers.

They said this could remove capacity and help balance supply and demand growth, which would support yields for major airlines in the air freight market.

Explaining one scenario, one senior executive said: "All-cargo airlines using Boeing 747-200/300-like freighters could fold, while combination carriers flying passenger aircraft and older freighters could retire their cargo planes and pull out of the cargo business."

All-cargo airlines using Boeing 747-200/300-like freighters could fold, while combination carriers flying passenger aircraft and older freighters could ... pull out of the cargo business

While reluctant to name names, he added: "These carriers don't have the financial resources to invest in new fuel-efficient equipment."

Nick Rhodes, Cathay Pacific Cargo director, said the observations about the difficulties facing traditional cargo airlines at present "were spot on".

He added: "Those carriers operating older Boeing 747s on long-haul routes will find it extremely difficult to make a positive return in the current climate, even if the aircraft are fully depreciated. I imagine this will lead to more aircraft being parked or even scrapped in the coming year.

"Given the amount of capital expenditure required to buy a new wide-bodied freighter, together with the high operating costs and the pressure on yields, it is virtually impossible for any commercial airline to make a convincing case to its board to invest in new aircraft. The numbers simply do not add up in the current operating environment."

Historically, cargo airlines have tended to operate on a tight budget using ageing aircraft converted into freighters when the planes reach the end of their passenger-carrying lives. The source said this traditional model worked when oil prices were low, but it was no longer viable with persistently high fuel prices.

Boeing said its 747-400 freighter was 10-16 per cent more fuel efficient than its 747-200 model, while the 747-8 is around 16 per cent more fuel efficient than the 400. The fuel economics have virtually ended 747 passenger-to-freighter conversions.

Rhodes said Cathay Pacific had already scrapped one of its six 747-400s that was converted from passenger to a freighter aircraft. Three have been parked and a fourth will be parked this month as the airline reduces freighter capacity and prepares for the arrival of more Boeing 747-8 freighters and the launch of 777-200 freighter services.

Air China Cargo, Cathay's joint venture with Air China, is rumoured to be the recipient of some of the 777 freighters to replace 747-400 converted freighters as it seeks to stem losses.

The International Air Transport Association, a lobby group representing the world's airlines, estimated that fuel accounted for 33 per cent of an airline's operating expenses last year compared with just 14 per cent in 2003. It estimated an average of US$110 per barrel last year compared with US$28 per barrel in 2003.