Cathay Pacific

Overcapacity puts the brakes on Asian cargo carriers growth

Asia-Pacific carriers, which have nearly 40pc of the global freight market, saw volumes drop 1pc

PUBLISHED : Monday, 10 February, 2014, 2:19pm
UPDATED : Tuesday, 11 February, 2014, 1:46am

Top Asian airlines' profit margins are being eroded by a struggling air cargo business, even as they capitalise on increasing passenger demand, industry executives said over the weekend.

Weak global economic growth and freight capacity oversupply brought on by new deep-bellied planes is hurting carriers with dedicated cargo businesses, the insiders said before the Singapore Airshow which opens today.

"The biggest worry of the airline industry right now is probably cargo," Tony Tyler, director general of the International Air Transport Association (Iata), said.

The biggest worry of the airline industry right now is probably cargo

"For the big airlines in this region, it is a very important component of their revenue mix."

Last week, Iata said air freight traffic rose 1.4 per cent last year from the previous year, supported by rising activity from Middle Eastern and Latin American carriers.

However, at Asia-Pacific carriers, which have nearly 40 per cent of the global freight market, volumes dropped 1 per cent, while capacity rose 0.8 per cent.

Passenger demand rose 5.2 per cent, while capacity rose 4.8 per cent. Bigger planes are catering for a growing number of passengers.

Andrew Herdman, director general of the Association of Asia Pacific Airlines, said major regional airlines with separate cargo businesses are bearing the brunt of the slump in the industry since the 2008 global financial crisis.

"The people who are really suffering in the cargo business are the ones operating big fleets of dedicated freighters, and that includes Singapore Airlines, Cathay Pacific, Korean Air, among others," Herdman said.

Singapore Airlines' freight arm operates nine Boeing B747-400 freighters. Cathay Pacific has a fleet of 25 freighters, while Korean Air has 26, according to the carriers' websites.

Tyler said full-service carriers could boost revenue by capitalising on growing demand for ancillary services, such as a la carte food on planes.

According to Iata, revenue from ancillary services per departing passenger is likely to rise to about 10 per cent this year, from zero in 2007.

Tyler also said it was too early to tell whether the airline industry would be affected by the recent sell-off in emerging markets.

Commercial deals potentially worth billions of dollars are expected to be announced at the six-day Singapore Airshow.

Vietnam's first private airline, VietJetAir, is expected to announce the finalisation of an order for 62 Airbus A320 planes worth US$6.1 billion, an industry source close to the deal said.

An order for 20 Airbus A380 super jumbos worth US$8 billion by leasing group Doric Asset Management could also be announced, the source said.