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The international cargo market has not yet recovered from the 2008 financial crisis, unlike passenger traffic. Photo: Bloomberg

Cargo revival hinges on US economy, says Cathay

Cathay Pacific, one of the world's largest cargo carriers, is hoping the Christmas season will start a little earlier this year.

Cathay Pacific, one of the world's largest cargo carriers, is hoping the Christmas season will start a little earlier this year.

The last quarter, traditionally a peak season for cargo, may signal the start of a real recovery for the sluggish global cargo market thanks to new hi-tech consumer product launches and recovery in the US economy, said Cathay's cargo director James Woodrow.

Speaking to the in Zhengzhou, where Apple's new iPhone 6 is being manufactured and shipped out worldwide, Woodrow said: "Whenever these very successful companies launch a new model, if it is successful then obviously it can help increase airfreight. There is a good chance [the iPhone 6] will help improve not only the China market but also the Hong Kong market."

Mainland China is Cathay's largest cargo market after Hong Kong, while "almost everything" it ships from Hong Kong comes from the Pearl River Delta, Woodrow said. Contrary to industry talk about China's critical role, global cargo demand is still more dependent on the outlook of the world's largest economy, the United States, he said.

The more the US and global economy accelerates, the faster our load factor will grow
James Woodrow, Cathay Pacific

"I think critical to global cargo growth is growth in the US economy. The more the US and global economy accelerates, the faster our load factor will grow," Woodrow said.

"It is encouraging that last quarter US GDP growth figures were revised up. If US consumers start spending, then US corporates will start reinvesting. US corporates have got trillions of dollars on their balance sheets. When the US is growing, they are going to be importing Chinese goods and that's good for the Chinese economy," he said.

While passenger traffic has recovered from the 2008 financial crisis, the international cargo market has yet to return to pre-crisis levels.

Enno Osinga, vice-chairman of the International Air Cargo Association, said the sector is more susceptible to recession as businesses turn to cheaper means of transport when they need to cut costs. "When global trade figures pick up, air cargo is the first to respond, because the moment trade picks up, goods need to be moved fast," he said.

Tonnage at Cathay Pacific and Dragonair increased 8.5 per cent to 804,000 tonnes in the first half of the year, but there was a 6.9 per cent decline in yield - the airline trade's measurement of per unit profitability.

"We are not in business just to carry kilos, we are in business to make money," said Woodrow. "So we also need to see yield start increasing, and that in the last three years has been very tough."

Airlines have had cargo yields eroded by overcapacity and weak demand, while the growth of belly space in passenger jets - which are getting ever bigger - adds further cargo capacity.

In the first half of this year, cargo carried in the belly space of Cathay’s passenger flights for the first time matched the amount carried by its freighters.

“We can fit 20, even 30 tonnes in the belly of a 777. For London, where we have five 777s a day, that means we have got 100 tonnes a day just on passenger bellies,” said Woodrow. That is equal to the amount a 747 freighter can carry.

“Going forward, more cargo growth will be carried in the belly,” he said. But there will always be demand for freighters because of the mismatch between popular passenger routes and high frequency cargo lanes.

Cathay, which receives more than one-fifth of its revenue from the cargo business, has made hefty investments in freight. In June, it said it would inject 980 million yuan (HK$1.2 billion) into Air China Cargo, its 49 per cent owned joint venture with Air China, which has so far been a loss-making operation.

Cathay also parted ways with long-time partner Hong Kong Air Cargo Terminal to start operating its own cargo terminal last year, a HK$5.9 billion investment with capacity for 2.6 million tonnes.

Osinga said global cargo traffic has grown 3 per cent this year.

Cathay’s Woodrow added; “Hopefully the peak season will begin a little bit earlier this year and hopefully the US economy is on a recovery path, and that’ll mean better times for bigger cargo airlines.”

This article appeared in the South China Morning Post print edition as: Cargo revival hinges on US economy, says Cathay
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