Airfreight operators hit by economic slowdown

Pure freight players forced to review strategies to compete against passenger-focused carriers

PUBLISHED : Saturday, 15 December, 2012, 12:00am
UPDATED : Saturday, 15 December, 2012, 3:12am

Dedicated airfreight operators are struggling to remain viable as a sluggish economy undermines their ability to compete with the cargo space on offer from carriers focused on the more buoyant passenger market.

Companies such as Cargolux Airlines International - Europe's top freight-only carrier - are reviewing their business models, while Deutsche Lufthansa, which runs a cargo-only unit alongside its passenger routes, has idled planes.

The utilisation of freighter aircraft had slumped below 42 per cent as capacity far outstripped demand, the International Air Transport Association said yesterday.

That is forcing cargo specialists to target marginal markets where they do not have to compete with hold space available from passenger operators.

"For the pure freight guys, it is going to be tough," said Niko Herrmann, an aviation specialist at Oliver Wyman in Zurich. "Carriers may be forced to seek partnerships and consolidate to gain scale, or to exit the market."

Forecasts from Iata, which represents 240 airlines, suggest there is little chance of an earnings rebound in the US$70 billion market anytime soon, with cargo yields - a measure of prices - expected to drop 2 per cent this year and 1.5 per cent next year.

As the economic crisis dragged into a fifth year, planes were flying with only 44 per cent of cargo space taken up, including belly capacity on passenger jets, with the market essentially "stagnant", Iata chief executive Tony Tyler said.

Volumes of high-value goods, a staple of international airfreight, had declined as people reined in spending, said Rafael Echevarne, an economics director at Airports Council International.

While overall freight demand remains flat, air shipments have contracted by 1.2 per cent this year, according to the council.

That has been reflected at major hubs, with a 13.1 per cent drop at Anchorage in Alaska, a base for FedEx Corp and United Parcel Service, the two biggest cargo carriers with volumes of 6.87 million tonnes and 4.64 million tonnes, respectively, last year.

Incheon Airport, the main hub for Korean Air, had a 1.9 per cent fall. The carrier ranks fourth worldwide by cargo tonnage and second among companies that are also passenger operators, behind Germany's Lufthansa.

Even where demand for high-end products remained robust, manufacturers such as Apple were still switching to less costly surface transport for some shipments of items - such as iPhones and iPads - making customers wait, Herrmann said.

Cargo-only operators had responded by targeting "whole new product flows" in markets such as Turkey, Africa and South America, said Bill Flynn, the chief executive of Atlas Air Worldwide.

Atlas, based in Purchase, New York, is the world's largest operator of Boeing 747 freighters.

Hermann said that while adding new markets and being "very smart" about optimising route networks could aid independent carriers, pockets of growth tended to be quickly flooded with capacity, driving down prices.

New opportunities are likely to become more scarce as Iata's projection of 5.3 per cent compound annual growth in travel encourages carriers to extend record aircraft orders.