(Source: ABS-CBN News | June 6, 2018)
An explosion of e-commerce demand is buoying the air freight business, boosting profit at some major airlines despite global trade tensions and underscoring robust consumer confidence.
Air freight demand is expected to rise 4 percent this year, the International Air Transport Association (IATA) said at its annual meeting this week in Sydney.
Top beneficiaries will be freight-heavy carriers like Hong Kong’s Cathay Pacific Airways, Dubai’s Emirates, Germany’s Lufthansa and Korean Air Lines.
The growth in e-commerce is also a boon for parcel firms such as UPS and FedEx as well as second-hand jet traders and an army of pilots known as “freight dogs.”
“The cargo environment is very strong,” Carsten Spohr, chief executive of Germany’s Lufthansa, the world’s seventh largest cargo airline, told Reuters on the sidelines of the IATA talks.
He added that planes were full on both the outbound and return legs of their trips thanks to the export-driven German economy on one end and goods sold online on the other. “Inbound and outbound, I’m looking at probably the best environment I have seen in years,” he said.
Although trade tensions are rising, most notably between the US and China and Europe, the industry is counting on e-commerce continuing to soar, with more people buying products online for quick delivery.
“Air freight may be impacted by the trade tensions, but it could be supported by GDP continuing to be relatively strong, and also by e-commerce,” Mylene Scholnick, principal at consultancy ICF, told Reuters.
Cathay Pacific CEO Rupert Hogg said higher consumer spending is driving demand for high-end goods such as electronics.
“Definitely the retail map is changing and e-commerce is just growing and growing and with it the movement of small parcels. I don’t see that changing at the moment. That is beginning to form a baseload,” he said. Cathay’s home airport, in Hong Kong, is the world’s biggest cargo hub.
Business and consumer confidence are rising and tax cuts in the US alongside loose monetary policy have spurred a cyclical revival in world trade, IATA economists say.
Airline leaders said growing protectionism could put that at risk, but only if it escalates into an all-out economic battle.
Although steel and aluminium are in the cross hairs of US tariffs, those goods tend not to be shipped by air.
“The worry would be if this escalates and generally puts up trade barriers and makes it more difficult to facilitate. But at the moment, it’s not affecting air cargo,” said IATA chief economist Brian Pearce.
Lufthansa’s Spohr agreed.
“Looking at the current outlook in cargo, I am more concerned about a trade war as a European than I am concerned about a trade war as CEO of Lufthansa,” he said.
Air cargo rose 9.7 percent in 2017, when companies turned to speedy air freight to refill inventories after unexpectedly good economic growth. Although that trend isn’t expected to continue this year, e-commerce is softening the blow.
And even this year’s softer growth is better than the freight downturn that hit early in the decade, caused partly by a surplus of belly space in the increasing numbers of passenger planes.
“Consumers need to get products and this is happening cross-border now. E-commerce is really supporting growth to a much greater extent than before,” IATA chief economist Brian Pearce said. Time-sensitive pharmaceuticals is also helping.
Air freight supports an ecosystem of jets, either sold brand-new as freighters or adapted from passenger planes late in life once they become too costly.
Boeing 747s, which pound the global freight lanes via transit points such as Anchorage, Alaska, are being brought out of retirement and saved from scrap, experts say. By contrast, early examples of Airbus’s biggest jet, the A380, face the axe with no freighter version available.
Boeing is also increasing production of its mid-sized 767 aircraft to an average of three per month by 2020, up from 2.5, thanks to demand for the freighter version.
It has won new orders for the freight variants of its 747 and 777 from UPS, Lufthansa, Japan’s ANA Holdings and Qatar Airways, helping to support fragile output.
“If the market grows between 4 and 5 percent in terms of cargo, that helps support the production of about two big widebody freighters a month. We are starting to see that demand come back,” said Randy Tinseth, Boeing Commercial Airplanes vice-president of marketing.
All this risks repeating a chronic industry pattern: airlines must not add too much capacity, said Andrew Herdman, director general of the Association of Asia Pacific Airlines.
Last year, capacity grew slower than demand, meaning planes flew with more cargo, helping support profits.
“Now capacity is growing at about the same or even edging slightly ahead, so load factors have stabilized. That is a warning sign to keep an eye on capacity,” he said.
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