Air Cargo
Rough ride ahead for Asia-Pacific air cargo
Recent oil price declines have put lift into forward airline earnings, but an uncertain global economic outlook and the U.S.-Sino trade standoff threatens to depress air cargo, a sector critical to the economic health of Asia-Pacific airlines.
February 1st 2019
When U.S and Chinese negotiators met last month in their latest effort to resolve their damaging trade war, there were signs some of the heat had gone out of the talks and a resolution to the commerce conflict could be negotiated. Read More »
China’s Ministry of Commerce said both countries had “extensive, in-depth and detailed communication” on trade and structural issues and had agreed to maintain contact. The talks, it said, had “laid a foundation for addressing each other’s concerns”. Ever the protagonist, U.S. President Trump declared Beijing was feeling the pain from U.S. tariffs and forecast “we’re going to be able to do a deal with China”.
 |
In the meantime, air freight earnings have flattened in recent months. After a 2.1% rise in air freight traffic in October, the region experienced its first decline in air cargo profits for more than two-and-a-half years in November.
Asia-Pacific airlines, with a 36% share of the global freight market, posted a 2.3% year-on-year demand drop, the first decline since May 2016, said the International Air Transport Association (IATA).
Asian exporters have been reporting weaker demand for their products, a trend telegraphed in below normal seasonal outbound demand at key Asian air gateways in China, Singapore and South Korea.
While international e-commerce continues to grow, overall air freight demand faced significant hurdles to stay in profit, IATA said. Signs of weakness in global economic activity, a contraction in export order books in all major exporting nations, with the exception of the U.S., shorter supplier delivery times in Asia and Europe and weakened consumer confidence compared with the very high levels of early 2018 all point to a downward trend in air freight traffic.
“Normally, the fourth quarter is a peak season for air cargo,” said IATA director general and CEO, Alexandre de Juniac. “So, flat growth in November was a big disappointment. While our outlook is for 3.7% demand growth in 2019, downside risks are mounting. Trade tensions are cause for great concern. We need governments to focus on enabling growth through trade, not barricading their borders through punitive tariffs.”
The fall-off in November was the ninth consecutive month of overcapacity for the sector. IATA data showed capacity rose by 4.3% year-on-year, outstripping demand. When the global economy was in synchronized recovery during 2017, supply and demand conditions came into balance after seven years of overcapacity. In some months, demand exceeded supply but then the growth trend began to reverse.
The November data clouded the outlook for December when demand usually peaks in the lead up to Christmas. In recent past years, there was ultra-tight supply and outsized demand for charter airlift to supplement scheduled air cargo services for the festive season. This year that did not happen.
The Association of Asia Pacific Airlines (AAPA) said its cargo statistics indicated air freight in the region rose by 0.1% in November and freight capacity increased by 5.9%. AAPA director general, Andrew Herdman, said the capacity expansion had resulted in a 3.8 percentage point decline in the average international freight load factor, to 65.2%.
“Moderating export activity from reduced business orders contributed to the slowdown in air cargo growth for the month, although the trend was mitigated by higher volumes of e-commerce shipments going into the end-year festive season,” he said.
“Asia-Pacific airlines recorded a cumulative 4.3% increase in air cargo demand during the first eleven months of the year, a reasonably solid growth rate following the exceptionally strong 9.6% annual increase in 2017.”
Looking ahead, Herdman said: “Continued moderate growth in the global economy and lower oil prices should support expansion in air travel demand and air cargo markets this year, but the recent deterioration in trade sentiment and uncertainties about the potential impact on consumer confidence levels present some downside risks.”
Cargo Facts Consulting, formerly the Air Cargo Management Group, said the disappointing November results were a preview for an overall diminished peak season for air freight, as volumes and traffic declined across all regions.
“But considering the current negotiations between the U.S. and China and the government shutdown in the U.S. that is beginning to affect aviation across the country, we would not be surprised to see year-on-year comparisons continue to suffer in the near-term,” it said.
The consultancy reported significant drops in air freight traffic at many Asia-Pacific cargo gateways and also at airlines in the last two months. Cathay Pacific Airways reported December cargo traffic declined 5.9% over the previous 12 months, to 1.04 billion RTKs, but its full year cargo traffic growth rose by 4.2%.
Singapore Airlines freight traffic declined 5% and its cargo load factor was down 3.5 points to 63.3%. Taiwan’s EVA Air reported a 6.2% year-on-year decline for December, which was the carrier’s lowest traffic month since February 2018. Guangzhou-based China Southern Airlines reported a 3% fall off in December cargo traffic compared with a year ago.
Hong Kong International Airport, the region’s biggest cargo hub, said its freight traffic was down 5.5%, a result it attributed to global economic uncertainty. Traffic to and from Europe and South Asia suffered the biggest drops in volume.
Shanghai Pudong International Airport Cargo Terminal, the largest cargo handler at Shanghai’s Pudong Airport, reported its December cargo handling had declined by 5.8% over December 2017. It largely blamed falling inbound international cargo volumes of 13.5% for December drop. In the second half of 2018 cargo traffic had declined every month to December 31.
At South Korea’s Incheon Airport, a North Asia air cargo hub, freight traffic was 5.2% lower than in December last year. The downturn was not universal. Beijing-based Air China Cargo reported December traffic was up 2.8% over the Christmas month last year.
The threat of a freight downturn has not discouraged some carriers from bringing in more capacity to their cargo fleets. Atlas Air Worldwide Holdings, which operates all-cargo aircraft for airlines, said Japan’s Nippon Cargo Airlines has added three Nippon Cargo-owned B747-400 freighters to its operations, bringing to five the B747-400Fs Atlas flies on behalf of the carrier. The aircraft will be operated on the trans-Pacific route and are scheduled to sequentially enter service in April, July and September.
