Brighter days ahead: 2012 cargo forecast
Johann Wolfgang von Goethe once said that “talents are best nurtured in solitude, but character is best formed in the stormy billows of the world.” Well, the stormy billows of the airline industry will certainly test the character of air cargo executives in the next few months; as the current storm passes, every talent will be needed to successfully see it through.
The cargo forecast for 2012 comes against a backdrop of economic uncertainty, job stagnation and debt crises; these are telling times in the industry.
The air cargo sector is a cyclical business. What is alarming, however, is not only the severity of the peaks and troughs, but how often they are now occurring. Looking at the overall historical profit and loss account of the airline industry, not only is the overall change in profit and loss increasing, but the cycles are becoming more and more frequent.
Whether this indicates a fundamental instability in the industry, pure globalization, or a bit of increased competition, the fact remains that forecasting the future outcome is surely a test of nerve.
Last year was a record period for the industry, with more than $21.7 billion in net-profit generated. Many airlines benefited from healthy operating surpluses and successful year-end results. Yet almost on cue, the financial position of the industry took a dip in 2011.
Data from the International Air Transport Association outlined second-quarter net profits totaling $1.8 billion, which is almost a 60-percent, year-over-year, drop.
There’s no doubt air cargo plays a fundamental part in total air transport activity. With so much belly-hold freight, it’s clear that cargo and passenger activity are closely interdependent. According to Boeing, cargo revenue represents an average of 15 percent of total airline revenue, with some airlines earning more than half their revenue from this source.
Indeed, annual cargo (and passenger) activity during the past 10 years, at least, has not shown anything like the variation associated with airline profit-and-loss. Air cargo has grown steadily, rising at 5.24 percent CAGR. Passenger traffic showed a similarly steady 4.57 percent CAGR in the past decade.
The steady trend upward during the 10-year period only really faltered during the recession of 2008 and 2009, when passenger traffic was flat and air cargo dipped severely. Last year, however, both recovered strongly, with passenger traffic rising 7.7 percent and air cargo surging 17.9 percent.
In first seven months of 2011, there were contrasting fortunes. The year started with strong January traffic growth for both cargo and passenger, but there was a slowing of global traffic growth in February. Passenger traffic took dip in March, but cargo held up well; both rose in April.
Passenger demand was still buoyant in May, June and July, but negative cargo growth was recorded in that same three-month period. This general decline in air cargo in the first seven months of 2011 is confirmed when looking at the individual regions over the period. Despite some apparent recovery in April, the most important markets — North America, Europe and Asia-Pacific — have seen a general decline.
It is critical to appreciate that it’s the change in the three major markets that has the most significance in the overall trend. In terms of freight-tonnes carried, these three regions account for 86.1 percent of total air cargo market share. Therefore, activity taking place in these regions is the real barometer for air cargo.
The concentration of market activity is even more acute when the value of airborne cargo is considered. Five nations account for more than half of all airborne cargo. Any fluctuation in cargo activity in the U.S., China, Japan, Hong Kong and German markets has major implications for the world freight outlook.
Moreover, the North American economy is cause for concern. Many commentators are asking whether the announcement by President Obama’s administration that in August, for the first time since World War II, no new net jobs were created in the U.S., underlines a chronic fatigue affecting the world’s largest economy.
This news prompted the president to announce a nearly $450 billion jobs bill, which he placed before both houses of Congress.