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The race for airlift: Carriers add capacity to Latin America

By Hpanchal on March 28, 2012

LAN Airlines is adding freighter capacity in Latin America this year, and carrier officials seem a bit alarmed that other airlines are doing the same.

Encouraged by continuing strength in many Latin American cargo markets, LAN expects to take delivery of two Boeing 777 freighters in the second half of the year. During a quarterly conference call with stock analysts in February, however, the Chilean airline’s chief financial officer also said the cargo market in Latin America is attracting airlift from around the world.

“Weakened cargo markets globally have driven additional competition to South America, especially Brazil,” said LAN CFO Alejandro de la Fuente Goic on the February 1 conference call. Nevertheless, “our target for cargo capacity growth in 2012 is between 7 and 9 percent, driven mainly by the addition of two 777 freighters in the second semester. ... We continue to see a healthy cargo market in the region.”

LAN and other airlines may have to fight harder for cargo business in Latin America this year if the robust regional market attracts more freighter and belly capacity, including
surplus lift from other parts of the world. The International Air Transport Association reported that available cargo capacity in Latin America last year expanded from the
2010 level by 5.6 percent, slightly faster than cargo traffic grew.

Interviews with executives of leading U.S. air cargo carriers in Latin America suggest that capacity expansion could outpace traffic growth in Brazil and other important markets again this year, perhaps by a wider margin. Tom O’Malley, the Miami-based executive who oversees air cargo in Latin America for UPS, says increased competition from Middle Eastern air cargo carriers has reduced the volume of Asia-made products transshipped to Latin America through Miami and other U.S. entry points.

UPS, the leading cargo carrier at Miami International Airport, faces increased competition “from carriers into the Brazil market with cargo coming from Asia,” O’Malley says. More shippers are “routing cargo from Asia over Europe into Brazil, versus over the United States into Brazil. That’s impacting the carriers in Miami, as they do business in the Asia-Miami lane,” including UPS itself, which has seen “a reduction in volume through Miami into Brazil,” he says.

O’Malley cited the introduction of increased cargo capacity in Brazil by Emirates SkyCargo and Qatar Airways as a major force in shifting the flow of Brazil-bound Asian goods outside the United States. “Emirates and Qatar are new carriers in the Brazilian
market, and they are flying from Europe and the Middle East into Sao Paulo,” he says. “Emirates is also flying into Rio de Janeiro.”

Undaunted, UPS in February became an all-767 freighter operator in the South Americas region. This move meant increased cargo-carrying capacity to the Ecuadorean markets of
Quito and Guayaquil and to Bogota, Colombia. “We’ve also increased capacity into Santo Domingo and added a flight into Guatemala,” O’Malley says. “So we are identifying those countries where we see growth, and we are adding capacity.”

Despite the flurry of recent activity, Latin America, of course, remains a small regional market for air cargo compared to such behemoths as Europe, North America and the Asia-Pacific region. But in recent years, the Latin America market has experienced
enviable growth rates in air cargo traffic that have ranked among the best in the world.
Air cargo traffic in Latin America last year grew at an annual rate of 5.5 percent, the second-fastest pace among six regions of the world, second only to the 8.2 percent growth rate in the Middle East. IATA has also found that air freight volume last year increased by 1.5 percent in both North America and Europe, while it declined by 1.2 percent in Africa and by 4.8 percent in Asia/Pacific.

Air cargo carriers also benefit from relatively balanced U.S.-Latin America air trade. At the Miami airport, the biggest platform for airborne trade between the United States and Latin America, perishable-heavy imports outweigh exports, but not by much. Imports accounted 54.5 percent of international freight tonnage at MIA during the 12 months that ended in January, down from 56 percent in the prior comparable period.

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