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Capacity influx

By Hpanchal on July 25, 2012

The year is 2016. Demand for freighters and wide-body, belly-hold cargo, which had been rising at an annual rate of 5 percent, has sucked up all the world’s extra cargo capacity. Carriers have been retiring older planes at a steady pace in order to fill their fleets with new-production aircraft. Passenger-to-freighter conversions continue in this new utopia, but at a low level. Welcome to the perfect scenario.

This ideal, envisioned in “The Freighter Overcapacity Threat,” a report published recently by the Air Cargo Management Group, is one of three situations created to determine whether the world’s airfreight market will face an oversupply of wide-body freighter capacity in the near future. In this high-demand growth situation, there is enough need for cargo space to satisfy the current backlog of 213 wide-body freighters, which includes three sparkling new aircraft types announced in the past three years (Boeing’s 777F and 747-8F; Airbus’ 330-200F).

Alan Hedge, who wrote the report and serves as ACMG’s research director, notes in the study that wide-body freighter aircraft and belly-hold space currently share a 50:50 division of freight movement. If the division shifts even a little bit toward more passenger use, a 10-percent reduction in freighter capacity will be necessary. This would also reduce the needed freighters in the above alternate future from 236 to 110.

As an alternate to the above scenario, Hedge presents additional futures, both focused on low-demand growth. The first situation anticipates a 3-percent annual increase in capacity, which would keep pace with demand and lead to the absorption of the 213 new freighters now on order, but nothing more. Along with increased freighter retirements and a decrease in conversions, capacity would not run wild.

Hedge’s third scenario, though, in which delivery of new freighters continues unchecked at 5 percent annually and growth keeps pace at 3 percent, would force massive cuts to conversion programs (a 60-percent reduction) and a 70-percent increase in plane retirements. In this situation, MD-11s and 747-400s would be taken out of the sky, Hedge writes.

Some of these scenarios — Hedge writes that each one is possible, and a number of factors muddy the prediction process — leave the world with an embarrassment of freighter capacity. This could force cancellations of freighter orders, speed up plane retirements or force carriers to accept smaller load factors. Hedge wrote in the report that a 5-percent demand increase is “more than twice the average rate observed during the last decade.” In the last scenario that foresees 3-percent growth, excess freighter capacity will hit 9 percent by 2016.

There’s a lot up in the air, obviously, but one byproduct of the massive amount of freighters coming online is a shift of the balance between freighters and belly-hold capacity. With new wide-body passenger planes providing ample room for cargo, freighters might actually be passe, if not for the massive backlog of new all-cargo planes on the books at Airbus and Boeing. Capacity, in the current market, is a dangerous game — one that could soon spin out of control.

“We do not believe overcapacity due to new freighter and wide-body passenger aircraft deliveries has yet risen to a critical risk to the air cargo industry, but in today’s fragile world economy, it does pose a significant risk, “ Hedge wrote in the report.
John Lloyd, director of Virgin Atlantic Cargo, admits that the current environment is tough on cargo operators. A decrease in demand from Asian markets, which was spurred on by troubles in the eurozone and the U.S., has hurt carriers around the world. Virgin officials focus on belly capacity instead of using a mixed fleet.

“The danger with a mixed fleet is that you direct your focus on the freighter profitability, which can dilute your belly-hold operation,” he says. Lloyd notes that today’s wide-body passenger planes can stack up against freighters on some routes, even making freighter flying sometimes a bit superfluous. “We can move over 40 tonnes on our Airbus A340-600s, even on long sectors such as Japan-U.K.,” he continues.


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