The top nine carriers in the 56th edition of IATA’s recently released World Air Transport Statistics for 2011 — ranked by scheduled freight-tonne kilometers in domestic, international and total tonnage categories — were unchanged from the previous year. There were significant movements in the rest of the top 50, determined largely by geography, but this is the year in which the tectonic plates are really beginning to shift. When the league tables for 2012 are published in a year’s time, the world could see a reshuffling of the pack right from top to bottom.
The reason for the impending shift? Asia’s carriers are not exactly breathing fire in this Chinese Year of the Dragon. The region’s heavy hitters — Cathay Pacific, Korean Air, Singapore Airlines, China Airlines and EVA Air, who are all ranked in the top 15 for total tonnage — are losing ground. Europe’s big three — Lufthansa, Air France and IAG, the British Airways/Iberia creation — are shedding capacity in response to reduced passenger numbers and shrinking freight volumes. Neither can the leading U.S. players expect to improve their positions on next year’s chart, except on the technicality that United, which this year experienced a free fall to 30th in the total rankings, and Continental, down to 44th, may just scrape inside the top 20 as a combined entity.
The leading Chinese and Taiwanese carriers may have held their ground in 2011, but Asia already had its strugglers as faster-growing carriers overhauled Korea’s Asiana and Malaysia Airlines. Japan Airlines fell eight places in the total rankings, but this may have been more a result of its bankruptcy and subsequent restructuring than the tsunami, since its Japanese competitors fared better. All Nippon Airways overtook JAL, but Nippon Cargo Airlines fell two places.
The Middle East continues its inexorable rise. Qatar Airways, Etihad and Turkish Airlines all took a considerable jump up the ladder, finishing 2011 at 16th, 23rd and 28th place, respectively. Ethiopian Airlines (one to watch for the future) moved into the top 50 for the first time. Brazil’s TAM Airlines was the biggest mover of all, soaring from 51st to 33rd place in total tonnage, while LAN Airlines of Chile crept up four places to 15th. The carriers merged in June to form LATAM, Latin America’s largest airline. Cargo accounted for 17 percent of LATAM’s total sales last year, and the group aims to increase this proportion to 25 percent by 2016.
TAM’s international growth highlights the resilience of the Brazilian economy and the strength of the Brazilian real against other currencies, says a spokesman. “There has been growing demand for Brazilian goods, but equally, Brazil has increased its imports. In 2011, TAM increased the number of international destinations it served, as well as frequencies, meaning greater cargo capacity to match growing demand in both directions,” he comments.
TAM also soared in domestic cargo, reflecting the fact that Brazil is the fifth largest country in the world, and air transportation is now more efficiently bridging the large distances between its states and cities. “For example, it would take over 13 hours to transport urgent medicines and pharmaceutical supplies by road between Sao Paulo and the Brazilian northeast,” the spokesman says.
ASIA STILL SUFFERING
Cathay Pacific cut 25 percent of European and 15 percent of trans-Pacific freighter capacity in the first half of the year. A spokeswoman says three Boeing 747-400BCFs have been taken out of operation so far, and further adjustments may be necessary. The carrier is putting more focus on intra-Asian services and has added two new freighter destinations this year, launching twice-weekly services from Hong Kong to Zhengzhou, China, and Hyderabad, India. Frequencies have also been to increased to Bengaluru, India (three flights per week, up from one) and to Osaka, Japan (five flights per week, up from one).
A 10-percent fall in cargo volumes and widening losses at Air Cargo China, Cathay Pacific’s joint venture with Air China, contributed to first-half losses of HK$935 million for CX. The carrier blamed the slowdown in shipments out of its main Hong Kong and Shanghai hubs, with European routes especially weak, as well as increased competition from Middle Eastern airlines.
Cathay’s first-half cargo revenue fell 7.6 percent, year-over-year, and load factor was down by 4.1 points from last year, ending at 64.3 percent, despite the capacity reduction. Nick Rhodes, director of cargo, has commented that Cathay is prepared to lose market share in an effort to maintain its above-average rates out of China. Presenting the interim results, Cathay CEO John Slosar noted that rival carriers, repositioning aircraft from North American and European routes, were creating more competition in stronger markets, such as India. He sees gradual signs of recovery, but acknowledges that Chinese manufacturers’ relocation away from the coast may leave Cathay less well-placed to benefit. However, Slosar claims a new cargo terminal in Hong Kong will cut cargo transit times in half, helping overcome the geographic penalty through greater efficiency.
South Korea’s international air cargo volumes fell 2 percent, year-over-year, when compared with the first half of 2011. The drop comes from slowdowns in the Chinese and U.S. economies and the European economic crisis. The Ministry of Land, Transport and Maritime Affairs predicts further shrinkage in the second half of the year, partly due to reduced global demand for IT products. Weakness in its cargo business drove Korean Air into the red in the second quarter, despite increased passenger traffic on all routes.
Conversely, Singapore Airlines moved back into profit in its first quarter, but officials said continued weakness in airfreight demand had eroded yields. SIA Cargo’s operating loss widened, and carrier officials say the cargo outlook remains weak.
STATE SUBSIDIES CRITICIZED
Lufthansa Cargo is cutting its cargo capacity by 4.5 percent this year, up from the 2-percent reduction it announced in May. The company is looking toward a modest recovery in volumes in the fourth quarter, but said in its half-year presentation to investors that the night-flight ban at Frankfurt Airport “will exacerbate distortions to competition, in particular against state-subsidized airlines and air-traffic systems.”
Mideast carriers are benefiting from their “geocentric” position linking the world’s major production and consumer markets rather than any artificial stimulus, insists Ram Menen, Emirates’ senior divisional vice president, cargo. The carrier increased volumes by 1.7 percent last year, but revenue was 8.4-percent higher, thanks to a yield improvement of 5.4 percent. “It’s about offering the right product mix for the right market,” Menen says.
The slowdown in Chinese exports has seen Emirates reduce freighter capacity this year from seven or eight per week to four, though routes to the Indian subcontinent and Africa are performing better. Menen describes Emirates’ African network as “very potent.” Freight flows are seasonal, but tend to be have higher yields. Overall, however, Emirates SkyCargo has traded only “slightly above flat” in the last two quarters. Yields remain under pressure, Menen admits, with consumers on the defensive. Traffic from Europe is encouraging, but inbound volumes to Europe and the U.S. are “extremely slow,” he says. “Even South America is weak.”
Unhelpfully from a cargo perspective, the passenger division has focused strongly on North America and South America in its network development this year, with Rio de Janeiro, Buenos Aires, Seattle and Dallas-Fort Worth all added between January and March. More promisingly, Lusaka and Harare have also been launched this year and a service to Tripoli, Libya, is set to resume. Capacity has also increased to Khartoum and Tunis.
One B747-400 freighter has left the fleet this year and another goes in September. However, three B777Fs will join the fleet before the end of this year. Menen is optimistic that a good peak season will help fill the new capacity. Apple’s iPhone 5, arriving this fall, together with a number of other major electronic product launches based on Microsoft’s Windows 8 and Google’s Android platforms, could stimulate the market, but he points to a lack of charter demand, suggesting that it remains a buyer’s market with so much scheduled capacity available.
Emirates has suspended its freighter service to Lomé, Togo, that it operated as a codeshare with Africa West, but new freighter destinations include Erbil in northern Iraq, where oil and gas equipment is in demand. Osaka and Seoul will follow from September. Menen’s main concern remains fuel prices. “With the world economy doing what it’s doing, oil at $114 per barrel makes no sense. It should be $40 to $60. Where is the demand [to justify this]?” he asks. “We have split out our surcharges and made it totally transparent, but you can’t recover the entire cost.”
The steady expansion of Moscow-based AirBridgeCargo’s scheduled freighter fleet lifted Volga-Dnepr Group four places up the IATA table to 25th place. After selling off its last B747 Classics, ABC currently operates eight 747-400s and two 747-8s, with a third due for delivery in the last quarter. “Nothing is older than three years, so it’s one of the world’s youngest and most efficient fleets,” says Wolfgang Meier, the carrier’s executive vice president of sales. Meier is optimistic about prospects for the rest of this year despite the continuing surplus of freighter capacity out of China. “We don’t allow ourselves in this industry to talk about ‘peak season’ any more,” he says. “But we’re making a big change in our footprint and trying to give customers a wider product spread.”
The China-U.S. service that began three times a week in August, linking Chengdu and Moscow to Chicago and returning east via Amsterdam, increases to a fourth frequency in September and will go daily in October. Some Chengdu-Chicago services will take a direct trans-Polar route before the end of the year, Meier confirms, with the ex-China flights stopping at a currently unspecified hub in eastern Siberia to pick up additional feeder cargo from Shanghai, Beijing and Hong Kong. ABC has moved to serve inland Chinese points of origin, following the relocation of much of the country’s industry. As well as Chengdu, it is serving Chongqing and Zhengzhou.
Without commenting specifically on yields and load factors, Meier says: “It’s transition time in China. It will take time, but we came in early at locations, such as Chengdu, and the -8s bring a new dimension.” Westbound into Europe, ABC is now focused on Frankfurt, with a twice-daily frequency, plus Amsterdam (10 per week), Paris, Zaragoza and Milan Malpensa (each twice-weekly). A Beijing-Hannover service proved short-lived, but Meier says this concerned bilateral agreements — not commercial issues.
Cargolux has also added two weekly services to Chongqing. Maintaining the carrier’s historic “milk run” model, the services call at intermediate points including Doha, Qatar ; Sharjah, the United Arab Emirates; Singapore; Kuala Lumpur; Tbilisi, Georgia; and Baku, Azerbaijan. A weekly service to Sao Paulo and Manaus was launched in May, returning to Europe via Quito and Bogata. Frank Reimen, recently appointed as interim president and CEO of Cargolux, describes Brazil as “the economic engine of the region.”
The fourth B747-8 freighter out of 13 joined the Cargolux fleet in May. The more fuel-efficient aircraft are gradually replacing 747-400s, but Cargolux is reducing fleet size and cutting back frequencies on some established routes.
REVENUE MANAGEMENT IS KEY
Virgin Atlantic reported a 7-percent increase in cargo revenue in its 2011-2012 financial year. Tonnage is down by 5 percent, year-over-year, but yield increased by 11 percent. This reflected revenue and capacity management rather than any change in the product mix, says John Lloyd, director of Virgin Atlantic Cargo.
“It’s more difficult in soft markets to hold the line on rate, but it’s easier as a smaller operator compared with the freighter operators,” he says. “We have just one daily service to Hong Kong and one to Shanghai, so it’s not as if we have 100 tonnes to sell. We can be more disciplined about how much we will discount. We’re still flying close to 100-percent full.”
Tonnage from the UK was stable in the first five months of the new financial year, and yields improved by 2 percent, year-over-year. Overall yields have weakened, however, primarily driven by the sluggish Asian market. “We have no clue what will happen in peak season,” Lloyd says. He is disappointed that Virgin has stopped its daily Nairobi service due to falling passenger numbers. “Our side was doing OK. We’ve also pulled Kingston [Jamaica], but that has allowed us to restore a daily Mumbai service from the end of October and add a fourth daily frequency to JFK,” he says.
“We have also thickened up San Francisco and Vancouver, and Cancun is going up from three to four services a week,” he continues. “It’s not a big cargo destination in itself, but our onward trucking service to Mexico City is proving popular with forwarders.”