Rise to the top
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.