Challenging times for European carriers
The mood in Western Europe is “not really getting any better,” with the debt crisis dampening companies’ appetite for investment, he says. Turkey, Russia and parts of Eastern Europe are performing more strongly, though Wirths pinpoints problems in Bulgaria and Slovenia.
On the export front, pharmaceuticals are “developing nicely,” both to the U.S. and to emerging markets such as China. Like IAG Cargo, Lufthansa is playing to its strengths in the temperature-controlled market.
The benefit of a large freighter fleet is that main-deck services can be more responsive to fluctuations in demand than passenger networks. LC recently opened up Guadalajara with a twice-weekly freighter from Frankfurt as well as increasing its Cairo service, which is strong in both directions, from two to three per week.
Eelco van Asch, vice president Europe for Air France-KLM Cargo and Martinair Cargo, points out that Europe is not alone in its woes – though a decrease in import demand may have afflicted supplier markets. CASS figures showed a significant decline in airfreight exports globally in January and February, and while shipments ex-Europe were down 10 percent year-over-year, he points to double-digit decreases out of Mexico (-35 percent), Japan (-28 percent) and Brazil (-15 percent).
“Freight forwarders always say at this time of year that the second half will be better, but there is an element of wishful thinking about that,” van Asch believes.
He is encouraged by his group’s movement of perishables, pharmaceuticals and automotive spares, but says the technology sector has slowed thanks to fewer new product launches. Among bright spots in Europe, Spain is shipping increased volumes of pharmaceuticals and fashion goods, while Germany saw a 20 percent increase in exports to Shanghai in March.
Carriers use various performance indicators to try to determine future airfreight trends, but some traditional indicators are now proving less reliable.
“We have started to look at the purchasing managers’ index, where there is still a good correlation. This has been improving since February,” van Asch says. “Japan is back above 50 [the neutral point], and Europe has seen a slight improvement to 48 compared with 44 last summer. Airfreight volumes typically lag this index by two to three months.”
Wirths says LC follows consumer confidence, business confidence and business investment indices as a guide to overall air cargo volumes, and also watches GDP and manufacturing activity to help assess development of the export market.
Swiss also tracks business confidence.
“GDP used to have a close correlation with airfreight volumes, but less so now because political and economic problems have made trends more complex to read,” Evans says.
Swiss has been achieving “steady rather than spectacular” volume growth since the fourth quarter of 2012, but the increase in demand has not yet reflected in higher yields. He claims this is likely because the influx of capacity is exceeding demand growth.
Though outside the EU, Switzerland is geographically close to major Eurozone economies.
“Our extended home market stretches to eastern France, southern Germany and northern Italy,” Evans says.
Italian exporters represent an opportunity for third-party carriers because Italy lacks a strong national carrier with global reach, and lot of commodities are trucked to Zurich to access the growing Swiss network. Last year, the operator added Newark and Beijing to its list of destinations in 2010, joined by Singapore in May.
Despite political turmoil – and a GDP that is set to fall further this year – Italy is still benefiting from strong exports of fashion and industrial goods. Lufthansa is increasing its market share and Wirths sees further opportunities to develop the Italian market.
Pharmaceuticals and luxury goods dominate air exports from Switzerland, though Evans says the latter sector has been more volatile of late. “Exports of Swiss watches have grown strongly, but that has reversed recently. Shipments to China are 25 percent down this year, but consumer spending is increasing fast in other markets such as India, Russia and Latin America. A lot of giants are awakening – and North America is becoming one of our most interesting export markets.”
The competitive challenge is primarily at the volume end of the business, Evans says.