Where have all the freighters gone?
Undaunted by the blight of Europe, China Airlines has mounted a new freighter service to Belgium. The twice-weekly operation, flown on a B747-400F, goes from Taipei over Kuala Lumpur and Chennai to Brussels. By inserting two Asian markets into the ailing Taipei-Europe sector, the carrier’s management seems to be hoping to get a decent return on the service.
The Taiwanese airline is following a trail blazed by Cathay Pacific and Singapore Airlines, carriers that have been trying to leverage their networks to link trunk routes with emerging markets in India, Indonesia, Vietnam and China’s interior. However, there are limits to this strategy, as Cathay demonstrated recently; to cope with the brutal decline in traffic and yields, management decided to take two more 747-400BCFs out of service, bringing its tally of freighters parked this year to three.
James Woodrow, manager of cargo sales and marketing, expressed puzzlement over the situation. “With modern planes and our network, we are not making money. How can others, especially if they are going point to point?” he remarked, adding that he had expected more airlines to buckle.
Cathay is taking a knife to its long-haul sectors. According to Nick Rhodes, director and general manager of cargo, the airline is slashing its capacity on the Asia-Europe sector by 25 percent to 30 percent, while lift across the Pacific is going down by 25 percent.
Freighter capacity is on the wane. Jade Cargo, which had already dropped from the scene at the end of last year, made its exit official in early June, just when the end was announced for Grandstar Air Cargo, the Tianjin-based joint venture that involved Korean Air Cargo. Grandstar, which lost $53 million last year, had suspended operations by early June and was going to be liquidated.
Another significant capacity reduction is coming from Air France-KLM, which recently announced that it would take one of its five freighters out of service. AF-KLM saw its cargo loss grow to $88.4 million in the first quarter from a $11.7 million deficit 12 months earlier. The carrier’s cargo revenue contracted by 8.3 percent in April. More cost-cutting measures are looming, as Air France management has signaled that unprofitable routes will be shelved.
However, so far, these cuts carriers have made to capacity have failed to make a serious dent in the gap between supply and demand. In part, this is due to the relative strength of the passenger business in Asia, which has continued to grow, albeit at a reduced pace. “Belly space is replacing freighter capacity, or freighters are too expensive to compete with belly space,” commented Robert Song, vice president, Asia-Pacific, for AirBridgeCargo Airlines.
The main reason for the overcapacity is the slump in China’s appetite for airfreight. A brief peak in March sparked hopes of growing demand, prompting airlines to jack up rates out of China by up to $0.94 per kilo, but prices bounced back down as soon as that momentum petered out. Since then, prices have continued to plumb new depths. Spot rating is rampant — below levels required for a sustainable freighter operation —remarked Gerhard Blumensaat, director of airfreight for central China at DB Schenker.
As a result of fierce pricing moves from airlines and an overall volatility in the market, forwarders have scaled down their volume commitments to carriers and have gone more and more for ad-hoc pricing. Shipper forecasts for demand two to three months down the road have largely dried up, and forecasts that did arise, turned out to be wildly of the mark, one forwarder reported.
The engine of global growth is visibly stuttering. Not only has export growth from China slowed sharply, but imports have also lost momentum, as high inflation, notably rising food and fuel prices, is eroding the purchasing power of Chinese consumers. Airlines’ load factors out of Asia have dropped painfully. In April, the average international load factor of members of the Association of Asia Pacific Airlines fell 2 percentage points to 66.3 percent, despite a 4.8-percent reduction in capacity. In terms of freight-tonne kilometers, their cargo traffic was down 7.6 percent in April.