After a dismal 2019 freighters are in high demand again at the moment. Still, operators are not rushing parked planes back into service, as the fundamentals remain shaky.
Before the Covid-19 outbreak turned into a global pandemic, freighter aircraft were facing a challenging year ahead. The economic headwinds of 2019 had pushed down global demand by 3.3%, making it the first year of decline since 2012, and sent load factors down 2.6 percentage points. While the outlook for 2020 was pointing to a moderate improvement after a slow start (demand was down 3.3% in January, according to IATA), it seemed not enough to revive the fortunes of some struggling all-cargo carriers.
One high profile casualty was CargoLogicAir, the UK-based subsidiary of the Volga-Dnepr Group. In February it announced the suspension of its operations, citing adverse market conditions, particularly in the China-Europe and China-US sectors where it had its main focus.
Sister airline AirBridgeCargo is cutting back its fleet and operations after a 6.3% decline in volume last year. Besides weakened demand, management cited stronger competition from belly carriers for its predicament.
Slovakia-based Boeing 747 freighter outfit Air Cargo Global has suspended its operations. Management has dismissed media reports of imminent collapse, stating that the company was restructuring.
Atlas Air is in no danger of going out of business, but the aircraft leasing firm’s much touted strategic shift from the general cargo market to express and e-commerce carriers could not prevent a US$293.1 million net deficit for 2019.
Although it expressed confidence that 2020 would be a better year, management decided to write down its 747-400 freighter fleet. It has parked four converted 747-400 freighters and announced plans to return one 747-400F to its lessor during the first half of the year. It also sold one 757 freighter and intends to sell one 777-200F.
Signs of freighter gloom have also come from the combination carrier camp. By the end of February Lufthansa Cargo management was reportedly considering an accelerated retirement schedule for the airline’s MD-11F contingent.
The rapid spread of Covid-19 in March has changed the situation. Suddenly freighters got back into demand as passenger airlines slashed their schedules. As travel demand collapsed and more and more countries closed their borders, international passenger flights imploded.
On March 20 Cathay Pacific Cargo notified its clients that the airline (including Cathay Dragon) would reduce capacity across its passenger network by 96% in April and May.
“We intend to operate a bare skeleton passenger flight schedule through April and May, though our freighter schedule remains intact,” the carrier stated.
Lufthansa Cargo also continues to operate its freighter schedule, but its passenger operations are down 95%. In a statement on its website, Lufthansa CEO Carsten Spohr commented: “Lufthansa Cargo continues to fly its regular programme, except for cancellations to mainland China, keeping the entire freighter fleet in the air. This currently consists of seven Boeing 777Fs, six MD11Fs and four 777Fs from Aerologic. In addition, the company is currently examining the possibility of using passenger aircraft without passengers as pure cargo aircraft in order to further increase cargo capacity.”
The elimination of most international passenger flights is leaving massive gaps in airfreight capacity. Belly lift accounts for over 40% of trans-Pacific airfreight capacity and about 60% of the lift between Europe and North America.
Predictably there has been a scramble for freighter lift. A number of forwarders have lined up regular all-cargo charters to move their traffic. Among those that have boosted dedicated freighter lift are DSV Panalpina, Dachser and Senator International.
Despite the dedicated capacity that it has shored up, DHL Global Forwarding declared force majeure on its ocean and air cargo contracts on March 19.
With lift in hot demand, rates have taken off and are expected to go higher still. Some forwarders reckon that charges may go up to US$10 per kilo, which would mean about US$1 million for a 777 or 747 charter.
FedEx is expecting lively demand at juicy rates for lift out of Asia and Europe. “We’re able to flex up or down as needed,” said CEO Raj Subramaniam. “We typically deploy extra sections as we see an opportunity to move the additional profitable business in this capacity-constricted environment.”
Some freighter operators are stepping up their activities. Kalitta Air recently obtained approval for six charters between Chicago and China.
However, Atlas Air and AirBridge have not moved to deploy withdrawn aircraft to take advantage of the capacity bottleneck. Volga-Dnepr management reiterated on March 12 that it was looking to terminate leases for up to five 747 freighters (it used three for the CargoLogicAir venture).
One factor is the uncertainty of how long the capacity shortage will last. According to Atlas Air management, one of its parked freighters could probably be brought back into action, but getting all four into service could take 30-45 days. Overall, operators, as well as pundits, expect demand to fall off after a while, with a possible market contraction looming in the wake of the Covid-19 crisis.
Moreover, a growing number of passenger airlines are looking to field some of their aircraft to perform cargo charters. This allows them to earn some money with their assets and reduce the parking fees associated with their network contractions. Cathay Pacific was an early mover in this respect, fielding Airbus A330 passenger planes to move cargo to and from points in China.
Others were ramping up to start such flights in the week of March 22. The list of carriers that have announced plans includes Air Canada, all three large US passenger airlines, Lufthansa and IAG as well as Korean Air.
A spokesperson for Delta said that the airline was looking to use a wide array of jet aircraft, but most of the interest was around its large widebodies fielded on international routes. Air Canada was looking to start such charters with flights to London, Amsterdam and Frankfurt. Down the road, the airline is looking to Shanghai, but initially, the shorter trans-Atlantic routes are more promising.
By Ian Putzger
Air Freight Correspondent | Toronto