Asia’s air cargo market is improving but is still years off balancing supply and demand, a leading airline industry official has said.
A sustained volume uptick of between 4.5% and 5.0% started at the end of last year, Andrew Herdman, director general of the Association of Asia Pacific Airlines, told its Assembly of Presidents meeting in Tokyo in November.
“It is now beginning to finally pick up,” said Herdman.
While Herdman acknowledged that the increase is “welcome,” he was cautious about the market going forward, saying it was both challenging to operate freighters and the issue of overcapacity would mean it would be “some years before supply and demand balance.”
The association is not a freighting organization, but many of its members have seen balance sheets weakened by the cargo side.
Part of the problem is a mixed global economy complicated by increasing bellyhold capacity as Asian airlines expand their fleets to meet increasing passenger demand. This made freighters not so much redundant but rather too plentiful.
“The world has too many freighters,” said Herdman, estimating the overcapacity at “probably to the tune of 20-25%.”
As a result, air cargo, especially for the Asian carriers the association represents, are on the verge of something both exciting – the possibility that cargo can be expanded via passenger flights – but also more restraining: what to do about the freighters.
“We believe not only in freight but in combination” Samuel Perng-liang Lin, president of Taiwan’s China Airlines told Asia Cargo News in the sidelines of the assembly.
CAL is just starting to take delivery of ten B777s and 14 A350s, which will significantly increase its capacity. Those planes will allow it to serve certain destinations on its roster daily, some even twice daily, which, for cargo, offers real potential.
“We will make (cargo) more competitive and convenient and more efficient because of more frequency,” Lin said.
Where he was much more cautious was on the issue of what to do with the freighters. Some in the industry are advocating the retirement of some of planes. This would not only get some capacity out of an overcrowded market but ease the need to write down the value of planes, which has also weakened balance sheets.
“We have to put all our factors into consideration,” said Lin.
Balancing this is Japan, where some airlines, including ANA, are in the position of needing to expand their fleets. “No, no, no, we will have two more,” an official with the carrier told Asia Cargo News when asked if it was planning to retire any of its freighters.
The carrier already has a ten-plane B767 freighter fleet based in Okinawa, which means it can reach most of Asia’s major cities within a matter of hours.
What is helping ANA is the macro economy. The once mighty yen is now a cheaper currency, which means the Japanese gizmos that delight the world are now much more affordable, so there is “more cargo from Japan,” the official said.
ANA obviously has its eyes on the cargo market. Company president Osamu Shinobe told a press conference the carrier was considering setting up a new business of next-day delivery, which would offer the company increased yields.
But while airlines in Japan can take advantage of changes in exchange rates, another airline, Garuda Indonesia, is concerned about its vulnerability to foreign exchange. Although CEO Emirsyah Satar notes that Garuda is not really a cargo airline – less than a tenth of its revenues come from the movement of goods – but the company is seeing a 15% increase in the volume of cargo it is carrying.
Against this picture of qualified optimism, some factors will need to be considered. Herdman pointed out that cargo does have an issue of seasonality, which will see the rates soften in the first quarter of 2015. There is also the issue of the US economy being robust, but the Eurozone remaining weak.
And behind all this is the issue of infrastructure. Tony Tyler, director general and CEO of IATA, was one of several speakers to urge the region’s governments to focus on hardware.
One emerging concern is whether governments should let private capital build and maintain airports. Some airlines are also keen to do this, despite the costs involved, believing it will solve the problem of infrastructure if they build their own.
“I do want to ask for caution,” said Tyler, adding that “private capital is not a panacea.”
Governments need to be involved and embedded in the process, he said referring to their regulatory role. Governments also have the role as strategic planners for communities and countries, which they do via robust cost benefits and analysis, he added.
By Michael Mackey
Southeast Asia Correspondent | Bangkok