According to the minister of transport of Peru, a delegation from China Eastern Airlines is to visit the South American country in October to explore the possibility of launching an air link to the carrier’s home market. In light of the distance, such a service would most likely be routed via a European transit point, such as Amsterdam, the Peruvian authorities have indicated.

Peru has been one of the few bright lights in a blighted region. The International Monetary Fund has projected GDP growth between 2% and 3% this year for the country. It has been a strong exporter of perishables, especially asparagus, but other commodities have also shown growth, such as mangoes and textiles, one forwarder reported.

A new air link between Asia and Latin America would fill a gap in the market after two Asian carriers are bowing out. After the end of the Olympics, Korean Air suspended its passenger flights to Brazil. The airline was flying three times a week between Seoul and Sao Paulo via Los Angeles, but lost US$21.5 million a year on the route, according to media reports from South Korea.

October will also see the withdrawal of Singapore Airlines from Brazil. It has served Sao Paulo three times a week via Barcelona, but announced this summer that it would stop the operation due to poor passenger loads.

Four years ago, SIA also ran a freighter to Sao Paulo, but Brazil’s economic woes brought that operation to an end. At this point, the only Asian airline that flies to South America is Air China, which runs a twice-weekly service to Sao Paulo via Madrid.

The region remains in the doldrums, hurt by slower exports as China’s hunger for raw materials contracted, which has sent regional currencies down and hurt purchasing power. In the first half of this year air freight in the Latin America & Caribbean region sank 0.9%, according to statistics from the Airports Council International (ACI). Ten out of the 22 countries in the region that report traffic numbers to the ACI saw air freight volumes contract, with Brazil, the biggest economy in the region, posting a decline of 9.4%. Last year, its GDP dropped an eye-watering 3.8% and the currency fell almost 50% against the US dollar.

At the individual airport level, the region’s three most affected gateways in the first six months were the Brazilian airports of Sao Paulo Viracopos (down 17.4%), Sao Paulo Guarulhos (down 5.8%) and Manaus (down 18.7%).

LATAM Cargo, Latin America’s leading air cargo carrier, suffered a 9.4% decline in tonnage in the second quarter. Its revenue plummeted 22.3%, reflecting the severe downward pressure on rates and yields.

Yields from Asia to Latin America have been disappointing, and the withdrawal of KAL and SIA will make little difference, according to Mark Sutch, general manager of cargo sales and marketing at Cathay Pacific.

“Overcapacity on Asia-Latin America persists, with growing capacity via Europe and Middle Eastern hubs,” he noted.

Growing bellyhold capacity across the Pacific keeps rates on a westbound routing out of Asia in check too. One new addition in this sector is American Airlines’ daily flight between Los Angeles and Hong Kong, which kicked off on September 7. The airline has also filed for traffic rights for Los Angeles-Beijing.

Utilizing its strong footprint in Latin America, American has been building up traffic between the region and Asia, connecting its growing transpacific network to Latin routes. This has been reinforced by the deployment of more widebody planes on trunk domestic routes, which has facilitated transfers of perishables from Latin America to intercontinental flights, noted American’s Roger Samways, managing director of global accounts and sales strategy.

The airline’s perishables traffic from Latin America to Asia has climbed over 30%, he stated.

Air France-KLM Cargo also sees good growth potential for perishables from South America to Asian markets. At this point, about 10% of its perishables haul out of South America is headed for Asian destinations. Pieter Fopma, director of perishables, reckons this could easily go up to 20%.

While this sounds promising, overall yields in the region remain troubled. The retail price of perishables limits the extent of air freight rates they can absorb, particularly in light of the extreme distance involved. To make operations viable, carriers need good yields on the inbound sectors to Latin America. However, overcapacity and weak demand have undermined that part of the equation, with no sign of imminent improvement, even though the Brazilian economy appears to have bottomed out.

By Ian Putzger

Air Freight Correspondent | Toronto