October cargo traffic up 4% — how optimistic should we be?

The International Air Transport Association (IATA) published data showing that total air cargo traffic was up 4.0% y-o-y in October, with international traffic up 3.9%, and domestic traffic up 4.6%. This is the seventh consecutive month of year-over-year increases, although five of those seven gains were 1.4% or less, and cargo traffic for the first ten months of 2013 was up just 0.8% over the same period in 2012.

Given that the 2012 comparisons are fairly soft, and that the gains this year are quite small, it would be stretching things to say that there has been any major turnaround in air freight demand. Rather we have something of a good news/bad news situation. The good news is that demand is no longer falling, the bad news is that demand is not increasing at anything like the 5% per year many in the industry had hoped for. Our view was, and still is, that until there are several consecutive months of significant y-o-y growth, any talk of a turnaround is wishful thinking. Seven months of gains averaging than 1.8% is certainly better than seven months of losses, but given that the gains were made in comparison to a bad year, one ought to be cautious about reading too much into them.

On the other hand, two of the last three months have seen gains of, or close to, 4%, and the first data point available for November – an 11% y-o-y increase in cargo volume handled by Pactl, the biggest handler at Shanghai’s Pudong Airport – is highly positive. So perhaps cautious optimism is the best way to view the October results.

Another point that should be cause for optimism is that unlike past months when increased traffic flown by carriers in one or two regions barely compensated for declines elsewhere, October saw gains reported by carriers from every geographical region except Africa. As can be seen in the chart above, carriers based in the Middle East continue to report double-digit gains in their traffic, but for the first time in almost two years, these gains are not coming at the expense of carriers from Europe and Asia.

Asia-Pacific: Carriers from the Asia-Pacific region reported their international cargo traffic up 1.5% in October, with total traffic up 2.0%, boosted by growth in domestic traffic. In IATA’s words, “this is an important result, given that airlines in this region carry the largest share of the global air freight market and have been seeing a string of declines throughout 2013.” For the year through October, the region’s carriers reported International traffic down 2.2% and total traffic down 1.6%.

Middle East: As we have often reported, the rapid expansion of the long-haul fleets of the four big carriers from the Gulf Region – Emirates, Etihad, Qatar, and Saudia – combined with the strategic location of their hubs, has allowed them to take a rapidly increasing share of the traffic flowing on all the major trade lanes connecting Europe, Asia, Africa, and the CIS. This trend continued in October, with the region’s carriers reporting traffic up 12.3% for both the month and the year-to-date.

Europe: As the European economy continues its gradual improvement, cargo demand reported by the region’s airlines is improving along with it. Not all carriers are benefitting equally, however. As we have previously reported, of the big three legacy carriers , only Lufthansa reported a y-o-y increase in cargo traffic in October (up 4.4%), while Air France-KLM, and IAG saw their October cargo traffic decline by 3.3% and 7.2%, respectively. However the declines at these latter two were made up for by gains at other carriers. Turkish Airlines, for example, is expanding its fleet and network in the same way as the big Middle Eastern carriers, and has put a strong emphasis on its cargo operations. Turkish reported its cargo volume up 29.1% in October and 18.9% for the first ten months of 2013.

North America: The huge amount of US domestic cargo carried by FedEx and UPS makes this region different from all others, but in October both domestic and international traffic grew at the same rate of 3.7%. Two of the big legacy passenger carriers, American and Delta, reported particularly strong gains in cargo traffic for the month, up 18.6% and 6.9%, respectively. However, despite the solid gains in October, North American carriers reported their cargo traffic down 0.9% for the first ten months of this year.

Latin America: LATAM, the region’s biggest carrier, reported a 2.7% drop in cargo traffic in October, but IATA nonetheless reported an overall gain of 1.5% in cargo carried by Latin American airlines. For the first ten months of 2013, the region’s carriers reported their cargo traffic up 3.8% – the second highest regional growth rate behind only the Middle East.

Africa: After reporting solid growth in the first half of 2013, African carriers have seen their cargo traffic decline in recent months, and the trend continued in October with a 2.7% drop for the region’s carriers. However, this is not due to problems with the African economy, as trade volumes for the region continue to increase and local economies are seeing fast growth. Rather, African carriers are losing market share to carriers based in the Middle East, Europe, and Asia. The Gulf-based carriers in particular are offering vast amounts of belly space as they ramp up passenger service to African destinations, and much of the cargo moving into and out of Africa is now flying in 777-300ER and A330 passenger jets operated by Emirates, Etihad, and Saudia.

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