2017 is off to a great start, but now is not the time for complacency

  • David Harris
  • March 19, 2017
  • 0

February 2017 stats v2One month ago, we cautioned that, while the January results from some of the world’s major cargo carriers and airports looked good, it wouldn’t be until the combined January/February results were available – eliminating the impact of the timing of the Chinese New Year holiday – that we would be able to draw any conclusions about underlying demand growth.

With many of those carriers and airports now reporting even stronger gains in February than they did in January, it may be time to break out the Champagne. Or, if not the Champagne, then at least a bottle of something decent from the cellar, because it looks as if the strong demand growth of late 2016 has carried into the new year. Yes, there are still a few carriers struggling – Air France-KLM, Delta Air Lines, and LATAM are still seeing their cargo traffic decline, but their declines have not become worse, and most of the other big carriers and airports are reporting accelerating demand growth. When IATA and WorldACD report their worldwide summaries in a couple of weeks, we would not be surprised to see year-over-year increases in demand for air freight in, or approaching, double digits.

And, as Cathay’s General Manager Cargo Sales & Marketing Mark Sutch said in his comments about February: “We predict March to be a busy month with more project shipments in the pipeline and the launch of a number of new consumer products.”

But now, with celebratory toasts out of the way, it’s time for a reality check. That is, time to ask the question: “Why is demand for air freight up so strongly?” We would all like to think that the ups and downs – mostly downs – of the last ten years have finally been put behind us and that we have returned to the Golden Age of Air Freight. That maybe, just maybe, a combination of trends in world trade, the rising middle class in Asia, and a realization by shippers that the benefits of air freight easily outweigh the costs, will soon have us all living once again in Fat City.

And there might be something in that. The Asian middle class is growing, and more and more people in China want the same French wines, Chilean blueberries, and Alaskan salmon that people in Europe and North America take for granted. Likewise, the switch of shopping habits from going to a physical store to clicking on a mobile phone has vastly increased demand for express shipping.

These trends will continue to increase demand for air freight, but there is something else worth considering:  Several recent reports indicate that at least some of the early 2017 growth is the result of modal shift driven by poor customer satisfaction with ocean freight.

Ocean rates have been falling dramatically for some time, and this has led the container lines to cut capacity and, according to some reports, delay shipments. Hence, the customer dissatisfaction, and the shift to air. This is similar to the position the air freight industry found itself in several years ago, when it was told by shippers that air had become unreliable to the point that they (the shippers) were turning to ocean – even for shipments they would have preferred to send by air. The result was a great deal of soul searching, and then, finally, a push to give the shippers the end-to-end reliability they wanted in the air supply chain.

Not only did individual airlines clean up their acts, they, along with airports, handlers, and road feeder service providers, formed cargo communities and began working better together. So now, with service levels rising for air and falling for ocean, the pendulum of modal shift has reversed direction and is now swinging back toward air. All of which is good news, but it comes with the caveat that if the air chain could regroup in the face of problems, so could ocean. The competition will not remain weak for long, so the air freight industry must not relax and assume the battle is won. We have worked hard in the last three years to offer a product that satisfies our customers’ needs, but if we do not continue to work just as hard, our customers will look elsewhere.

Now for the details…

Asia Pacific

Cathay Pacific Airways reported February cargo traffic up 12.0% y-o-y to 764 million RTKs. This is well up from the mid-single-digit gains of the 2016 peak season months, but must be considered in tandem with January’s 1.0% increase to eliminate the impact of the timing of the Chinese New Year holiday. Doing this gives Cathay a 5.9% y-o-y increase in cargo traffic to 1.63 billion RTKs for the first two months of this year. We also point out that Cathay’s cargo volume (in tonnes) was up 17.4% y-o-y in February and up 9.0% for the combined January/February period.

Discussing the results, Cathay’s General Manager Cargo Sales & Marketing Mark Sutch said: “As expected, the first half of February saw volumes significantly affected by the Chinese New Year holiday. However, trade in the region was quick to rebound from the middle of the month, which was soon followed by a pick-up in long-haul trade, leading to a full recovery by month-end.” Mr. Sutch called the results “a reflection of the overall strengthening of the global air cargo demand,” and, looking ahead, said: “We predict March to be a busy month with more project shipments in the pipeline and the launch of a number of new consumer products.

Hong Kong International Airport reported cargo volume in February up 14.1% y-o-y to 294,000 tonnes, a big jump from both the 3.0% growth in January, and the 3.2% growth for the full year 2016. For the combined January/February period, HKIA’s cargo handle was up 7.6% to 666,000 tonnes. Commenting on the results, HKIA said: “The combined robust growth in cargo throughput in the first two months of 2017 was mainly attributable to an 11% year-on-year increase in transshipments. Exports also recorded an 8% growth. Among the key trading regions, traffic to and from North America, Europe and Southeast Asia showed the most significant increases.”

Beijing-based Air China reported its February cargo traffic up 11.7% y-o-y to 463 million RTKs. International traffic was up 7.8%% for the month to 349 million RTKs, while domestic traffic shot up 26.8%  to 107 million RTKs. The much smaller regional traffic rose 13.6% to 7 million RTKs. For the combined January/February period, Air China’s cargo traffic was up 5.2% to 1.02 billion RTKs.

Guangzhou-based China Southern Airlines reported February cargo traffic up 28.5% y-o-y to 401 million RTKs. International traffic was up 31.0% to 288 million RTKs, and domestic traffic climbed 22.6% to 112 million RTKs. The much smaller regional traffic was up 32.9% to 2 million RTKs. For the first two months of the year, China Southern’s cargo traffic was up 11.2% to 937 million RTKs.

Shanghai Pudong International Airport Cargo Terminal Co Ltd (Pactl, the biggest handler at Shanghai’s Pudong Airport) reported a 22.8% y-o-y increase in its February cargo handle to 114,000 tonnes, with the growth coming despite the CAAC’s ongoing ban that restricts Pudong from adding new scheduled or charter flights. International volume for the month was up 22.7% to 109,000 tonnes, while the much smaller domestic volume jumped 23.9% to 6,000 tonnes (most of Shanghai’s domestic cargo moves through nearby Hongqiao Airport). For the first two months of 2017, Pactl’s handle was up 12.3% to 253,000 tonnes.

Singapore Airlines reported February cargo traffic down 2.1% y-o-y to 465 million RTKs, a reversal of the trend of solid gains it reported for the last thirteen months. For the year to date, SIA’s cargo traffic was up 0.9% to 1.02 billion RTKs.

Taiwan-based China Airlines reported February cargo traffic up 10.9% y-o-y to 363 million RTKs, the seventh month of increased traffic after a long period of declining demand. For the combined January/February period, CAL’s cargo traffic was up 8.9% to 789 million RTKs.

Taiwan-based EVA Air reported February cargo traffic up 7.3% y-o-y to 246 million RTKs, its ninth consecutive positive result after a year-and-a-half of declines. For the year to date, EVA’s cargo traffic was up 7.4% to 538 million RTKs.

Europe & Middle East

The demand recovery at Lufthansa that started in July and August last year, continued through the first two months of 2017, with the carrier reporting February cargo traffic up 5.2% y-o-y to 779 million RTKs. The growth was led by a 9.3% increase in traffic on the Asia-Pacific lane to 327 million RTKs. The carrier’s other major trade lane, connecting Europe to the Americas, also performed well, with traffic up 4.2% to 360 million RTKs. However, traffic to/from the Middle East and Africa fell 4.7%) to 64 million RTKs, and intra-Europe traffic was down 1.4% to 28 million RTKs. For the first two months of this year Lufthansa’s cargo traffic was up 5.0% to 1.50 billion RTKs.  Note that LH says 3.8%, but their own numbers make that result impossible.

Air France-KLM continued its multi-year trend of declines, reporting February cargo traffic down 3.2% y-o-y to 634 million RTKs. Of the two carriers in the group, Air France reported very slight growth in air freight demand, with February traffic up 0.2% to 272 million RTKs, but this was negated at the group level by a 5.6% drop at KLM, to 362 million RTKs. For the year to date through February, AF-KLM’s cargo traffic was down 2.2% to 1.29 billion RTKs.

International Airlines Group reported February cargo traffic up 0.9% y-o-y to 432 million RTKs. Subsidiary carrier British Airways reported February cargo traffic up 2.1% to 338 million RTKs, while Iberia’s cargo traffic was down 5.7% to 83 million RTKs. The much smaller cargo traffic at Aer Lingus jumped 22.2% to 11 million RTKs. For the first two months of 2017, IAG’s cargo traffic was up 1.9% to 866 million RTKs.

Turkish Airlines reported February cargo volume up 12.9% y-o-y to 70,000 tonnes. This follows 7.6% growth in January, and pushes Turkish’s combined January/February volume to 134,000 tonnes, up 10.3% over the same two months in 2015.

Frankfurt Airport (FRA) reported its cargo handle up 1.3% y-o-y to 162,000 tonnes in February. For the first two months of 2017, FRA’s handle was up 3.4% to 330,000 tonnes.

Amsterdam’s Schiphol Airport reported its February handle up 7.0% to 131,000 tonnes. For the first two months of the year, Schiphol’s handle was up 7.2% to 267,000 tonnes.

London’s Heathrow Airport (LHR) reported its February handle up 4.4% to 127,000 tonnes. This is the same growth it reported in January, so, for the combined January/February period, LHR’s handle was up 4.4%

Americas

Cargo traffic continued to fall at Chile-headquartered LATAM Airlines Group, which reported February traffic down 8.8% y-o-y to 260 million RTKs. LATAM’s January traffic, while slightly negative compared to the previous year, was at least less bad than what LATAM reported for most of 2016, but February’s decline is right in line with the full-year 2016 decline of 8.7%. For the first two months of 2017, LATAM’s cargo traffic was down 5.6% to 541 million RTKs.

United Airlines reported February cargo traffic up 20.4% y-o-y to 344 million RTKs, its eleventh consecutive month of strong gains after a poor start to 2016. For the combined January/February period, United’s cargo traffic was up 18.2% to 684 million RTKs.

American Airlines Group reported February cargo traffic up 9.7% y-o-y to 279 million RTKs. For the first two months of this year, American’s cargo traffic was up 12.3% to 558 million RTKs.

Its big US competitors may have posted double-digit growth, but Delta Air Lines remains firmly mired in decline, reporting February cargo traffic down 4.4% y-o-y to 209 million RTKs. For the year through February, Delta’s cargo traffic was down 5.2%

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