What is going on in Europe?

The poet T. S. Elliot famously said “April is the cruelest month.” But for the cargo divisions of the big three European carriers, it is hard to imagine April being any crueler than March.

No one would say that 2016 started well for the big three European carriers, but it did not start all that badly either. For the combined January/February period, the Lufthansa Group reported cargo traffic down 3.6%, Air France-KLM reported an 8.1% decline, and IAG’s cargo traffic was actually up 2.5%. Given IATA’s conclusion that cargo traffic was down 1.6% for the two-month period, only the Air France-KLM result stands out as particularly bad, but then, AF-KL has been reporting bad results for two years now, so this was nothing unusual.

But things turned ugly in March:

• The Lufthansa Group reported March cargo traffic down 10.5% y-o-y.

• Air France KLM reported March cargo traffic down 13.5% y-o-y.

• British Airways, the biggest cargo carrier in IAG, reported March traffic down 5.6% y-o-y

Which prompts our title question: What is going on in Europe? Are these steep falls in cargo traffic the first sign that worldwide air freight demand is falling off a cliff? Is the European economy going into the toilet? Or is it just these individual carriers that are in trouble?

Regarding the rest of the world, only one of the major Asian cargo players has reported March results, but if PACTL’s 6.8% y-o-y increase in March cargo volume is any indicator, things are not going badly in Asia.

So, what about Europe? As shown in the chart at right, data from two of the three big airports indicates that the problem likely lies with the carriers themselves, not with the whole of Europe. Frankfurt is Lufthansa’s main hub, and yet its March handle was down only 1.3%. Given that Lufthansa accounts for a significant share of FRA’s handle, our guess is that other carriers moved more cargo through Frankfurt this March than they did last year. Likewise, with British Airways cargo traffic down more than the drop at Heathrow (though not by nearly as much as was the case at Frankfurt), one has to assume that other carriers flying freight in and out of London did not have such a bad month. Data for Amsterdam Schiphol and Paris-CDG (the main hubs of Air France and KLM) are not yet available, but we expect the story at those two airports will be similar to Frankfurt.

All of which leads to the conclusion that the problem lies with the carriers themselves – freight that once moved on aircraft operated by Lufthansa, Air France, KLM, and BA is now shifting even more onto aircraft wearing the livery of carriers like AirBridgeCargo, Cargolux, Emirates, Etihad, Qatar Airways, and Turkish Airlines.

Why is this?