CAAC’s ban on Passenger-freighters and the impacts on Chinese air cargo rates

Our latest analysis of passenger freighter movements yielded 831 segments operated during the week of December 13-19th, 2021. It should be noted that 74 of these movements were operated by 737, DH8, and A320 aircraft, which have not been included in previous tallies collected by CargoFacts. These 831 flights account for approximately 9.4% of the total 8,836 cargo flights that operated worldwide during the same period. This is a significant decrease (58%) from the 1,962 passenger freighter segments operated in the first week of November, however, our analysis from October yielded 980 segments so the spike in early November was likely due to increasing demand in the lead up to the busy holiday season. American Airlines, Qatar Airways, and Air Canada continue to lead the number of movements with 252, 124, and 79 respectively. The 77W was the aircraft of choice, followed by the 789 and 333, operating 220, 202, and 111 flights respectively.

Both the European Union Aviation Safety Agency (EASA) and US Federal Aviation Administration (FAA) have already extended their exemptions allowing for the carriage of cargo in the cabins of passenger aircraft until July 2022. However, The Civil Aviation Administration of China (CAAC) has taken the opposite stance on passenger freighters. The CAAC has stated that as of January 1st, 2022, only anti-epidemic-related items are allowed to be loaded in the cabins of passenger aircraft and that the removal of seats to free up more space in the cabin is forbidden. The CAAC only indicated that these regulations apply to Chinese domestic carriers but we believe that this will be extended to all flights operating in and out of China. Many articles released since the CAAC's announcement have speculated that we will see a further spike in, already nearing record-high, air freight rates in and out of China, to the benefit of freighter operators in the Asia-Pacific Region. However, our opinion is a little more reserved.

Our analysis counted 75 passenger freighter flights with an origin of China, and 79 flights destined for China, in other words, passenger freighter operations in and out of China only accounted for 1.7% of cargo flights worldwide during the review period. When we look at international cargo flights in and out of China specifically, passenger freighters account for 13% of outbound and 15% of inbound flights. We recently published an article reviewing belly capacity on Trans-Atlantic routes, surprisingly capacity is currently sitting at nearly 75% of 2019 levels. The Trans-Pacific market, however, is a bit of a different story, with relatively stricter regulations in the region where passenger traffic has not rebounded as fast, but with Chinese New Year on the horizon, we do expect to see an increase in belly capacity in the short term.

One may wonder what will happen to the Chinese aircraft currently operating as passenger freighters? Based on our analysis, the number of passenger aircraft operating in a freight configuration with seats removed now sits at 161, with 17 belonging to Chinese carriers. Some of these Chinese aircraft are already in the process of being converted back to passenger ops, but maybe there is an alternate solution? We have seen the recent launch of a Class E Conversion Kit by Avensis , while Eastern Airlines has also announced that they are working on a Class E Conversion for 777s. To be classified as a Class E cargo compartment, a liner and a smoke or fire detection system are installed, according to EASA and the Federal Aviation Administration (FAA). Class E cargo compartments are generally only found on all-cargo aircraft, Avensis claims that their Class E conversion kit is the closest you can get to a full freighter, that is still reversible to passenger configuration. Once the Avensis STC is approved by EASA, these Class E conversions kits would allow passenger aircraft to operate in cargo configuration past the current exemption expiry of July 2022. It remains unclear if these Class E conversions would be accepted by CAAC, even with a fire suppression system that would address the risk of fire and other safety concerns that were outlined in their reasoning for the ban on passenger freighters. In other markets, these kits may provide a solution while operators await their slot at busy conversion houses.

Throughout the past 20 months, we have seen regular peaks and valleys in the movements of passenger freighters. With belly capacity returning to the Trans-Atlantic market we expect to see aircraft operating on those lanes to transition from cargo back to passenger configuration and the same situation is expected in the Trans-Pacific market but at a slower pace. As for air cargo rates in China, we are not as bullish as others, there may be a brief uptick in prices immediately but as we get further into 2022, especially around Chinese New Year, the increased belly capacity should more than offset the roughly 15% lost in freighter capacity due to the new CAAC regulations.

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