E-commerce drives expansion of express fleets worldwide

Today we begin a three-part analysis of the jet freighter fleets of express companies worldwide. We start with some background, and then a look some of the smaller (and perhaps more interesting) companies. Tomorrow and the day after, we’ll look at the big boys, and conclude with a look into the future.

At the end of the first quarter of 2017, the combined fleet of jet freighter aircraft operated by or on behalf of the world’s major express companies stood at 964 units, accounting for almost 59% of the global freighter fleet. The 2017 total is up sixty-one units from this time last year – a 6.8% increase – with the increase driven by the rapid growth in e-commerce.

The current total is up 23% from what it was at the end of 2001, an average annual growth rate of 6.9%. But to assume that the 6.8% growth of the last year is in line with the long-term average is to ignore the fact that the intervening years have been turbulent for the express industry.

Beginning in 2004, the express fleet grew rapidly, peaking at 940 jet freighters in early 2006, then falling back to 899 by the end of that year, reflecting the absorption of Menlo into UPS. This was followed by modest growth in 2007, but in late 2008 DHL abandoned the US domestic market, and by the beginning of 2009 the worldwide fleet had shrunk by 141 to just 787. The decline continued for another year, bottoming out at 766 in the first quarter of 2010. In the seven years since that steep fall, average annual growth has returned to the long-term average of 6.9%.

Also worth noting is that the available capacity of the fleet has increased more rapidly than the number of freighters, as the express companies have moved from fleets dominated by narrowbodies, to fleets dominated by widebodies. In 2002, for example, 62% of the 796 freighters in the integrators’ fleets were narrowbodies, vs. 38% widebodies. Compare that to the current fleet, in which the ratio is almost reversed, with narrowbody freighters accounting for 41% of the 964 total units, while widebodies made up 59%.

As shown in the chart at right, the most significant change over the last year was the big jump in the number of 767 freighters in the fleet – seventeen more -200Fs and thirty-two more -300Fs. Amazon’s Prime Air fleet – a fleet that didn’t exist a year ago – accounts for much of the change, but FedEx and DHL added thirteen and four -300Fs, respectively, and China-based SF Express entered the widebody arena, taking redelivery of five 767-300BCFs.

On the narrowbody side of the fleet, the 757-200F, already the most popular freighter of the express operators, continued its domination with the addition of nine more units. In all, the express operators added seventy freighters to their fleets in the last year, while retiring just seven.

There were also significant changes on a company-by-company basis, and we’ll start with the big news of the year – Amazon’s entry into the air express arena.

Rumors began circulating in late 2015 that Air Transport Services Group (ATSG) was running a trial express operation for an unnamed customer, using five 767-200Fs. As we said at the time, there are not many customers for whom five 767 freighters would be a “trial,” and our guess was Amazon. This turned out to be correct, and, late in the first quarter of 2016, the companies announced a deal that would see ATSG lease twenty 767 freighters to the e-commerce giant, and operate them on a CMI basis in a network based at ATSG’s home airport of Wilmington (ILN). The deal also included warrants allowing Amazon to acquire up to 19.9% of ATSG’s shares. Two months later, Amazon announced a similar deal with Atlas Air Worldwide Holdings – Atlas would lease twenty 767-300 freighters to Amazon, and operate them on a CMI basis in the same network (now known as Prime Air) as ATSG. One big difference was that this deal allowed Amazon to acquire up to 30% of AAWW.

In the year since the announcement of the agreement with ATSG, Amazon’s Prime Air fleet has grown to twenty-four freighters (fourteen 767-200Fs and ten 767-300Fs), and will continue to grow until at least late 2018, when the last of the forty freighters enters service. It will not, however, operate from ILN. In early February 2017, Amazon announced it was going to move to Cincinnati/Northern Kentucky Airport (CVG), where, at least until its own facility is ready, its sortation will be handled by DHL, at DHL’s Americas Hub at CVG.

Another newcomer to the air express scene is China’s YTO Express, which took to the air in 2016 with the launch of YTO Express Airlines. It now operates five 737-300Fs, but has orders for more 737 Classic conversions and is also a launch customer for Boeing’s 737-800BCF passenger-to-freighter conversion program, with a ten-conversion firm order.

Turning to express companies that have operated an air network for more than one year, we start with Purolator. The Canada-based company has had a dedicated contract freighter fleet for almost twenty years. This fleet is used to transport Purolator-branded parcel and freight shipments, as well as to move mail for Canada Post (which owns 91% of Purolator). For most of that time, the fleet was operated by Kelowna Flightcraft, but effective 1 April 2015, the Purolator/Canada Post flying was taken over by Cargojet, using a mix of 757-200Fs, 767-200Fs, and 767-300Fs. Cargojet does not publicize which of its freighters fly for which customers, but Cargo Facts believes it operates about thirteen freighters for Purolator.

China Postal Airlines made no change to its fleet in the 2015/2016 period, but since the first quarter of 2016, it has added three 757-200PCFs of its own to complement the four it ACMI-leases from Air China Cargo. The growth will continue, as China Postal recently ordered ten 737-800BCF conversions from Boeing and has three more 757-200PCF conversions on order with Precision Aircraft Solutions. In addition, Cargo Facts believes another six-unit 757 conversion order is in the works.

SF Airlines, the Shenzhen-based air arm of China’s SF Express, continued its expansion over the last twelve months, adding eight more freighters – three 737-300Fs and five 767-300BCFs. This brought its total fleet to thirty-seven units, and marked its entry into widebody operations. SF Express also buys considerable lift from a variety of Chinese airlines, including some main-deck space, but the exact number of freighters involved is not known.

But the big news from SF is that it will move its hub from Shenzhen on the south coast, to a new airport to be built in Ezhou (about 75 km east of Wuhan). This centrally-located hub will put SF within two hours flying time of 80% of China’s GDP and more than 1 billion people.

With the wild growth of e-commerce driving demand for express lift in China, and the move to Ezhou, it seems safe to conclude that SF will continue its rapid fleet growth, with both narrowbody and widebody freighters.

In Part II, we will examine the changes in the freighter fleets of FedEx, TNT (which FedEx now owns) and UPS. Part III will focus on DHL (which has the most complicated air operation of any express company) and conclude with a look into the future.

If you would like to learn more about SF’s plans, both for it fleet and the new hub, join us at Cargo Facts Asia, 25 – 26 April in Shanghai, where Peter Huang, Director of Corporate Planning Department, S.F. Airlines, will make a special presentation.

To register, or for more information, visit www.cargofactsasia.com.