A better-than-expected August

The International Air Transport Association (IATA) published data showing that total air cargo traffic was up 3.6% y-o-y in August, led by a 3.7% gain in international traffic, while domestic traffic increased 3.0%. This is the fifth consecutive month of year-over-year increases, and has pulled the year-to-date traffic further into positive territory – up 0.7% compared to the first eight months of 2012.

The YoY gains in the four months May-to-July were 1.2%, 08%, 1.2%, 0.7%, and while some observers have heralded each one as a sign of a turnaround, we have been much more cautious. 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. Four months of gains averaging less than 1% is certainly better than four months of losses, but given that the gains were made in comparison to a bad year, it is hard to view them with much enthusiasm.

So, what about August? What should be made of a 3.7% gain in international FTKs? Before trying to answer that question, we turn to some background data: As IATA points out, the European economy has exited recession and not only has consumer demand for imports increased, there are also signs of exports beginning to expand more quickly, with a JP Morgan study showing Eurozone export orders reaching a 27-month high in August. Global business confidence (again according to JP Morgan) is also trending upward after a period of decline, and these trends bode well for future growth in demand for air cargo. On the negative side, the huge gain reported by carriers based in the Middle East was partly the result of the timing of Ramadan, but the impact of this on the worldwide total is not on the scale of the impact of the timing of the Asian New Year holiday. All in all, the best way to think about the increase in demand for air freight in August is as “a good start.”

As can be seen in the chart above, while the overall gain was 3.6%, there were dramatic differences in the performance of carriers from different geographical regions, from a decline of almost 10% in Africa, all the way to a leap of almost 25% in the Middle East. However, it is important to remember that the gains and losses shown in the chart represent cargo flown by a region’s carriers, rather than a direct reflection of demand in the region.

Asia-Pacific Carriers from the Asia-Pacific region reported their international cargo traffic down 0.6% in August. Domestic traffic actually increased during the month, but total cargo traffic was still down slightly (0.2%). For the year through August, the region’s carriers reported International traffic up 0.4% and total traffic up 0.7%. Airlines based in the Asia-Pacific region carry about 38% of the world’s cargo (measured in FTKs), and their performance has long been considered a bellwether for the industry as a whole. However, carriers from the Middle East have vastly increased their share of the Asia-Europe market in recent years, so a slight increase in cargo traffic reported by carriers based in the Asia-Pacific probably indicates a somewhat larger increase in traffic into and out of the region.

Middle East: As mentioned above, carriers from this predominately Muslim region saw their August traffic boosted by the timing of Ramadan, but even without that boost the gain would have been very large. Relatively little of the cargo moved by carriers like Emirates, Etihad, Qatar Airways, and Saudia originates in or is destined for their home region. There is certainly increasing demand for imports in the Gulf, but it is the region’s increasing importance as a hub connecting Europe, Asia, and Africa that drives most of the traffic.

Europe: As the European economy gradually improves, 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, the big three legacy carriers – Lufthansa, Air France-KLM, and IAG – saw their August cargo traffic decline by 1.1%, 5.6%, and 8.3%, respectively, but this was more than made up for by gains at other carriers. Turkish Airlines, for example, reported August cargo volume up 16.8%.

North America: The huge amount of US domestic cargo carried by FedEx and UPS makes this region different from all others. International cargo traffic is still falling for the region’s carriers, although August 2013 was only o.3% below August 2012, but an increase in domestic traffic made for an overall gain of 0.7%.

Latin America: LATAM, the region’s biggest carrier, reported a 1.2% drop in cargo traffic in August, IATA nonetheless reports a strong overall gain of 12.6% in cargo carried by Latin American airlines. In discussing this result, IATA said trade volumes in Latin America have shown strong growth momentum over recent months, with volumes in July up almost 8% since the start of the year.

Africa: The 9.7% fall in cargo traffic reported by African carriers in August comes despite rising trade volumes, and is more an indicator that African carriers are losing market share to carriers based in the Middle East, Europe, and Asia, than a sign of trouble in the African economy. 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.