CFA 2020: COVID-19 forces supply chains to reassess freighter value

[caption id="attachment_413738" align="alignright" width="383"] Andy Vargoczky, senior vice president of sales and marketing for Asia Pacific at Agility. speaking at Cargo Facts Asia 2020.[/caption] The COVID-19 pandemic will permanently alter the way carriers treat cargo, and the reliance of supply chains on freighter capacity, according to speakers at this week’s Cargo Facts Asia 2020. Although the cavernous lower holds of passenger aircraft are normally efficient for transporting much of the world’s cargo, this crisis reveals that capacity is only available when passengers are flying. With 80% fewer passenger flights now operating, the ensuing capacity crunch has injected an unprecedent level of volatility into the air cargo supply chain and sent rates soaring. In the future, a stable capacity supply may require a departure from the pre-crisis notion that the cargo division of an airline was a byproduct, or minor auxiliary service. “Passenger airlines that remain in business will have to treat cargo in a different way now that there is a realization cargo is almost necessary to secure the long-term viability of an airline,” said Andy Vargoczky, senior vice president of sales and marketing for Asia Pacific at Agility. In recent weeks, all-cargo carriers have shifted into high gear to accommodate the demand to transport urgent and vital shipments, and yields are commensurate with demand – but this is the exception more than the rule for freighter operations, which see leaner yields during normal times. “In recent years, we’ve been selling below cost, and it has been very difficult to maintain a sustainable operation,” said Joanna Li, director of strategic partnership for Asia & Pacific at Volga Dnepr Group. “Reliance on freighters needs to change,” said Vargoczky. “Air cargo prices have gone down so much that many carriers haven’t been able to maintain freighter operations.” [caption id="attachment_413737" align="alignleft" width="409"] Joanna Li, director of strategic partnership for Asia & Pacific at Volga Dnepr Group. speaking at Cargo Facts Asia.[/caption] Panelists agreed that during past supply chain disruptions, such as the West Coast port strikes, shippers quickly forgot about the role of freighters. The global scale, and potentially long-lasting duration of COVID-19 may be different. Moving forward, “We just hope people will think about the importance of air cargo and freighters to the whole industry,” added Li. Depending on the trajectory of the outbreak, it could take three to four years for passenger aviation to return to 2019 levels, said Hiroo Iwakoshi, executive officer of cargo and mail at Japan Airlines. “In the meantime, freighters will carry the air cargo industry.” Japan Airlines reported cargo revenues of $800 million in 2018, but has not operated any freighters of its own for ten years. In exchange for a more stable supply of air cargo capacity, the post-COVID-19 world may treat freighters differently. “We need reliable service and block-space agreements, not huge fluctuations in demand and supply,” Vargoczky said. While this may not immediately lead combination carriers to add their own freighters en masse, it could change the nature of partnerships between freighter operators and carriers without large freighters of their own. “We could use a freighter right now,” said Iwakoshi. “But we would need to operate the aircraft for 20 years to justify adding one.” Instead, carriers like Japan Airlines may increasingly pursue partnerships with freighter operators to maintain capacity. “Sharing is definitely a trend for the future,” added Iwakoshi. The airline entered into a trans-Pacific codeshare partnership with U.S.-based Kalitta Air in August 2019. Li agreed that to operate freighters profitably, high asset utilization is a consistent requirement. “It has always been very difficult and expensive for combination carriers to operate freighters profitably,” she opined. “That’s why we’re looking to expand our partnerships to maximize our resources.” For now, many combination carriers are also utilizing passenger aircraft for cargo-only missions. Japan Airlines is currently operating six daily cargo-only flights, five between Japan and China, and one between Japan and Europe. One benefit to passenger freighter operations is that carriers have been able to utilize existing airport slots, allowing for more direct point-to-point operations into smaller airports. Freighters, meanwhile, continue to move larger loads between major hubs prone to congestion, Li said. On April 17, Shanghai Pudong (PVG) saw its biggest day ever for freighter operations, with 329 freighter movements.

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CFA 2020: Idled aircraft to become conversion feedstock

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CARGO FACTS CONSULTING

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