CF EMEA 2019: lower asset utilization fuels European express market’s appetite for converted 767Fs

Low utilization rates and inefficient packaging are driving European express demand for freighter-converted 767Fs, said panelists at this week’s first-ever Cargo Facts EMEA event in Frankfurt.

Dr. Joerg Andriof, Chief Operating Officer, Titan Aircraft Leasing, told delegates that the most efficient express networks in Europe utilize feeder aircraft, 737Fs, and 767Fs. “On the trunk routes you need the big aircraft to achieve the lowest unit cost,” he said. In Europe, the majority of the 767s in express service are converted-units – a distinct difference from the US-based 767F fleets operated by integrators like UPS and FedEx, which predominately consist of production freighters.

Low-asset utilization in Europe compared to other markets for the 767F account for some of the difference. Monthly average utilization rates for the platform is around 100 hours per month on average –  mostly because of the shorter routes involved, according to Andriof. Many intra-European segments average between one and one-and-a-half hours according to Søren Graversen, CEO, Star Air A/S.

Although it would seem as if Europe’s sophisticated overland infrastructure would suffice to move volumes between such short distances, customer demands for later cut-off times boost demand for air connectivity, said Christian Degouy, Managing Director, IPR Conversions. Despite the more than 200,000km of rail network that spans Europe, express carriers have yet to utilize it rail on a large-scale due to difficulties competing with passenger trains and dealing with different track gauges in an efficient manner. Freighter-converted 767 freighters, therefore, make sense due to lower capital costs for conversions.

Discussing the rising Amazon Air network in the United States, panelists agreed that the model is somewhat unique in that it doesn’t mirror the hub-and-spoke networks of the domestic express networks operated by US-based carriers. Instead, the freighter-converted 767-200Fs and -300Fs, leased from ATSG and Atlas Air affiliates operate in a triangular network that often connects stops near fulfillment centers in-between trips between the operation’s main hub at Cincinnati/Northern Kentucky Airport (CVG).  Compared to freighter-converted 767Fs operating in European express service, the asset utilization of the Amazon Air fleet is significantly higher.

Of course, no discussion of Amazon is incomplete without the consideration of whether Amazon will launch an own-operated network in Europe. Responding to the question, Graversen said, “Based on the company’s development in North America, it’s not a matter of if, but when will Amazon join the market.”

“Looking at it from a capacity provider perspective, Atlas has joined rather than beaten them,” Graversen added. “For a company like Star, [which has a fleet of fourteen 767 freighters], it’s an opportunity to expand into a new segment.”

With inefficient e-commerce packaging, however, utilization remains lower than it should be, with higher unit costs. “If the majority of the business is e-commerce driven, you need to get the unit cost down and do a slightly different network design,” Andriof said. “We need to push for different packaging to save some of the volume.”