Government subsidy program bolsters Australian air freight

Eighty percent of Australian air freight usually moves in the bellies of passenger aircraft, so the near-complete closure of international borders since March 20 was set to have a massive impact on air freight shippers. In the last four months, only about 81,000 passengers were able to enter the country. And a 4,000 passenger-per-week restriction has made it nearly impossible for citizens and residents to return home. Those who have managed to do so have been forced into a 14-day mandatory quarantine in government-assigned hotels. During that same period, 180,000 people left Australia, whereas normal monthly average passenger arrivals during the same period in 2019 were about 1.8 million per month.

However, while inbound passenger numbers are down 80% for the first seven months of 2020, inbound and outbound air freight volumes are down only 29% and 37%, respectively.

Figure 1- Australian passenger and air freight traffic declines Jan.-July 2020

Part of this is surely due to the International Freight Assistance Mechanism, which was put in place in April to provide subsidized air freight capacity for the country’s agricultural exporters. Initially, the scheme earmarked AU$110 million ($80 million) but this was topped up by a further AU$241.9 million ($175 million) at the beginning of July. In the first three months, 30,000 tonnes, about one-third, of Australia’s airfreight exports were moved under the program. The target is to move 90,000 tonnes for the seven months between April and October 2020. This amounts to a subsidy of about AU$3.90 per kg. The Australian government has negotiated has contracted with a set of forwarders and airlines to implement the scheme, including: CT Freight, DHL, Kuhne and Nagel, Schenker and Toll Group. On the airline side, this includes: Cathay, Emirates, Etihad, FedEx, Japan Airlines, Singapore Airlines, Qantas, Qatar and Virgin Australia.  Eligible shippers receive air freight rates of somewhere between AU$1.10 and AU$1.60 to points in Asia on eligible flights.

Since the implementation of the program, there have been some big changes in the market shares of different carriers, with the biggest winners being Fedex, Qatar Airways and UPS, which are all moving more air freight now than a year ago. In the four months ended July 2020, FedEx grew by 90%, Qatar Airways by 65%, and UPS by 15%, compared to the same period in 2019. Kalitta Air, one of DHL’s main subcontractors, went from nothing to 3,000 tonnes per month in the past four months.

Figure 2 – Freight market share by carrier April-July 2020 vs 2019

Other nonagricultural shippers, however, have struggled to secure the little capacity available. And mail volumes are down much further than freight volumes with both inbound and outbound mail down by more than 50%. For Australian air freight, and the economy as a whole, it is crucial that belly capacity returns. Unfortunately, that does not appear likely anytime soon.