Why there is robust optimism around the Asia-Pacific freighter market

The Asia-Pacific region continues to earn confidence from new airlines as well as those adding to ops in the region and investing in larger freighter platforms. More than 200 industry leaders met in Singapore for the Cargo Facts Asia (CFA) conference in April to discuss the growth of the Asian market and strategies for airlines in the region. While Cargo Facts immediately shared breaking news from the event, we offer a glimpse here into the conversations taking place throughout the event around trending industry issues. China reopening is good news Any conversation about Asian air cargo must involve China, the second-largest economy in the world. China’s ever-expanding freighter fleet includes at least three new 737-800 operators that started this past year — Central Airlines , Shandong Airlines and JD Airlines — as well as a growing fleet of 757s, 767s and 777s. However, China’s freighter market isn’t the only area of opportunity. Airlines such as DHL joint venture airline Polar Air Cargo’s strategy in the Asian market is diversified to maximize growth. “China is not the only game in our network,” Kersti Krepp, senior vice president and chief commercial officer of Polar Air Cargo, said in CFA’s opening session. “We have a significant presence in Korea, a significant presence in Japan.” [caption id="attachment_56863424" align="alignright" width="450"] IndiGo Chief Commercial Officer of International Cargo Mark Sutch. (Photo/Cargo Facts)[/caption] Polar’s strategy is to focus on major gateways, including Shanghai, Shenzhen, Singapore, Korea and Japan, feeding those gateways in creative ways, Krepp added. “If we had simply relied on South China production for our flights out of Hong Kong, and purely relied on that only as a way to fill our aircraft during the darkest shutdown days of China, we would have been flying a lot of air,” she said. Polar’s strategy of diversification for route options was echoed by Qantas Executive Manager of Freight Catriona Larritt. “Our perspective is we just need to remain really flexible and agile so that we can respond to situations quickly and have the right set of operational and financial flexibility to deal with what comes out, because I think the uncertainty will be with us, certainly for the short to medium term,” Larritt said. Other carriers said that growth in subsets of the Asian region, like South Asia, was significant enough that they would not overly rely on expansion into China. “China is obviously an opportunity, and in this business, you’ve got to have China on your agenda,” said IndiGo’s Chief Commercial Officer of International Cargo Mark Sutch. “But for me, it’s more looking at India as an opportunity more than anything else.” While China remains a cargo opportunity, passenger growth in China has yet to return, giving IndiGo pause as it evaluates its freighter strategy. More widebodies to make their way to China While operators are enjoying market growth beyond China in other areas of Asia, there is a growing demand for widebodies within China; as the country reopens, potential customers in the conversion market are looking favorably on widebodies such as the 777-300ER . “We see airlines like YTO and China Postal getting widebodies, and this is a good indication of the commercial relations between China and other countries,” Rafi Matalon, vice president and general manager of marketing at Israel Aerospace Industries (IAI), said during a CFA panel on widebody freighters. “I do believe that the China market is waking up.” IAI’s partner in the 777-300ERSF conversion program also indicated the promise in the Chinese market. “I think the Chinese operators have embraced the 777-300ER conversion and I think it’s going to be an excellent aircraft for the density spectrum,” said Rich Greener, head of cargo at AerCap. “Going forward it’s got commonality with the factory freighter and interlining with the containers is key.” [caption id="attachment_56863419" align="alignleft" width="450"] Airbus Head of Freighter Marketing Crawford Marketing. (Photo/Cargo Facts)[/caption] Use of factory freighters has continued to increase in the growing Chinese economy, with the three major carriers — Air China , China Southern and China Eastern — all taking delivery of new 777Fs. China Postal Airlines adding its first two and Central Airlines also beginning to operate the type. “I’m bullish on the entire region,” said Boeing Senior Director of Product Marketing and Freighter Customer Leader Brian Hermesmeyer. Boeing has thirty-nine 777Fs operating in China , with deliveries of the type ongoing, and seventy widebodies in the country in total, he said. “The fundamentals of what China means to the world and the export trade lanes that come out of China are going to be there, and the demand is going to be there,” Hermesmeyer said. While Airbus has yet to announce a direct order for its new A350F from a Chinese customer, Crawford Hamilton, the planemaker’s head of freighter marketing, was also optimistic about the aircraft’s prospects. “There’s a desire in China for Chinese solutions to logistics,” Hamilton said. “Any nation wants to have an independence, and I think you’ll see that naturally assert itself. I think we’ll see more freighters with a B- registration on them around the world.” Airbus narrowbodies in Asia In the narrowbody segment, three carriers already operate Airbus freighters — including the world’s only A320P2F — but more are on the way. [caption id="attachment_56863423" align="alignright" width="450"] Boon Keng Tan, senior vice president, general manager and head of aircraft leasing at ST Engineering. (Photo/Cargo Facts)[/caption] “Looking at my freighter portfolio right now, I would say the majority of them are in this part of the world — mainly Asia,” Boon Keng Tan, senior vice president, general manager and head of aircraft leasing at ST Engineering, said during a CFA panel on freighter leasing. “I do have customers in the U.S. and the Middle East, so it’s well-distributed in our plan going forward. We really want to push more A320s out there into the marketplace.” Having leased its first A320-200P2F to Vaayu Group, which subleased it to Indian startup Pradhaan Air Express , Tan said that he can offer the A320 as a 737 replacement or propose that customers upsize to the A321. “The only concern we have is that there were no Airbus classic freighters in the past,” he said. “So, for us, it’s about really putting in the extra effort to help these Boeing Classic freighter operators convert to Airbus. That part is something that we’re trying to work out, to help them get there.” Lessor Cargo Aircraft Management (CAM) is nearing the redelivery of its first A321-200PCF conversions already committed to customers. “We have eleven A321s planned in 2023 and 2024,” Mike Berger, chief strategy officer of CAM parent Air Transport Services Group, said. “Nine of those eleven will be delivered in Southeast Asia for growth. So, it’s a great airplane for the region and it’s been extremely well received.” One customer that ST and CAM share is Malaysia-based Raya Airways, which took delivery of its first A321P2F from ST in April. E-commerce a growth area While e-commerce appears to be a stable and promising opportunity for freighter operators, it is not without its hurdles. IndiGo’s Sutch said of e-commerce: “For us, I think one of the challenges is … the imbalance of the import and export in this particular sector for India. It’s getting that network right. It’s also about how we’re going to partner with the right partners to leverage on the distribution we have for e-commerce available within India itself.” IndiGo faces “a massive opportunity” given that the country’s population now is the largest in the world and the economy is a bright spot, Sutch added. [caption id="attachment_56863418" align="alignleft" width="450"] Qantas Executive Manager of Freight Catriona Larritt. (Photo/Cargo Facts)[/caption] According to Qantas’ Larritt, the carrier believes that the step change in e-commerce that occurred during the pandemic is structural within the market. “Australia probably lags the rest of the world in terms of the penetration of online shopping,” she said. “So, in 2019, 11% of retail sales were online. That jumped to 19% in 2021, and then in 2022 it normalized back to about 18%. “But if we look at over the next decade, we expect that in the early 2030s, probably a third of retail shopping in Australia will be done online. So, it’s a massive growth area for us and our customers.” With three A321P2Fs flying domestically and nine more on the way , Qantas is banking on its partnership with Australia Post to grow its business. “We’ve done quite a few things to think about the network design, our turnaround times and processes so that we can have cut-off times that are late and ensure that product moves quickly through the facilities,” Larritt said. “And we also work with our customers to make sure that we don’t have a lot of rework, that product is presented in the right way, and that we also provide the data.” Teleport Head of Commercial Cargo Francis Antony, meanwhile, said he looks forward to what the company will be able to do once it starts flying its A321P2Fs and connecting major hubs in Southeast Asia. “The biggest things in e-commerce are speed and costs,” he said. “This is a juggling act where airlines like us are trying to provide the speed and also making the cost. So, these are the things that we need to do to see how we can actually appeal to this e-commerce business by providing the best and fastest solution.” See all of Cargo Facts’ coverage of CFA 2023. The first Cargo Facts LATAM takes place May 15-17 in Panama City. Register today.

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