Clearing Skies Ahead for International Cargo

If you look at international passenger traffic statistics for 2002, the skies look pretty gloomy. Worldwide, passenger revenues were up just a bit over one-half of 1%. A general worldwide economic slowdown was one factor in the slowing of pas-senger traffic.

Ramifications of the events of September 11 — particularly security and safety concerns — continue to play a role in diminished business and pleasure travel.

International airfreight offers a much brighter look, however, as overall the market climbed 6.5%. Last fall’s West Coast portstrike proved to be a contributing factor in the growth of air cargo. It’s no surprise that five of the top 10 freight airlines in the world are based in Asia, and two others — FedEx and UPS — are extending their networks further and deeper into Eastern markets.

Diminished passenger traffic for international airlines is a factor causing concern for the movement of cargo by air. According to Giovanni Bisignani, director general and CEO of the InternationalAir Transport Association IATA (www.iata.org), 60% of all airfreight is carried in the hold of passenger flights. “Freighter operations alone cannot pick up the slack,” he points out. “A healthy airfrieght industry needs a healthy passenger airline industry — and both need the medicine called ‘change’ to become healthy again.”

One change Bisignani seeks is to eliminate national ownership limits if they hinder development and the ability of airlines to merge.

“We need the economies of scale that mergers or acquisitions can provide with proper competition supervision,” he says. “Regulators must take up the challenge of change.”

IATA originally had projected robust growth for international airfreight in 2003, but scaled back its optimism because of the effects on passenger traffic due to the war in Iraq and the chill placed on Asia/Pacific traffic because of SARS (Severe Acute Respiratory Syndrome).

Despite this, in early August, IATA noted that “Freight traffic for the first half of 2003 showed 7.3% growth globally, largely on the back of growth in North America (+11.1%), Asia/Pacific (+8.7%) and the Middle East (+13.7%).”

In the Africa/Middle East segment of the market, Emirates (www.emirates.com) continues to statistically dominate the region. As part of its plans to become truly global, the Dubai-based airline recently ordered 21 superjumbo aircraft from Airbus, said to be the largest order for wide-body aircraft in civil aviation history. In addition to passenger planes with their belly capacity, Emirates has also ordered two freighters to supplement the three freighters it presently operates.

In extending its reach beyond service to 66 cities in 46 countries, Emirates has begun offering five-times-a-week service to Moscow while rolling out a Russian language version of its cargo web site (www.sky-cargo.com); the airline has Chinese and Japanese web offerings, as well. Pending governmental approval, Emirates will enter the North American market in April 2004, with direct New
York-Dubai flights.

El Al (www.elal.co.il) moves the second highest volume of freight in the region with its fleet of 747s — capable handling 126 tons of cargo — flying regularly scheduled flights to Europe and nine to North America each week. After significant losses, the Israeli government moved this year to privatize the airline, although it retains 49.5% of ownership. The burden of necessary heightened security measures has been a strong factor in adding to El Al’s expenses.

International has done very well lately for UPS (www.ups.com). Overall, international package shipments for UPS increased by 19.8% during the first half 2003. Import packages increased by 19.7%, while export grew a healthy 25.5%.

The $1 billion expansion of UPS’ Louisville Worldport facility was completed in September 2002, bringing the total facility’s size to 4 million square feet. In order to meet existing and projected demands for inbound and outbound Asian freight, UPS expanded its Ontario, Cal., facility to 676,000 square feet.

Rival freight carrier FedEx (www.fedex.com) saw its volume increase by almost 20% in 2002. The company continues to grow as it updates and enlarges its fleet, with ten big A380-800Fs on order for delivery beginning in 2008. FedEx has also signed a lease agreement with Piedmont Triad International Airport that will allow it to build and operate a new $300 million sorting facility in North Carolina.

At times statistics don’t tell the entire story. While three of the top five U.S. national carriers showed decreases, even the top two in the category are struggling to rebound from tough times.

Atlas Air Worldwide Holdings (www.atlasair.com) is the parent company of both Atlas Air Inc. and Polar Air Cargo. The Atlas fleet is entirely made up of freighters — 22 747-200s, three 747-300s, and 15 747-400s. Atlas specializes in offering customers aircraft, crew, maintenance and insurance contracts.

Polar’s airfreight offerings are timedefinite, scheduled airport-to-airport. The carrier is to begin offering round-the-world scheduled service.

Generally, Europe did not fare well in 2002, with passenger carriage suffering more than cargo. Earlier this summer, though, regional leader Lufthansa (www.lufthansa.com) said that it felt the airline industry’s crisis has finally bottomed out. At the end of June, the airline began raising its capacity to Asia and North America in response to what it sees as emerging market opportunities.

Even so, the airline moved 4.4% less freight and mail in the first half of 2003.

In an effort to shore up business, Lufthansa Cargo (www.lhcargo.com) added service to the U.K.’s East Midlands Airport and to New York in order to deepen its cooperative efforts with DHL (www.dhl.com). Lufthansa Cargo will carry DHL shipments from East Midlands to the U.S. while using DHL’s air capacity for express services to Scandinavia, Spain and Eastern Europe.

Dutch airline KLM (www.klm.com) most recently has seen its cargo traffic increase by 5%. Its traffic to Asia was up by 8%, while North American traffic was up by 3%. Beginning in late October, KLM and China Southern Airlines (www.csair.com/en) will expand codesharing and offer five new Chinese destinations — Guangzhou, Shenzhen, Wuhan, Changsha and Guilin — in addition to service to Beijing and Shanghai.

The continuing bright spot in international air cargo has been in Asia & the Pacific, although the region took a big hit earlier this year with the SARS epidemic, which thankfully seems to be past. Business now seems to be recovering.

At Hong Kong Air Cargo Terminals Ltd. (www.hactl.com.hk), for the first six months of 2003, exports were up 6% and transshipments were up 7.7%, with cumulative totals up 4.3%.

SARS hit Cathay Pacific (www.cathaypacific.com) particularly hard, with the airline having to park 22 of its aircraft at the peak of the crisis and cancel almost half of its scheduled May and June flights.

As with other airlines, however, though passenger traffic suffered greatly, the call for Cathay Pacific cargo services remained strong, with revenues rising 4.3% during the period.

As IATA’s Bisignani notes, international air trade is a vital component of the global economy. He notes that 20% of all freight is carried by air and it is an essential part of the world economy, particularly in the high-tech sector.

“Airlines, integrators and forwarders are all confronted by the same challenges,” he notes. “They are costs, competition, capacity, security, technology, alliances, government rules and regulations.

Air cargo — despite downturns — still holds great opportunities for the farsighted and pragmatic.” LT

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