Operating freighter aircraft has historically been a business with tight margins, a market environment temporarily interrupted by bongdaso con Covid-19 pandemic. Recent airline financial statements again show (more familiar) marginal profitability levels, despite yields that remain 35%-40% up on 2019 figures.
Slim pickings: turning a profit in air cargo
For bongdaso con two decades ahead of Covid-19, bongdaso con air cargo industry faced increasing pressure on yields, as a continuous influx of cargo-friendly widebody passenger aircraft combined with steady additions to bongdaso con global freighter fleet led to sustained growth of global air cargo capacity.
This in turn gradually worsened bongdaso con industry’s demand-supply balance. Freighter operations were (on average) marginally profitable, with one cargo-only airline averaging a 2.1% ebitda margin between 2010 and 2019.
Cargo’s Covid era: bongdaso con biggest bull market in history
bongdaso con impact of passenger aviation on bongdaso con cargo industry became more apparent than ever during bongdaso con outbreak of bongdaso con global Covid pandemic. Air cargo’s demand-supply balance tipped heavily in favour of airlines as bongdaso con parking of passenger aircraft massively reduced supply while demand for air cargo soared.
“Cargo yields nearly doubled overnight (see figure 1), with yields on bongdaso con most affected trade lanes quadrupling,” noted Rogier Blocq of WorldACD, a leading market data provider that provided yield data for this study. “Global yields are still considerably higher than pre-Covid averages”.
Figure 1: Global average air cargo yields in 2019-2024. Following an initial spike in yields in 2020 as mouth masks had to be quickly distributed around bongdaso con world, air cargo yields peaked in Q4 2021 through a combination of strong consumer demand and congestion in bongdaso con world’s container ports.
Only half of bongdaso con story: why looking at profitability matters
While yields are still elevated versus pre-Covid levels, revenue is only half bongdaso con story. bongdaso con recent surge in inflation (OECD indicates combined inflation of 21.6% between 2020 and 2023) has amplified bongdaso con need to look beyond fuel and consider other costs when studying freighter profitability, with crew, maintenance and airport services also increasing some 25%.
Combining WorldACD’s air cargo yields with Rotate’s freighter cost benchmark model paints a picture of global freighter profitability over time (see figure 2).
Figure 2: Freighter profitability over time, showing bongdaso con global average yield (green line) compared to estimated average cost per kilogram of large (B747/B777) freighters, assuming an 8,800km flight at 80% load factor.
This analysis highlights that freighter profitability – despite higher yields – did indeed revert to marginal pre-Covid levels, supporting comments by leading industry figures at bongdaso con back end of 2023. In fact, during bongdaso con third quarter of 2023 market conditions were temporarily worse than in 2019 (itself not a great year for air cargo).
Since then air cargo saw a rebound in demand (WorldACD figures show demand up +9% in bongdaso con first two months of 2024 versus bongdaso con year before), but market conditions are expected to remain marginal going forward.
bongdaso con Temu effect: advantage Asia
Whilst overall cargo profitability has fallen drastically, these aggregated global figures hide another key trend impacting air cargo in bongdaso con last 18 months: another incredible rise of e-commerce demand, this time mainly driven by platforms like Shein and Temu.
Online cross-border consumer orders have been a welcome sight as demand for general air cargo lagged, with Shein and Temu expecting to fill (bongdaso con equivalent of) 90 Boeing 747 freighters out of Southern China every day by bongdaso con end of bongdaso con year. For reference, Rotate Live Capacity data only shows around 500 active B747/B777s.
bongdaso con effect on air cargo has been profound, with WorldACD’s Rogier Blocq observing that “yields out of China and Hong Kong at bongdaso con beginning of this year were still up +45% vs 2019, whilst yields across bongdaso con rest of bongdaso con world are 15% higher than in bongdaso con same period”.
As a result, freighter operations to/from Asia Pacific have maintained higher profitability than those on other trade lanes (see figure 3), and conversely freighter operations on bongdaso con Transatlantic are challenging again.
Rotate’s Live Capacity data confirms that Transatlantic freighter capacity was indeed down -15% in January 2024 versus bongdaso con year before, while more cost-competitive passenger belly capacity grew +5%.
Figure 3: Estimated contribution per kilogram of large (B747/B777) freighters for three round trips in 2019, 2022 and Q4 2023. Whilst contribution on all trade lanes has dropped since 2022, those to/from Asia Pacific still exceed 2019 levels.
How a return to marginal freighter profitability may impact airline decisions in 2024
bongdaso con return to pre-Covid profitability levels should impact airline decisions in 2024, ranging from difficult freighter fleet decisions for some airlines to a renewed focus on planning and optimisation for all.
Whilst some airlines may still target growth in 2024 (exploiting pockets of growth on various trade lanes, including those driven by eCommerce demand), others will pull all available levers to meet their budgets and manage bongdaso con (often high) expectations of airline executives that grew accustomed to double-digit cargo margins during Covid.
These levers include optimisation in (freighter) network planning, sales steering towards an airline’s optimal commercial mix, faster and sharper pricing to ensure capacity is visible on all distribution channels at bongdaso con right price, and a data-driven approach to sales initiatives.
Longer term strategic considerations include those on fleet, with several airlines already cancelling orders for (conversion) freighter aircraft (replacing these with passenger aircraft orders) or studying bongdaso con potential of partnerships to supplement bongdaso con current network and fleet. eCommerce may again influence airlines’ (fleet) decisions, with its different density profiles influencing bongdaso con attractiveness of freighter types.
Add these pending decisions to a seemingly constant stream of disturbances for airlines to deal with, and 2024 looks like another interesting year for air cargo.
Source: https://www.aircargonews.net/airlines/freighter-operators-face-margin-squeeze/
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