Air freight set for near-record revenues this year

6/22/2020

Despite a predicted 17% volume decline this year, the International Air Transport Association (IATA) is forecasting that airline cargo revenues will exceed last year’s $102 billion and reach a near-record $110.8 billion in 2020 – before rebounding to $138 billion in 2021, as higher freight rates and falling passenger demand give it an unprecedented importance within the world’s struggling airlines.

The Geneva-based airline organisation’s newly revised 2020 financial outlook for the global air transport industry said cargo offered the only part of the business showing potential to achieve positive results this year in an aviation sector that is set to record its worst-ever year because of COVID-19. It said airlines are expected to lose $84.3 billion in 2020 for a net profit margin of -20.1%. Revenues will fall 50% to $419 billion from $838 billion in 2019. In 2021, losses are expected to be cut to $15.8 billion as revenues rise to $598 billion.

Despite recording its sharpest ever fall in demand in April, IATA’s director general and CEO Alexandre de Juniac underlined that cargo was “the one bright spot” in the current gloomy outlook for air transport.

“Compared to 2019, overall freight tonnes carried are expected to drop by 10.3 million tonnes to 51 million tonnes,” he noted. “However, a severe shortage in cargo capacity due to the unavailability of belly cargo on (grounded) passenger aircraft is expected to push rates up by some 30% for the year.

Near-record cargo revenues

“Cargo revenues will reach a near-record $110.8 billion in 2020 (up from $102.4 billion in 2019). As a portion of industry revenues, cargo will contribute approximately 26% – up from 12% in 2019.”

Looking ahead to 2021, IATA said that cargo’s “enlarged footprint” in the air transport industry will remain.

“Cargo revenues will reach a record $138 billion (a 25% increase on 2020). That is about 23% of total industry revenues, roughly double its historical share. Air cargo demand is expected to be strong as businesses restock at the start of the economic upturn, while a slow return of the passenger fleet will limit the growth of cargo capacity, and keep cargo yields steady at 2020 levels.”

Looking at the airline sector as a whole, he noted: “Financially, 2020 will go down as the worst year in the history of aviation. On average, every day of this year will add $230 million to industry losses. In total that’s a loss of $84.3 billion.... That’s why government financial relief was and remains crucial as airlines burn through cash.

“Provided there is not a second and more damaging wave of COVID-19, the worst of the collapse in traffic is likely behind us.”

Air freight data specialist WorldACD estimated that in April, worldwide chargeable weight carried by air decreased by 31.7%, year on year, and by 22.8% compared with March 2020, although the revenue picture was more positive. It noted: “Due to the well-publicised lack of cargo capacity, caused by the forced inactivity of many passenger aircraft, airline yields in US$ per kg went up very sharply, by 63% month-over-month, and by 99% year-over-year. And so, in the midst of aviation’s biggest crisis, worldwide air cargo revenues went up in April, by 36% year-over-year and by 26% month-over-month.”

Higher breakeven costs

However, airline cargo sources say that the cost of providing capacity in the current market is significantly higher than in normal times – for example, operating ‘passenger freighters’ – meaning higher rates do not necessarily mean better margins.

For example, Abdulla Mohamed Shadid, managing director for cargo and logistics at Etihad Aviation Group, said: “The whole industry is facing the same issue when operating passenger freighters: managing the increased cost of operation due to using passenger aircraft without passengers”, although he said the lower fuel price “has provided us and our customers a welcome cushion. ”

He continued: “Operating passenger aircraft without passengers inevitably increases the financial burden on the bellyhold capacity due to the lack of passenger revenue, driving freight breakeven costs higher and requiring airlines to adjust their prices to cover the resulting incremental costs, all of this whilst trying to remain globally competitive. Only the reintroduction of passenger traffic can ease these financial bottlenecks over time.”