The prospects for air cargo remain bright despite a recent slowing in year-on-year growth,according to analysis published yesterday by the International Air Transport Association (IATA),
which upgraded its growth forecast for 2011 from 5.3% to 5.5%.The association acknowledged that the pattern of air freight this year had been “different fromthe past”, but said “volume growth beyond previous peak levels is now evident”. It said cargorevenue for 2010 was forecast to be at least equal to the previous peak in 2008. “Whilst there areinevitably regional variations, overall yields, for now, continue to show improvement,” theorganisation said in its fourth-quarter ‘Cargo eChartbook’. Although the introduction of newcapacity “will inevitably impact on yields”, volume growth would drive revenue increases.
The airline association warned against “statistical illusion”, pointing out that after anyperiod where there is a “severe dislocation like 2008”, growth rates will slow after an initialdramatic recovery. This was true for both general economic growth and air cargo growth.
“Whilst concerns over a possible ‘double dip’ continue to recede, there are marked differencesin the rates of economic growth both between as well as within regions, which will continue,” thereport said. “Whilst the focus tends to be on the rates of change, it is unsurprising that whendisplayed in this way growth rates in 2011 will be lower than in 2010; a more revealing way is tolook at when the economies will be larger than they were before the downturn, and this way it iseasier to see the transition from recovery to new growth. For most economies in Europe thecrossover is unlikely to be reached until 2011 and 2012 – this compares with the experience in Asiawhere it is growth and not recovery that is evident.”
Air cargo also had similar regional variations, with growth rates from Asia Pacific, LatinAmerica, the Middle East and north Africa outstripping growth from the mature markets of Europe,North America and Japan, but volumes overall were now reaching new highs. Freight volumes declinedfor several months from May, but October brought “a slight uptick”, taking air freight volumes to1% above the pre-crisis levels of early 2008.
“The first month where positive growth was reported was in October 2009, and since then somedramatic growth rates have been reported,” IATA said. “In absolute terms (non-seasonally adjusted)FTKs in October 2010 were the highest ever monthly total. Looking at the underlying data and basedon a 2003 starting point, the volumes reported for 2010, so far lie [in line] with a growthcorridor which suggests that pre-downturn rates of increase have been re-established.”
The airline association said a multi-speed recovery in the international freight market was “clearly evident” and a trend to “more normal” underlying rates was inevitable. Traffic was not backto pre-downturn levels in all areas – for example across the North Atlantic. In contrast,intra-southeast Asian freight traffic in Q3 2010 was around 40% above Q3 2007 levels. The demandenvironment also remained “mixed”, and the ending of a phase of re-stocking meant that “finaldemand” will be the main driver of freight traffic.
“Although there was a decline in the optimism of purchasing managers across the summer months,the latest data for October shows a meaningful increase,” the organisation said. “Whilst we willneed to wait for more data to see if it marks the start of a new trend, it should give furthercomfort that a ‘double dip’ is considered unlikely. Historically the [purchasing managersindex] PMI survey has provided a short term leading indicator for freight trends and in thisrespect – other than the traditional seasonal strength of October and November – the key indicatorsremain positive.”
Despite monthly variations, confidence in the US has moved sideways, and upwards in Europe. “Although there has been a slight dip of late in consumer confidence in China, the underlying trendsince the beginning of 2009 has been upwards,” IATA added. “The uncertainty amongst US consumersregarding the outlook is reflected in the volatility of the index; whilst the underlying trendremains upwards there are still more pessimists than optimists. Despite a dip in confidence inEurope this summer, this has been recovered and there is more stability.”
Attention would, inevitably, focus on what happens next in Europe, with regard to bail-outs ofsome of the EU’s struggling weaker economies. But IATA noted a “marked improvement in UK investmentintentions”, while capital spending in Japan increased in Q3 – “but only by 0.8% and is expected tobe flat in Q4”.
Regarding revenues and yields, IATA reported that overall cargo yields increased during the mostrecent full quarter, although there were regional variations – “most visible in the southeast Asiato Europe segment, in part reflecting the capacity increases by airlines addressing that market.Southeast Asia-Europe yields have fallen back from earlier highs – the underlying rate per kilofell by 45 cents and other charges by 5 cents.”
But at a global level, air freight yields have continued to recover from the low point of 2009 “and seem to be stabilising slightly above previous peak levels”, the organisation reported. IATA’slatest forecast for cargo revenues for 2010 has them recovering to the levels of the last peak in2008 and in the order of $64bn. “Looking ahead, whilst yields might decline from current levelsduring 2011, increased volumes will drive cargo revenues further ahead,” the association said.
On the cost side, the gradual rise in fuel prices was a challenge, but was due to seasonalfactors. “The oil price has moved above $85 a barrel, but remains within a band of $80-100 whichOPEC is ‘comfortable’ with; near term there may be seasonal influences on the oil price – butnothing structural,” IATA believed.
IATA said airlines had been returning cargo capacity at “a moderate pace”, allowing yields tostrengthen – in line with supply-demand principles. One recent trend it also noted was anincreasing share carried by freighters. “Until the start of the last quarter the recovery infreight was more or less shared in proportion between freighters and in the belly holds ofpassenger aircraft. Over the last three months, whilst there are some seasonal factors in evidence,the relative share carried by freighters has increased.”
For US cargo airlines, dominated by the integrators, IATA noted that margins in Q2 2010 hadrecovered to close to those of Q2 2008, while Q3 data for its sample of airlines “shows a sharprebound”. “The Q2 results for the US cargo airlines, with an operating margin of 7.1% versus 8.5%,show that in margin terms they have almost bounced back to pre-downturn levels,” the organisationsaid. “Whilst we await the Q3 results, all of the evidence suggests that we should expect that theywill show a continuation of the trends seen so far in 2010.”
IATA said its latest quarterly survey of heads of cargo showed a reduction in optimism comparedwith the last survey in July. “Despite this, there are still significantly more expecting bothvolumes and yields to increase than those who consider that volumes and yields will not increase,”it added.
