Prospects for air freight and air passengers continue to diverge. International Air Transport Association’s (IATA) annual media briefing in Switzerland last Thursday described a passenger sector that is expanding close to its long-term trend yet air freight volumes have been more or less flat for the past three years.
According to IATA’s chief economist, Brian Pearce, the present becalmed state of the air freight market is attributable not so much to the ‘modal shift’ from airfreight to sea freight but to the state of global trade.
IATA figures show that present ‘Freight Tonne Kilometre’ volumes on an indexed basis have fallen by around 30 basis points from a high-point in 1995. Despite the growth in world-trade, airfreight is where it was in the 1970’s as a proportion of overall global economic activity. This is the longer trend in airfreight’s loss of market-share. However the short-term picture of minimal growth is due to the weakness of world-trade from 2011 onwards.
Mr Pearce ascribes this to structural changes in the world’s economy such as ‘on-shoring’ and higher levels of protectionism such as actions by the EU and the US against Chinese dumping of products such as solar panels.
On the optimistic side, the latest WTO trade- agreement, IATA believes ought to generate higher growth of world trade. Yet even if these higher growth rates do materialise the expansion of the aircraft fleet will depress air freight rates. In particular the growth of wide-body aircraft is adding substantial cargo capacity to the market even as the number of freighters is reduced. The result is lower revenue per tonne and lower load factors.
The contrast between air cargo and the passenger business is marked, with the latter seeing high load factors despite bigger fleets. In turn this has improved the profitability of the sector as a whole with earnings before interest & tax hitting a three year high although that is still only 4.7%.That said the airline sector is still not earning its cost of capital.