Air cargo upturn can't offset slumping airline passenger revenue
Cargo payload capacity is outperforming passenger capacity, falling less at the depths of the COVID-19 crisis and recovering more quickly, according to weekly data from CAPA and OAG.
Monthly traffic data from IATA highlights an even stronger outperformance of freight traffic transported. In 8M2020, cumulative ACTKs (available cargo tonne kilometres) fell by 24.8% year-on-year, compared with a 14.0% fall in FTKs (freight tonne kilometres), taking freight load factor up by 6.7ppts, to 53.0%. This is still much lower than the depressed level of passenger load factor (down by 15.6ppts, to 67.4%, for 8M2020), but high for the freight sector.
Although capacity operated by freighters has risen, thanks to higher daily utilisation, belly space in passenger aircraft has fallen due to depressed levels of passenger flights. The overall reduction in freight capacity, plus much more robust demand for air cargo versus air passengers, has pushed up cargo yield and load factor. This has the potential to offset lower volumes and drive cargo revenue to positive growth in 2020.
Nevertheless, this is of little comfort to the airline industry and will not offset haemorrhaging passenger revenue.
Summary
- Cargo payload capacity is outperforming passenger seat capacity in all regions and is at the lowest percentage declines since the early weeks of the pandemic crisis.
- Air freight traffic is outperforming passenger traffic even more strongly.
- Freighter capacity is rising, whereas passenger belly capacity is falling. Overall freight load factor is up due to lack of capacity.
- Outlook for air cargo: volume to rise, but yield to ease back, from current levels.
Cargo payload capacity is performing better than passenger seat capacity in all regions
CAPA tracks freight capacity trends by combining flight schedules data from OAG with cargo payload (in kg) for each aircraft.
Data for the week commencing 28-Sep-2020 indicate that freight capacity in all global regions is down by significant double digit percentages from the equivalent week of a year ago (i.e. the week commencing 30-Sep-2019).
There are also significant variations in the percentage decline in cargo payload capacity for each region.
Asia Pacific freight capacity is falling least heavily, with a year-on-year decline of 34.1%. North America is also at a rate of fall that is narrower than 50%: its freight capacity is down by 46.5%.
Freight capacity has been cut by 50.0% in the Middle East, by 52.5% in Africa, by 54.3% in Europe, and by 55.4% in Latin America.
For all regions, these are the lowest percentage declines since the early weeks of the crisis.
Passenger seat capacity is also down heavily in each region, but the fall in freight capacity is several ppts narrower in each case. Asia Pacific is the only region where passenger seat numbers have been reduced by less than 50% year-on-year.
Percentage change in passenger seat capacity and cargo* payload capacity (kg) by region, week of 28-Sep-2020 vs 30-Sep-2019
Passenger capacity slumped lower than cargo capacity at the depths of the crisis
At the lowest phase of the crisis, in Apr/May-2020, the year-on-year fall in passenger seat capacity ranged from -61% for Asia Pacific to -90% for Europe. All regions outside Asia Pacific sank as low as -80% or below for at least one week in that period.
Asia Pacific seat capacity is now back to -37% year-on-year, while all other regions are in the range of -55% to -63%.
Year-on-year percentage change in passenger seat capacity by region, week of 30-Mar-2020 to week of 28-Sep-2020
Freight capacity in each region has performed better than passenger capacity throughout. It did not fall as heavily as passenger capacity in any region at the depths of the crisis.
In Apr/May-2020, the year-on-year fall in cargo payload capacity ranged from -56% for Asia Pacific to -75% for Africa.
North America bottomed out at -64%, while all other regions (apart from Asia Pacific and North America) sank to -74% for at least one week in that period.
Year-on-year percentage change in cargo* payload capacity (kg) by region, week of 27-Jan-2020 to week of 28-Sep-2020
Air freight traffic is outperforming passenger traffic even more strongly
Monthly traffic data from IATA highlights an even stronger outperformance of freight traffic, measured in freight tonne kilometres, compared with passenger traffic, measured in revenue passenger kilometres.
The gap between the two is much wider than seen in the weekly capacity data noted above.
The worst month for both was Apr-2020, when global RPKs fell by 94.3% year-on-year - an almost total shutdown of passenger traffic.
However, FTKs fell by 'only' 27.7% year-on-year in Apr-2020. This was still a cataclysmic fall by any normal standards, but this is not a normal crisis, and it was hugely better than the performance of passenger traffic.
The year-on-year rate of decline has narrowed for both freight and passenger traffic in each subsequent month. However, in Aug-2020 RPKs had only recovered to -75.3%, while FTKs had reached -12.6%.
Although freight traffic is performing much better than passenger traffic, the year-on-year rate of decline for freight has been levelling out. This suggests that its recovery may be losing momentum.
Year-on-year percentage growth in monthly passenger traffic (RPKs) and cargo traffic (FTKs), 2020
Freighter capacity is rising, whereas passenger belly capacity is falling
As noted above, data from CAPA/OAG indicate that cargo payload capacity has not fallen as rapidly as passenger seat capacity.
This reflects an increased role played by dedicated freighter aircraft (and a trend of using passenger aircraft as temporary freighters). Freighter capacity has actually risen sharply during the crisis, while cargo capacity in passenger belly space has fallen heavily.
Widebody freighter daily utilisation is close to 11 hours/day - the highest level since IATA began tracking this measure in 2012.
According to IATA, available cargo tonne kilometres (ACTKs) in freighters was up by 28.1% year-on-year in Aug-2020 and has been up by double digit percentages every month since Apr-2020.
By contrast, passenger belly ACTKs fell by 67.0% in Aug-2020 and was down by at least 70% from Apr-2020 to Jul-2020.
Air cargo: international capacity* growth, passenger belly and freighters, Jan-2020 to Aug-2020
OAG/CAPA cargo payload data overstate the decline in air freight capacity
The declines in monthly FTKs reported by IATA are much narrower than the falls in cargo payload capacity from CAPA/OAG data.
This partly reflects improved freight load factor (discussed below), but also reflects incomplete data in cargo schedules reporting to OAG.
(There is also some difference arising from the fact that cargo payload only reports weight, whereas FTKs also take account of distance, but that is less significant.)
Weekly cargo payload capacity from OAG/CAPA data excludes leading integrators such as the express operators FedEx and UPS. Schedules for cargo airlines representing somewhere around half of all freighters in service are missing from the cargo payload analysis.
Given that ACTKs operated by freighters is growing, this means that the OAG/CAPA cargo payload data is understating total air freight capacity and overstating its year-on-year percentage decline.
Nevertheless, this data is useful in identifying trends - such as improving weekly cargo capacity and the outperformance of cargo capacity versus passenger capacity in each region - before the more delayed monthly IATA traffic figures.
Freight load factor is up
The COVID-19 crisis has pushed freight load factors to much higher levels than usual.
This is a market segment where capacity is typically less than half full. According to IATA, freight load factor was only 46.7% in 2019, and was in the range of 43% to 49% in 2011 to 2018.
In 2020, monthly freight load factor was 54.8% in Aug-2020, after growing from 45.0% in Jan-2020 and reaching as high as 58.0% in Apr-2020. It has been 10-11ppts higher than last year every month since Apr-2020.
This reflects the lack of passenger belly capacity, which is usually more important than freighter capacity, and a much more robust level of demand for air freight compared with demand for passenger air travel.
Monthly passenger and cargo load factor
Outlook for air cargo: volume to rise, but yield to ease back, from current levels
Some Asia Pacific airlines returned to profit in 2Q2020, after big losses in 1Q2020, as a result of strong cargo revenue. Even with cargo volume down year-on-year, revenue grew thanks to strong cargo yields, supported by low capacity and demand for time sensitive shipments.
Air cargo yields reached record highs in Apr/May-2020. They have eased back since then, but remain above pre-crisis levels.
In the three months to Jul-2020, demand for medical supplies and PPE supported demand, but air cargo overall lost market share to ocean trade.
The outlook for air cargo volumes is supported by improving business confidence surveys, although volume could continue to be constrained by capacity issues (driven by a slower than expected return of passenger aircraft).
The return of more passenger aircraft into service, and the consequent addition of belly capacity, could put pressure on cargo yield. IATA's Jul-2020 survey of cargo operators anticipated rising volumes, but falling yields, in the following 12 months.
Cargo alone cannot save airlines
The airline industry would welcome falling cargo yields and rising cargo volumes relative to their current levels, as this would signal a return to more normal conditions.
However, the outlook for the passenger side of the industry (responsible for 73% of revenue in 2020) remains precarious.
At its most recent forecast of industry economic performance, in Jun-2020, IATA forecast an 8% increase in cargo revenue for 2020. However, it forecast a 61% drop in passenger revenue and a halving of total airline revenue.
Since then, IATA has cut its RPK growth forecast for the year from -55% to -68%. This can only be negative for the yet to be updated revenue forecast.
Even if cargo revenue manages to achieve positive growth, this will not be enough to offset plummeting passenger revenue. The conclusion of previous CAPA analysis reports on the impact of the COVID-19 crisis on air cargo remains unchanged:
Air cargo revenue is more virus-proof than air passengers, but is not enough. Cargo alone cannot save airlines.
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