Air freight passes cyclical re-stocking peak; protectionism threatens


World air freight traffic, measured in freight tonne kilometres (FTKs), grew by 2.7% year-on-year in Jun-2018 (the most recent month for which global figures are available). This was slower than the 3.8% recorded for May-2018 and the 4.7% year to date growth rate for the first six months of the year.

The strong upturn in air cargo demand enjoyed in 2017 has eased, but the outlook remains fairly healthy. This year is expected to be only the second time since 2011 when both cargo traffic and cargo yield increase together. Air freight yields are buoyed by rising jet fuel prices, although yield growth is easing and never matches fuel price growth.

There is a gathering cloud on the horizon for air cargo in the guise of increasing rhetoric and action on protectionist trade policies prompted by US President Trump.


  • Air freight traffic growth slowed to 4.7% for the first six months of 2018 after reaching 9.3% in 2017, but this remains above the 3.0% long term average.
  • Air freight yield is enjoying its second successive year of positive growth after being flat or negative in 2012 to 2016.
  • Cargo yield moves up and down broadly in synch with fuel prices, but it typically rises and falls at much slower rates.
  • Increased protectionism may be affecting world trade and, as a result, air freight volumes.

Air freight traffic growth is slowing (but still above the long term average)

FTK growth of 2.7% in Jun-2018 was slower than the 3.8% recorded for May-2018 and the 4.7% year to date growth rate.

Moreover, air freight traffic growth is not matching the rate of capacity growth. Jun-2018 growth in available freight tonne kilometres was 4.1%, while year to date capacity growth was 5.1%. This meant that freight load factor fell by 0.6ppts in Jun-2018 to 44.3%, and by 0.2ppts YTD to 44.7%.

IATA's Jun-2018 forecast of the traffic and financial performance of the world's airlines in 2018 predicts a further slowdown to an FTK growth rate of 4.0% for the full year (a forecast reiterated in Aug-2018).

Nevertheless, this is still a healthy rate by comparison with the 10-year average cargo traffic growth rate of 3.0%, based on IATA data for 2008 to 2017. Last year was a bumper year for cargo traffic, with growth of 9.7%, the highest since the 19.9% expansion achieved in 2010, which was itself a bounce back from two years of decline in the global financial crisis.

World air freight traffic growth (%): 2003 to 2018f


Air freight yield is enjoying its second successive year of positive growth

Although air cargo traffic growth is slowing this year, 2018 looks set to be only the second year since 2011 in which both cargo traffic and cargo yield experience positive growth rates.

Cargo traffic growth has been positive every year since 2011, but cargo yield growth was zero or negative from 2012 to 2016 and its average growth over the past 10 years (2008 to 2017) was -1.1%.

Cargo yield growth turned positive in 2017, climbing by an impressive 8.1%. Yield growth is slowing this year, but IATA forecasts an increase of 5.1% for 2018 – still a healthy rate.

The combination of traffic growth and yield growth leads to a forecast for cargo revenue growth of 9.3% in 2018 (slightly slower than passenger revenue growth of 10.5%).

This would be a decline from 18.7% cargo revenue growth in 2017. Nevertheless, it would be the second highest since 2010, when cargo revenues increased by 25.5%, and strong compared with the 10-year average of 2.1%.

World air freight traffic, yield and revenue growth (%): 2003 to 2018f


Typically cargo revenue underperforms passenger revenue growth

2017 was a rare example of air freight revenue outgrowing passenger revenue. Its 18.7% growth in 2017 compared with passenger revenue growth of 7.2%. Typically, however, cargo revenue underperforms.

From 2010 – which marked the revenue bounceback from the global financial crisis – to 2017, cargo revenue grew by just 8% (according to CAPA calculations from IATA data). Over the same period, passenger revenue grew by 20%, other airline industry revenue leapt by 308%, and total airline revenue increased by 34%.

Cargo revenue is estimated by IATA at 12.7% of industry revenue in 2017, down from 15.7% in 2010 (it was as high as 17.9% in 2003).

World airline revenue (USD billion): 2003 to 2017e

Cargo yield growth does not match the increase in jet fuel prices

A major factor in the strong performance of cargo yield in 2017 and 2018 is the increase in fuel prices.

Jet kerosene averaged USD66.7 per barrel in 2017, which is an increase of 28.0% year-on-year, and is forecast by IATA to average USD84.0 in 2018, an increase of 25.9%.

Historically, airlines have increased their prices – both for passenger and cargo – when fuel prices have been rising.

However, although the curve of cargo yield growth moves up and down broadly in synch with that of fuel price growth, yield typically rises and falls at much slower rates.

This demonstrates that cargo price increases, whether through underlying prices or through fuel surcharges, fall well short of matching fuel price increases. On the flip side, when oil prices drop, airlines typically do not lower their prices as quickly as the fall in fuel prices.

World air freight yield growth and jet kerosene price growth (%): 2003 to 2018f


IATA: "the best of the upturn in air freight demand is well behind us"

IATA said in Jul-2018, "the best of the upturn in air freight demand is well behind us", noting that the underlying world trade backdrop was weakening and that the inventory restocking cycle had run its course.

The new export orders component of the manufacturing Purchasing Managers' Index (PMI) is a good leading indicator of air freight traffic. This has fallen to a 21-month low and suggests further slowing of FTK growth ahead.

World air freight traffic growth (%) and global new export orders: 2000 to 2019f


Export orders have been softening in all the major trading nations, indicating a structural slowdown in trade conditions. Other modes of cargo transport, such as container trade, have also been slowing.

However, global economic growth remains healthy, and this is usually a fundamental positive for air freight. Moreover, surveys of both business confidence and consumer confidence are at relatively high levels.

Increased protectionism may be affecting world trade as air freight passes its peak

The relative softening of the growth in demand for air freight and other forms of trade, in spite of positive fundamentals, suggests that other factors are applying the brakes.

The end of the restocking cycle, which drove air freight demand in 2017, is an important factor, but IATA flags a global trade war as an important risk in the outlook for aviation (while it does not regard it as a central scenario).

IATA's caution is not without foundation. The protectionist stance adopted by the Trump administration in the US has moved from rhetoric to action.

Tariff measures have been implemented, including between the US and China and between the US and the European Union.

In addition to these more visible tariff actions, there are frictional barriers to trade that are less headline-worthy, but which also hinder trade flows (whether intentionally or not).

Air freight remains a growth sector, but most of the key indicators look to be past the peak in the current cycle.

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