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Asian air cargo overview: different profiles for major freight airlines, but united in weak outlook

Air freight is critical to Asia’s major airlines but with regional nuances. The North America market is critical for Korean Air; the region accounts for 42% of AFTKs compared to a smaller 27% at Cathay Pacific. For Singapore Airlines, Australia-Pacific is larger. China and Japan are large countries for Korean Air based on payload capacity while for Cathay Pacific large markets include India and the UAE, according to CAPA’s new Freight Schedule Analysis tool.

For all of the market’s differences, there are commonalities in freight’s under-performance. New passenger flights challenge freight load factors, which are the highest in Asia-Pacific but still barely exceed 50%.

Additional passenger flights, all with substantial belly capacity, stunt all-freight improvements. Asia’s major airlines have 28 parked freighter aircraft, mostly 747s. The mood is further dampened with 5.2% FTK growth in Asia-Pacific, possibly set to slow as China and Asia’s emerging markets see reduced output.

IATA Outlook sounds caution on Asia-Pacific freight

The air freight industry continues to record volume growth but with yields and load factors the challenge. Increasingly China’s slowdown is placing a damper on the cargo outlook, although there are early signs this slowdown is levelling off. Global air freight in May-2014, the latest data available under IATA’s market analysis, recorded 4.7% year-on-year FTK growth, faster than Apr-2014’s 3.8%. Asia-Pacific specifically saw higher growth in May-2014 with a 5.3% increase in FTKs, slightly below Apr-2014's 5.4% increase, but a decline from Mar-2014’s 7.0% growth.

IATA believes the comparison is distorted by Apr-2013 being particularly weak.

Total freight growth by region: Apr-2014, May-2014

Global freight load factors marginally decreased 0.3ppt to 45.1%. Asia-Pacific saw a slight 0.3ppt decrease year-on-year, with load factors declining to 55.5%. 

This is above the average, and, indeed, the highest of any region, although weak. Load factors are challenged by the growing number of passenger flights, which supply cost-efficient belly hold capacity, and the increased deployment of passenger aircraft with larger freight capacity than the aircraft they replace.

Total freight load factor by region: May-2013, May-2014

IATA warns the continuous decrease in Chinese manufacturing is a “downside risk” while emerging economies in Asia are showing signs of sluggishness, although IATA believes this is levelling off.

See related report: Air cargo: structural reform urgently needed where capacity exceeds demand by over 100%

Asia is home to many of the world's largest cargo airlines 

Asia is home to 13 of the world's 30 largest cargo airlines based on available AFTKs, according to OAG data in CAPA's new cargo analysis tool.

This measurement is indicative although not exact: some cargo capacity may not be viable to use (for example, pallet loading on a narrowbody may be too time consuming), some cargo capacity may be payload restricted, some airlines may maximise cargo volume before weight and finally not all weight may be used even if available (for example, flights to Asia have lower cargo demand than flights from Asia). Nonetheless this is a snapshot of potential cargo uplift.

Top 30 Airlines ranked on AFTKs: 23-Jun-2014 to 29-Jun-2014

Rank Airline Total AFTKs
1 EK Emirates 337,219,971
2 UA United Airlines 301,067,879
3 LH Lufthansa 278,528,303
4 KE Korean Air 277,359,201
5 DL Delta Air Lines 267,583,027
6 CX Cathay Pacific 246,744,621
7 AA American Airlines 212,619,686
8 SQ Singapore Airlines 206,580,464
9 BA British Airways 191,707,054
10 CA Air China 163,619,977
11 AF Air France 163,135,320
12 CI China Airlines 148,368,003
13 QR Qatar Airways 148,187,321
14 TK Turkish Airlines 136,122,545
15 BR EVA Air 132,523,494
16 EY Etihad Airways 128,371,952
17 CV Cargolux Airlines International 127,787,189
18 NH All Nippon Airways 124,521,907
19 CZ China Southern Airlines 124,237,029
20 AC Air Canada 104,243,704
21 KL KLM Royal Dutch Airlines 100,377,943
22 SV Saudia 97,008,621
23 TG Thai Airways 91,720,956
24 RU AirBridgeCargo 86,558,198
25 US US Airways 86,462,980
26 JL Japan Airlines 86,159,529
27 MH Malaysia Airlines 78,902,059
28 OZ Asiana Airlines 77,430,700
29 MU China Eastern Airlines 72,862,800
30 SU Aeroflot 70,144,008

Asia's major airlines have 28 parked freight aircraft

The downturn in the cargo market has led airlines to park dedicated freight aircraft. Asia's major cargo airlines have 28 dedicated freight aircraft in storage, according to the CAPA Fleet Database. The surplus of freighters is likely higher as airlines are running their cargo fleets below utilisation levels, some freight aircraft are still classified as being in service even though they are in the process or will soon be withdrawn. Air India Cargo has five parked freighters, although these are smaller 737-200Fs.

More significant are the five parked freighters from Cathay Pacific and the four of Singapore Airlines. The list of parked aircraft excludes freighters withdrawn from service and parted out or transferred to another operator.

Parked freight aircraft at Asia's major airlines: 21-Jun-2014

Airline

Parked Freighter Aircraft

Air China Cargo

1

Air India Cargo

5

Cathay Pacific

5

China Airlines

3

China Southern

2

EVA Air

3

Jade Cargo

3

Korean Air

2

Singapore Airlines

4

Of the 28 parked aircraft, 20 are 747s, three are 737s and three are MD-11Fs. The 747-400F is the most common parked type, with 11, while the -400ERF has three parked and the -400BCF has six parked.

The large volume of parked -400Fs reflects their lower competitive ability than -400ERFs or -8Fs. Many of the -400BCFs are unlikely to be returned to service due to the inefficiency in a high fuel price environment, low-yield market of converting a passenger aircraft into a freighter.

Asia's major airlines' parked aircraft by type: 21-Jun-2014

Aircraft Type

Parked

737

5

747-400F

11

747-400BCF

6

MD-11F

3

747-400ERF

3

Cargo capacity from Asia is concentrated towards Europe and North America

At Asia's three largest cargo airlines – Korean Air, Cathay Pacific and Singapore Airlines – cargo capacity is concentrated to Europe and North America. For Korean Air, North America comprises 42% of AFTKs and Western Europe 18%. 

For Cathay, North America comprises 27% and Europe 19%. And for Singapore Airlines, Europe is 23% (this is Singapore's second-largest region after Northeast Asia, distorted as most of Singapore's North American flights transit in Northeast Asia).

Korean Air capacity by AFTKs: 30-Jun-2014 to 6-Jul-2014

Cathay Pacific capacity by AFTKs: 30-Jun-2014 to 6-Jul-2014

Singapore Airlines capacity by AFTKs: 30-Jun-2014 to 6-Jul-2014

Largest cargo country destinations shows wider mix

The United States is the largest air cargo destination based on AFTKs for Cathay and Korean, while for Singapore (geographically too remote to operate sustainable US non-stops) it is Australia, followed by China. China is also Korean's second-largest cargo country while Cathay's second largest is India.

Cathay Pacific AFTKs by country: 30-Jun-2014 to 6-Jul-2014

Korean Air AFTKs by country: 30-Jun-2014 to 6-Jul-2014

Singapore Airlines AFTKs by country: 30-Jun-2014 to 6-Jul-2014

These figures are partially distorted by distance, so looking only at payload capacity by country, a slightly different overview emerges. Japan, India and Taiwan are Cathay's three largest cargo markets by payload capacity while for Korean Air it is the US, China and Japan (similar to its AFTK profile) and for Singapore it is Australia, Hong Kong and Indonesia.

Cathay Pacific payload (kgs) capacity by country: 30-Jun-2014 to 6-Jul-2014

Korean Air payload (kgs) capacity by country: 30-Jun-2014 to 6-Jul-2014

Singapore Airlines payload (kgs) capacity by country: 30-Jun-2014 to 6-Jul-2014

Largest cargo routes can vary from largest cargo stations

The largest cargo routes and cargo stations broadly follow the largest cargo markets (regions and countries). But cargo routes and cargo stations can show sizeable differences due to stop-over points and fifth freedom rights. Looking at Korean Air, for example, Los Angeles is Korean's fifth largest cargo hub/base/station but is not a top cargo route since freight flights stopover at Anchorage.

Anchorage on raw numbers has significant importance, but is merely a stopover point for Korean Air's North American cargo destinations (Atlanta, Chicago, Dallas, Los Angeles, Miami and New York JFK in Jul-2014). 

Korean Air top 10 cargo routes ranked on payload (kg) capacity: 30-Jun-2014 to 6-Jul-2014

Korean Air top 10 cargo hubs/bases/stations ranked on payload (kg) capacity: 30-Jun-2014 to 6-Jul-2014

Dedicated freighters supply most concentrated capacity

At airlines like Korean Air where there are dedicated freight aircraft, it is the freighters that supply the largest freight capacity, delivering a large concentrated volume of freight.

For example, Korean Air's four 777-200Fs supply more freight capacity than its 18 passenger 777-200ER aircraft combined. Korean Air has 14 passenger 747s and 22 freight 747s, but the payload of the 747 freighters is multiple times larger than the passenger 747s.

Korean Air system cargo payload capacity by aircraft: 30-Jun-2014 to 6-Jul-2014

Asian airlines have higher share of belly space

Approximately 40% of air freight is carried on dedicated freighters with the balance in the cargo holds on passenger aircraft. At Asia-Pacific airlines, the share of freight capacity varies.

At Cathay and Singapore Airlines, dedicated freighter capacity is 36%, although in reality this is likely higher as some passenger flights will not be able to carry cargo.

Cathay Pacific Freighter / Belly-hold payload (kg) split: 23-Jun-2014 to 29-Jun-2014

Singapore Airlines Freighter / Belly-hold payload (kg) split: 23-Jun-2014 to 29-Jun-2014

In Korea the share is higher, with Asiana and Korean Air seeing approximately 42% of freight capacity being on dedicated freighters.

Korean Air Freighter / Belly-hold payload (kg) split: 23-Jun-2014 to 29-Jun-2014

Asiana Freighter / Belly-hold payload (kg) split: 23-Jun-2014 to 29-Jun-2014

Taiwan's airlines vary, with China Airlines having approximately 37% of its freight capacity on dedicated freighters while EVA Air has approximately 44%.

China Airlines Freighter / Belly-hold payload (kg) split: 23-Jun-2014 to 29-Jun-2014

EVA Air Freighter / Belly-hold payload (kg) split: 23-Jun-2014 to 29-Jun-2014

In Japan, JAL no longer operates dedicated freighters, while ANA's dedicated freighters supply only a minimal amount of capacity.

ANA Freighter / Belly-hold payload (kg) split: 23-Jun-2014 to 29-Jun-2014

China's Big 3 carriers have distorted figures due to their own cargo operations supplemented with JVs.

Gulf airlines excel on carrying belly cargo, challenging Asian airlines

A challenge for carriers in the Asia-Europe freight market is the growing presence of Gulf carriers. Gulf carriers can operate a dedicated freighter from an Asian manufacturing hub to their Gulf hub, where the cargo is then transferred onto the holds of more cost-effective passenger flights to the numerous European destinations they serve; Emirates has passenger flights to over 30 European destinations.

Asian carriers in comparison have only a handful of passenger destinations, limiting access, while dedicated freight flights from Asia to Europe are longer and more costly than from Asia to the Gulf. Additionally, the shorter sector lengths of Asia-Gulf and Gulf-Europe flights compared to Asia-Europe non-stop flights means Gulf carriers seldom see payload restrictions in that market.

Dedicated freighter capacity is only 24% of Emirates' network, 31% for Etihad and a small 14% for Qatar Airways.

Emirates Freighter / Belly-hold payload (kg) split: 23-Jun-2014 to 29-Jun-2014

Etihad Airways Freighter / Belly-hold payload (kg) split: 23-Jun-2014 to 29-Jun-2014

Qatar Airways Freighter / Belly-hold payload (kg) split: 23-Jun-2014 to 29-Jun-2014

There are more widebody flights, increasing belly capacity

Freight carried in dedicated freighters versus freight in passenger aircraft bellies used to be about evenly split, but IATA foresees the existing 60/40 passenger/freight aircraft ratio could shift to 70/30.

This is unsurprising given the increase in passenger flights and new aircraft capable of holding more cargo (even if the full space is not always available due to payload restrictions or other reasons). The North Asia-North America market exemplifies this.

As CAPA previously wrote:

The cargo industry has been clear it is suffering from the external problem of weakened supply amid a gloomy economic environment. But less apparent is the fact that the pain is largely self-inflicted: long-haul passenger flights are growing rapidly, increasing 25% on trans-Pacific routes between 2006 and 2013. That also directly increases the amount of belly capacity available for cargo, and the trans-Pacific is the world's largest cargo market.

Increasingly the aircraft of choice across the Pacific is the 777-300ER, which can carry upwards of 18% more cargo volume than the 747-400. And the 777-300ER is displacing the 747-400, with the twinjet increasing its share of trans-Pacific flights from less than 1% in 2006 to 27% in 2013. The 747-400 meanwhile accounted for 40% of flights in 2006 but only 15% in 2013.

Aircraft share of passenger trans-Pacific flights from Northeast and Southeast Asia to North America: 2006, 2013

Frequency of aircraft type for passenger flights from Northeast and Southeast Asia to North America: 2006, 2013

See related report: As trans-Pacific passenger flights increase, hold capacity drives structural changes in air cargo

Outlook: airlines wait to restructure freight in Asia-Pacific

Structural change has yet to emerge in the freight sector. Airlines have parked aircraft while some are refreshing fleets – replacing 747-400Fs with 747-8Fs and even 777-200Fs – but mostly airlines are waiting, apparently anticipating the yesteryears of cargo to one day return.

This strategy however means airlines are largely waiting on an unchanging market before re-directing their strategy, allowing others to wait – and stagnate. Structural change remains left for another day.

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