Widebody freighter: Is the tide in or out?

The run up in parked widebody freighter payload capacity was initially driven by rising fuel prices, the largest cost item for all-cargo operations. As fuel prices rose from about $75 in Q1 2007 to USD $150 per barrel of jet fuel in Q2 2008, airlines took less fuel efficient aircraft out of service leading to an increase of payload capacity held in storage from about 8,500 to 13,500 tonnes. The share of widebody freighter payload capacity peaked at 28% of in-service payload capacity in 2Q 2009 when airlines rushed to park their freighters as world trade collapsed.

As demand recovered, stored payload capacity gradually reduced to levels seen prior to the trade collapse but remained high due to slow traffic demand growth and persistently high fuel prices. As airlines took delivery of new aircraft and endured high fuel prices, payload capacity in storage rose between Q3 of 2011 and Q2 of 2014 from about 14,500 to 20,700 tonnes. However, a reversed trend was observed with the drop in fuel prices from Q2 of 2014 from USD 121 to USD 43 per barrel of jet fuel in Q1 2016. The reduction in payload capacity in storage was also supported by marginally better demand conditions and was sustained despite better aircraft utilization.

The recent rise in prices from USD 43 in Q1 2016 to USD 54 per barrel of jet fuel in Q2 2016, coupled with weakness in the traffic demand environment, has brought a pause to bringing widebody freighters out of storage. However, payload capacity available in storage remains high at 17.5% of in-service payload capacity, significantly above pre-crisis levels of Q1 2007 when it was 10.5% despite an environment of higher fuel prices in 2007. The combination of better aircraft utilization, abundant in-service freighter and belly hold capacity, a feeble global demand environment and ample payload capacity in storage point to significant headwinds for yields and profitability for the months ahead.

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