Monday, April 27, 2020

Cargo checks in as the new passenger

The Covid-19 pandemic has brought the passenger aviation industry into a grinding halt. The pandemic has already taken its worst toll on global aviation industry as airlines after airlines ground their aircraft as demand keeps plummeting over fears of contagion, reinforced by air travel restrictions. The International Air Transport Association (IATA) estimates that the airlines worldwide could lose $252 billion in revenue this year, threatening even the survival of the industry. And it is not just the aviation industry; the novel coronavirus (SARS-CoV-2) is rapidly choking off the life of the world economy.

With more airlines grounding their passenger operations, the air cargo capacity is declining further. Remember, more than 50 percent of global air cargo volume is carried in the bellies of passenger airplanes. Just-in-time, healthcare, humanitarian, relief, premium, perishables and express categories of cargo types are suddenly stuck at factories, warehouses and airport cargo terminals. It is estimated that global international passenger belly cargo capacity is now 70 percent lower than last year.

Airlines, according to (IATA), transport over 52 million metric tonnes of goods a year, representing more than 35 percent of global trade by value but less than one percent of world trade by volume. That is equivalent to $6.8 trillion worth of goods annually, or $18.6 billion worth of goods every day. Therefore, air cargo plays a very crucial role in enabling global trade. Not just enabling global trade, but it becomes the lifeline of vital supplies in the time of a pandemic like Covid-19. Can you imagine what today’s supply chain would have been like without freighters and passenger aircraft carrying only cargo right now?
Air cargo is booming now. Pure-play freighter operators and airlines with cargo planes in their fleet have their asset utilisation at their peak. It is not business as usual for them. All of a sudden air freight demand largely outstrips supply. Urgent demand for medical equipment and other essential healthcare products to fight Covid-19 has sent the cost of cargo charters skyrocketing. The rate now varies from anywhere between $800,000 and $1.5million, depending on the route. Usually, the cost of chartering a Boeing 747 or 777 freighter from Hong Kong to Europe would be around $300,000.

The current situation, according to a cargo head of an airline that I spoke to, is “schizophrenic where the environment is super negative. At the same time we are making millions”.

With the unprecedented grounding of passenger aircraft, airlines with only a passenger fleet are now flying some of their parked wide body aircraft as cargo-only flights much to the relief of forwarders, shippers and government agencies, who are desperate for air freight capacity. They are taking extraordinary measures to keep the world moving, while their own business is in crisis. For these airlines, it is critically strategic to keep at least some top line in place to offset enormous fixed costs as demand for travel is nil and it is not likely to return immediately.
27/04/20 STAT Trade Times

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