New Aircraft Increases Capacity, Market Possibility

New Aircraft Increases Capacity, Market Possibility

Boeing 787 deliveries boost belly space on long routes, downgrading airline use of freighters

United Cargo has a new tool to tap into challenging markets. Parent United Airlines became the first U.S. carrier to deploy the new Boeing 787, receiving its first aircraft on Sept. 24. Four more 787s are scheduled to join United’s fleet before the end of the year.

Robbie Anderson, president of United Cargo, welcomed the new plane as a perfect tool to open long routes beyond the range of the B767-300 but too small for larger B777 aircraft, citing markets in India and the South Pacific. United will field the plane on routes from Washington to Lagos, London and Amsterdam, but also in the Los Angeles-Tokyo and Los Angeles-Shanghai sectors.

In terms of cargo capacity, the 787 can carry 10 to 15 tons on long sectors, marking a quantum leap over the B767-300, which it replaces on many routes — an increase of about 40 percent in capacity, according to Shinya Nagayasu, assistant manager for international route marketing for cargo and mail at Japan Airlines.

JAL, which has ordered 45 787s, is using the new aircraft to replace 767-300s on existing routes, but is also opening new sectors, such as Boston-Tokyo, which kicked off in April.

Altogether, United stands to receive 50 787s. American Airlines has firm orders for 42 planes of the model, plus options for 58 more, which will start coming into the fleet in 2014. In addition, the carrier will take delivery of the first of 10 B777-300s at the end of this year. With space for up to 44 LD-3 containers, the 777 has the payload of a midsize freighter.

Boeing’s 787 and 777, as well as Airbus’s planned A350 have significantly higher cargo capacity than the older models they replace. By some estimates, the capacity of the widebody aircraft currently on order is equivalent to 450 B777 freighters, which can carry 105 tons of cargo.

Today, many markets are flush with belly capacity, which undermines the case for freighter aircraft. Stan Wraight, managing partner in consulting firm Strategic Aviation Solutions International, pointed to the launch of daily B777 flights between Dubai and Ho Chi Minh City by Emirates, which constitutes several hundred tons of cargo lift per week linking Vietnam to the airline’s global network.

“Why would the shipping industry support a cargo airline that flies into Vietnam twice a week and tops up with 20 or 30 tons if it has daily access to more lift?” he asked.

This is exacerbating the plight of all-cargo airlines, which have been struggling with low yields and high operating costs because of stubbornly high fuel prices. James Woodrow, general manager of cargo sales at Cathay Pacific, remarked that his company is not making money on cargo in the current market, despite a fleet of modern, fuel-efficient aircraft and a large network to utilize.

Over the past 12 months, a number of freighter operators have gone out of business. The casualty list includes carriers that had struggled for some time, such as Arrow Cargo and Cargoitalia, as well as Jade Cargo, which operated a fleet of six modern B747-400 freighters out of China.

Even Cargolux, a consistently profitable cargo airline for years, felt compelled to embark on a comprehensive review of its business model, which is still in progress.

Boeing and Airbus have scaled down their long-term projections for freighter needs. Boeing now anticipates 3,200 jet freighters in operation by 2031, down from projections of 3,500 freighters by 2030 made a year earlier.

Gary Schultheis, senior vice president of air freight at DHL Global Forwarding, said his company would use more belly capacity going forward, adding that main-deck capacity would become more limited and expensive. Given the current yields, airline cargo divisions have a hard time convincing their board of directors to invest in cargo aircraft, he said.

Some industry executives see freighters relegated to special niches in the long run. About 15 to 20 percent of global demand is not suitable for passenger aircraft, said Dirk Steiger, managing director of Frankfurt-based air freight research and consulting firm Aviainform.

Security is another factor that favors freighters in some cases, although earlier predictions of a complete shift of cargo to freighters in response to increasingly onerous security requirements for passenger aircraft proved off the mark.

Winnboro, Texas, based forwarder Team Worldwide has developed international logistics offerings for online retail, an area that includes unknown shippers.

“Dealing with carriers that have freighters or that can operate part-charters has become more important for us,” said Bob Imbriani, vice president of corporate development.

“There are still routes where you have high demand for cargo but little passenger traffic, like Curitiba or Taipei,” Steiger said. He added that on some high-density passenger routes bellyhold capacity may be fully utilized by baggage, providing an opening for supplemental freighter flights.

Large multinational forwarders such as Panalpina, Schenker or DHL Global Forwarding continue to use dedicated freighter lift, including in the trans-Atlantic arena, which has ample belly capacity. There is a regular dialog between DGF and sister company DHL Express about opportunities for dedicated lift, Schultheis said. He pointed to freighters serving Cincinnati, the hub for express activities. “It brought us closer to the Ohio Valley market, with faster deliveries and faster turnarounds,” he noted.

“Our strategy has been to support our preferred carriers,” he continued. Wraight and others have suggested that block space agreements may not be suitable in a market characterized by volatility and excess capacity. It would be cheaper to use ad hoc rates and charter a freighter in the event of a large shipment, he said.

“We still have to move our customers’ traffic. Block space agreements help us plan our consolidations,” Schultheis said. Moreover, it pays to foster long-term relationships with airlines, he said. “When the economy turns around, we make sure we have capacity available then.”

Contact Ian Putzger at alkaputz@rogers.com.