Expect another year of solid demand, air freight heads say

Expect another year of solid demand, air freight heads say

The good times continue to roll for air cargo operators.
Credit: AF-KLM

There will be no reduction in air freight volumes over the next 12 months, and the robust demand will support improving profitability, according to airline executives responding to an International Air Transport Association (IATA) survey.

IATA’s October Airline Business Confidence Index found that 80 percent of airline CFOs and heads of cargo surveyed indicated that profitability increased in year-over-year terms in the third quarter, up from just 36 percent of respondents in the first three months of 2017 when airline finances were feeling the squeeze.

The positive expectations are hardly surprising, considering the air cargo industry has been in a purple patch for most of the year with the peak season still to come. IATA data show European airlines recorded an 11.8 percent increase in freight demand in August against a capacity increase of 5.1 percent. This solid performance was repeated in other regions — Asia Pacific carriers posted an 11.3 percent growth in demand during August, North American airlines reported 11.7 percent, and Middle Eastern airlines in excess of 14 percent.

The association said its outlook for air freight remained strong, and with several months of double-digit growth in 2017, the current IATA forecast of 7.5 percent growth in air freight demand for the year appears to have “significant upside potential” even if the industry is approaching a cyclical peak.

Improvements in global trade sentiment have also delivered a robust 10 percent growth in air cargo volumes for Asia Pacific airlines, a welcome development for the carriers that account for nearly 40 percent of global air cargo traffic. Although there has been considerable pressure on yields in a fiercely competitive environment, Asia Pacific carriers in aggregate are expected to deliver profitability levels similar to last year, according to Andrew Herdman, director general of the Association of Asia Pacific Airlines (AAPA).

Herdman told the annual AAPA Assembly of Presidents, this year held in Taipei, that during the first nine months of the year, Asian airlines recorded a firm 10.7 percent increase in international air cargo traffic volumes, with September demand up 11.4 percent.

Air cargo’s peak shipping season is in the last two months of the year and an Atlas Air Worldwide spokesperson told JOC.com that the US-based group was expecting a good peak period.

“That’s what our customers have been telling us and that’s what we are looking for. In particular, air cargo is showing strong, broad-based demand growth, while capacity is being added at a much lower rate,” the spokesperson said.

But with demand rising far above available capacity, shippers should prepare for significant increases in freight rates. Capacity is expected to be tight this peak season, and as a result charter rates are rising sharply.

The Atlas spokesperson said, “We expect charter rates in 2017 to be higher than last year, reflecting the strong, broad-based demand for air cargo and generally limited charter capacity.”

In its monthly update, IATA said the strong performance of air freight demand corresponded with the pick-up in global trade. World trade volumes grew 4.2 percent in the first seven months of 2017 compared with 2016, their strongest performance since 2011. This was consistent with rising export orders, which are currently at their highest levels since March 2011.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.