Desperate airlines swap passengers for cargo to stay afloat
Singapore – Unable to fill planes with passengers as the coronavirus destroys travel demand, airlines are instead using their fleets to transport more cargo, including medicines, smartphones and Korean strawberries.
The likes of Cathay Pacific Airways Ltd., Korean Air Lines Co. and American Airlines Group Inc. are hauling a greater amount of goods in the bellies of their planes to keep up with demand. Cargo rates have risen over 10 percent in recent weeks as some companies are prepared to pay more to ship goods after drastic cuts in passenger flights left them with less capacity to haul cargo.
Airlines typically don’t operate in this fashion. Yet they are desperate to use whatever capacity they can for cargo as earnings from passenger operations have almost vanished with traffic down 90 percent. Though travel has been decimated, global trade continues, especially with factories reopening in China and demand surging for medical supplies to fight the pandemic.
“At least for the short term, as long as passenger flights are disrupted, cargo operations are expected to help some airlines make up for some of the losses,” said Um Kyung-a, an analyst at Shinyoung Securities Co. in Seoul. “With oil prices falling and higher rates, it’s become economical for some airlines to be using passenger planes for cargo.”
Airlines could lose $252 billion in revenue from passenger operations this year because of the pandemic, according to the International Air Transport Association. In normal times, about half of the world’s air cargo is transported on dedicated freighters and the rest goes in the bellies of passenger aircraft along with people’s baggage. Airlines have increasingly relied on passenger planes to transport cargo since the 2008 global financial crisis.
Airlines are asking governments to ensure vital cargo supply lines remain open and efficient, calling for measures including the removal of slot restrictions and operating-hour curfews, and exempting crew who don’t interact with the public from 14-day quarantine requirements, IATA said Wednesday. “We are still seeing examples of cargo flights filled with life-saving medical supplies and equipment grounded due to cumbersome and bureaucratic processes to secure slots and operating permits,” it said in a statement.
While about 90 percent of global trade is conducted by sea, air cargo transports over $6 trillion worth of goods annually and accounts for about 35 percent of trade by value.
Airlines including Cathay and Korean Air have more exposure to airfreight operations, which account for over 20 percent of their annual revenue. While many other airlines around the world become more reliant on passenger aircraft to haul cargo, they still operate freighters. Emirates, Qatar Airways, Cathay, Korean Air and Deutsche Lufthansa AG are the world’s top five cargo airlines.
Some carriers such as Delta Air Lines Co., Japan Airlines Co. and Air Canada don’t have freighters and have relied on passenger planes to carry cargo. That’s because many companies have been opting to move products by using less expensive modes of transport, such as ships.
“There’s a shortage of cargo space in the short term while demand is still there,” said James Teo, an analyst at Bloomberg Intelligence in Singapore. “Cargo yields are up double digits during this time. With passenger planes taken out, it has created a shortage of cargo capacity.”
Cathay, Asia’s biggest air-freight airline, has said a third of its cargo capacity was eliminated by the halt in passenger service. Typically it carries half of its cargo load on passenger planes and the rest on its freighters. Its Cathay Dragon unit is using Airbus SE A330 aircraft to send cargo to China. The carrier was struggling to fill planes with passengers even before the virus outbreak as traffic slid in the second half of last year with the anti-government protests in Hong Kong, its base.
“While our freighter network remains intact, we are also ramping up our cargo capacity by mounting charter services and operating certain suspended passenger services purely for air freight to meet cargo customer demand,” Cathay Chief Customer and Commercial Officer Ronald Lam said on March 20.
Korean Air, Asia’s second-biggest cargo airline, is also deploying its A330 aircraft to Ho Chi Minh City and Qingdao to transport such products as LCD displays, ship components, mobile phone parts and Korean strawberries starting this month.