The changing role of air cargo

Last week we shared our analysis of the changing role of air cargo revenues compared to passenger revenues in and out of Australia. Decline in cargo (kg carried) on Australian international flights January to May has only been around 23%, while decline in passengers has been around 98%. An increase in freight only flights and massive reduction in rpt movements has pushed more cargo on to flights which are either freighter operated, or which operate without passengers, increasing the average cargo per flight from around 4,500 kg pre COVID to 22,000 kg in May.

Interestingly, despite constraints on capacity, globally, air cargo has increased its share of the global cargo task. Relatively (compared to passengers, at least) stable demand and significantly reduced capacity have seen air cargo rates soar globally, however this does seem to be stabilising now, in many markets.

For Australia, air cargo market recovery seems to be linked to a number of factors. The availability of capacity (either through the addition of capacity by airlines such as Qatar and China Airways, or through government support initiatives such as IFAM), and a country's progress through the COVID curve seem to be key in the markets that have largely recovered (such as Singapore, China, Hong Kong) compared to those who are still dramatically impacted (Thailand, Philippines, Indonesia, Chile, for example).

Various factors will shape the future of air freight in Australia, and indeed globally. The growth of e-commerce, the contraction of global supply chains, attempts to reduce the cash flow impacts of having large volumes of stock at sea, high volume tech releases and the transformation of industries and supply chain management towards Industry 4.0 can all be considered to shape demand for air cargo space, and to have sufficient revenue clout to influence network planning decisions.

As industry considers a likely 4 year recovery period for the passenger business, we must also recognise that cargo is recovering and re shaping right now. Only a few days ago Air Canada announced that their air cargo revenues had outstripped their passenger revenues for the first time ever. This is likely happening for multiple airlines - especially those who like Air Canada, have been aggressive enough with the cargo opportunity to drive a real result for their business. This poses a unique challenge for the airports sector who have perhaps not fully optimised the revenue that could be realised from air cargo services, focusing instead on non-aero passenger revenues.

So, for how long will cargo be a better source of airline revenues than passengers? The answer will vary from market to market, but this is a question that airports must be asking themselves now, and adapting their aeronautical strategies and business cases to suit.