Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Malaysia Weekly on November 8, 2021 - November 14, 2021

AIR cargo has been a bright spot in a pandemic-battered airline industry. The global air cargo market has enjoyed its strongest first-half performance this year since 2017, posting an 8% year-on-year growth and serving as a backstop for airlines. The boom is expected to continue.

Adrian Loretz, chief operating officer at Teleport, the cargo and logistics arm of AirAsia Group Bhd, said airfreight rates have climbed by more than 500% on major trade lanes between Asia and the US and Europe since the beginning of the pandemic, driven by continued lack of belly freight capacity and rise in e-commerce demand across regions. He was speaking at Teleport’s virtual news conference to launch its dedicated Boeing 737-800 freighter (737-800F) last Wednesday.

Though cargo yields could come under pressure as airlines resume more flights and restore capacity amid easing of travel restrictions, airfreight rates are likely to remain high in the near term, he added.

“We are in the middle of the peak. I don’t think airfreight rates will rise further, but they will remain elevated through 2022,” he said. “Consequently, I expect yields to remain higher than pre-pandemic levels for a while because the recovery [of the air travel industry] is not going to be that fast and there is still rising demand for e-commerce across the regions.”

The International Air Transport Association (IATA) estimates that it will take until 2024 for passenger traffic to recover to 2019 levels.

In an Oct 15 report, CGS-CIMB Research aviation analyst Raymond Yap says he expects Teleport to experience deflation of its cargo yields as belly hold cargo capacity is reinstated, even if its cargo volumes pick up by riding on AirAsia Group’s network restoration.

Chareonwongsak said Teleport makes up about 40% of AirAsia’s overall revenue during the pandemic when most passenger flights are grounded

The boom in air cargo demand has led Teleport to convert several of AirAsia’s passenger aircraft into temporary cargo planes, as well as permanently convert two Airbus A320 passenger jets into freighters; yet it has found that this is not enough. Last week, it announced that it is partnering Thailand’s K-Mile Asia to operate the 737-800F to serve key markets — including Hong Kong, Shanghai, Chennai, Mumbai and all the major destinations in Southeast Asia — from Thailand.

Teleport CEO Pete Chareonwongsak said it is one of the unit’s long-term growth strategies to potentially convert “a meaningful chunk” of AirAsia’s 362 A321neo aircraft on order with Airbus SAS to freighters, as well as work with third-party airlines to secure more cargo space. AirAsia Group has a total fleet size of 211 aircraft comprising 169 A320s, 38 A320neos and four A321neos as at Oct 6.

Teleport saw its revenue increase 67% quarter on quarter to RM154.8 million in the second quarter ended June 30 (2QFY2021). As compared to 2QFY2020, revenue tripled.

Chareonwongsak said Teleport makes up about 40% of AirAsia’s overall revenue during the pandemic when most passenger flights are grounded. He hopes that cargo revenue will account for at least a quarter of the low-cost carrier’s total revenue post-pandemic.

Teleport is expecting to secure about US$50 million (RM207 million) to US$100 million of fresh funds by the end of the year as part of a plan that includes expanding its fleet to six freighters by 2023 and going public in three years.

Shukor: For many major airlines, air cargo is not such a big profit-generating centre with the exception of airlines like Korean Air, Taiwan’s EVA Airways Corp and Germany’s Lufthansa Cargo

Shukor Yusof, founder of aviation consultancy Endau Analytics, however, does not see Teleport going public anytime soon. “AirAsia had previously wanted to list some other subsidiaries, including its BIG loyalty programme too. Why didn’t that happen? The idea of listing Teleport in three years sounds as unrealistic as the plan to revive a moribund AirAsia X Bhd,” he tells The Edge.

He notes that not many airlines spin off and list their cargo arm as there is little to gain in the long term from selling the cargo subsidiaries.

“For many major airlines, air cargo is not such a big profit-generating centre with the exception of airlines like Korean Air, Taiwan’s EVA Airways Corp and Germany’s Lufthansa Cargo. There is no real reason to list. Usually, the parent group is already listed. So why create another listed company within the group?” Shukor says.

Cargo a vital source of revenue for airlines

Ibrahim Mohamed Salleh, CEO of MAB Kargo Sdn Bhd (MASkargo), the cargo business unit of Malaysia Aviation Group Bhd (MAG), sees air cargo remaining a bright spot for airlines, citing data from IATA that estimates demand in 2022 to exceed 2019 levels by 13% with cargo revenue expected to rise to US$169 billion, although there will be an 8% decline in yields.

Ibrahim: The more cargo revenue that passenger airlines can generate, the more they will be able to keep passengers’ fares at a reasonable level and attract back passenger traffic

“Air cargo business will be a critical area of resiliency for airlines for the foreseeable future, representing a much larger share of airline revenue for years to come. The more cargo revenue that passenger airlines can generate, the more they will be able to keep passengers’ fares at a reasonable level and attract back passenger traffic. In the future, airlines will need to prioritise cargo in their overall planning,” he says in an email response to questions from The Edge.

Ibrahim says MASkargo’s airfreight rates have increased “substantially” due to the demand for efficient transport, exacerbated by port congestion, which has seen shippers turning to air freight and the demand from shippers leading to the Christmas holidays.

He says the company’s growth in terms of yield and revenue has been substantial — up about 75% to 100% depending on sectors and trade lanes. “As a subsidiary, MASkargo has traditionally been a positive contributor to MAG even during the period before the pandemic. In 2020, it doubled its profit compared to 2019.”

MASkargo’s last filing with the Companies Commission of Malaysia shows that its net profit surged 444% to RM180.54 million in 2019 from RM33.17 million in 2018, even though revenue fell by a marginal 0.5% y-o-y to RM1.27 billion.

MASkargo offers belly space capacity on Malaysia Airlines Bhd passenger fleet as well as dedicated freighter space with three A330-200Fs. “We are seeing the load factor increase in the region of 60% to 65%, depending on the sector. We operate our freighters primarily to Asean, Greater China including Hong Kong, Japan, South Asia and Australia,” says Ibrahim.

“We have no immediate plans to inject new freighters into the fleet, but will explore alternatives to increase our reach and network, for example, via partnerships,” he adds.

Despite favourable circumstances, the air cargo industry does face challenges ahead. Common among airlines with the same fleet composition and network as MASkargo are issues such as limited wide body aircraft to capitalise on the situation and opportunities being presented, says Ibrahim.

“While we welcome the reopening of passenger business, cargo space will inevitably be taken up by passenger baggage and will have an impact on the amount of cargo that can be uplifted for the flights,” he explains.

During the pandemic, MASkargo mounted a large amount of cargo-only flights on passenger aircraft, but this is expected to reduce over time with the restoration of scheduled services.

Ongoing challenges including constraints on crewing, especially when airlines do not allow most of their crew to have a night-stop or layover, will likely continue to force more crew to be utilised per flight. Additionally, reduced slots at major airports due to a lack of manpower and resources at destinations have ramifications for airlines like MASkargo.

“Covid-19 has also affected the airport cargo terminal and ramp operations in terms of manpower. At some destinations, reduced capability to handle flights has forced us to have a longer ground time, not unlike the issue facing seaports,” says Ibrahim.

IATA data shows that while airlines worldwide lost US$126 billion last year as the Covid-19 crisis prompted countries to close borders and ban international flights, the air cargo industry generated US$129 billion in revenue.

“For many airlines, cargo became a vital source of revenue when passenger flights were grounded. In 2020, the air cargo industry generated US$129 billion, which represented approximately a third of airlines’ overall revenue — an increase of 10% to 15% compared to pre-crisis levels,” IATA global head of cargo Brendan Sullivan said in an Oct 12 statement.

This year, cargo demand is expected to exceed 2019 levels by 8% and revenue is expected to rise to a record US$175 billion, with yields expected to grow by 15%.

“The outlook for air cargo in the short and long term is strong. Indicators such as inventory levels and manufacturing output are favourable, world trade is forecast to grow at 9.5% this year and 5.6% in 2022, e-commerce continues to grow at a double-digit rate, and demand for high-value specialised cargo such as temperature-sensitive healthcare goods and vaccines is rising,” said Sullivan.

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

      Print
      Text Size
      Share