Airfreight Pulse: More capacity eases pressure on rates

Flight preparations as viewed from behind and below the tail of a big jetliner.

Airfreight rates continued to fall in July as virus-related shipments gave way to a more normal mix of commodities and beefed-up passenger schedules presented greater transport opportunities for shippers.

But there are signs the trend may not last. The ebb and flow of coronavirus containment and spread in different regions of the world presents a cautionary note against expectations the airline industry recovery will continue in a straight line without interruption, and that cargo capacity won’t be sidelined in the process.

Cargo prices are dropping on most international routes, with the key China-to-Europe and China-to-U.S. lanes down about 9.8% to $3.23 per kilogram and $4.38 per kilogram, respectively, for the week that ended Monday, according to The Air Cargo Index, which closely tracks the market. 

The biggest price movement was for exports from Hong Kong, which fell 16%. Rates for the week were lower by 61 cents to Europe and 82 cents to the U.S.

Rates out of Shanghai to both continents were relatively flat. 

Outbound China rates have dropped more than 70% from their May peak.

Logistics companies say the demand-supply situation in Europe is the most balanced it has been in months and that there are fewer orders for personal protective equipment to move by air.

Market sentiment indicates further downward slide in pricing for airfreight contracts in the coming weeks, London-based Freight Investor Services said.

India is coming out of an extensive lockdown that limited air cargo capacity, and export rates remain high, according to an update from Wen-Parker Logistics. The situation should continue to improve as more airlines restart operations there. Wen-Parker, of Elmont, New York, also said air capacity is limited through July in Bangladesh.

Space on passenger jets

Airlines are quickly adding passenger routes back into their networks after shuttering most operations for more than two months because of the novel coronavirus. That is partially alleviating a large transport-supply shortage that makes it difficult for businesses to easily and affordably move goods since passenger planes constitute more than 50% of global cargo capacity.

United Airlines (NASDAQ: UAL) tripled the size of its August schedule compared to June, adding nearly 25,000 domestic and international flights from July levels. But travel demand is still far below what it was last year, with United only offering 35% of its passenger capacity in August compared to August 2019.

“We’re taking the same data-driven, realistic approach to growing our schedule as we did in drawing it down at the start of the pandemic,” said Ankit Gupta, United’s vice president of domestic network planning, in a news release. “Demand is coming back slowly and we’re building in enough capacity to stay ahead of the number of people traveling. We’re adding in flights to places we know customers want to travel to, like outdoor recreation destinations where social distancing is easier, but doing so in a way that’s flexible and allows us to adjust should that demand change.”

Meanwhile, airlines continue to deploy passenger planes for dedicated cargo activity, making use of aircraft that otherwise would be idle. 

United expects to offer a mix of cargo-only and passenger flights for the foreseeable future because belly capacity “will not ramp up quickly enough to meet cargo demand,” Cargo President Jan Krems said in a message to customers. “As a result, our cargo-only flight program will continue to operate in the near term.”

Delta Air Lines (NYSE: DAL) this month has added some flights connecting Europe and Asia with its main hubs, while Air Canada has added substantial widebody lift to and from those regions because it is not subject to the same travel restrictions as the U.S. 

Many carriers have reinstated passenger services in July and increased cargo capacity, including Cathay Pacific, Air France-KLM, IAG Group, Lufthansa Group and Qatar Airways.

Lufthansa (OTCUS: DLAKY) is offering more than 40% of its originally planned flight program in July and expects group airlines to fly 70% of originally scheduled long-haul routes by the end of October. By then, the company will have more than 380 aircraft — half of its fleet and 200 more than in June — flying again.

Lufthansa subsidiary Austrian Airlines, which is operating at 20% of last year’s capacity, resumed intercontinental flights July 1 and plans to double capacity to almost 40% of last year’s level by the end of October.

Pump the brakes

The bounce in travel demand has been a pleasant surprise for airlines, but industry officials say they still expect a slow, uneven recovery that takes at least three years to approach the amount of business enjoyed in 2019. 

U.S. domestic passenger traffic has grown sixfold since its April lows, according to Transportation Security Administration figures of people going through airport checkpoints, and is now about a quarter the amount at this time last year.

Still, United Airlines began preparations this week to terminate 36,000 employees and warned it is starting to see booking declines as COVID-19 spreads in the U.S.

During a town hall meeting for employees on Monday, company officials said an increase in COVID cases negatively impacts industry demand, as illustrated by the drop in the seven-day moving average of ticket purchases for future travel dates. Domestic bookings have dropped much faster at Newark International Airport in New Jersey than the rest of United’s domestic network since New York, New Jersey and Connecticut on June 24 began requiring people arriving from outbreak states to quarantine for 14 days. Officials had planned to operate 40% of their 2019 August schedule before pulling back some because of the nationwide flare-up, they said. 

The company said it plans to evaluate and cancel flights on a rolling 60-day basis until it sees signs of a recovery in demand and that it expects demand to remain suppressed until a widely accepted treatment or vaccine for COVID-19 is available. 

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.


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