The air travel ban from Europe to the U.S. announced Wednesday night by President Donald Trump is likely to have a profound impact on the trans-Atlantic air cargo trade. This despite Trump’s hurried post-address clarification on Twitter that the minimum 30-day ban, which he seemed to indicate in his Oval Office remarks would cover goods as well as passenger movements, would apply only to people.
The ban, which takes effect at 11:59 p.m. Friday, bars foreign nationals from entering the U.S. if they traveled during the past 14 days within any of the 26 countries comprising the Schengen free-movement zone. U.S. citizens and legal permanent residents will be allowed into the U.S. through 11 government-approved airports. The ban also does not affect U.K. and Irish citizens.
For all practical purposes, however, the ban will apply to goods movement. That’s because most goods in the U.S.-Europe air cargo market move in the lower hold, or bellies, of passenger-carrying aircraft. Because of the ban, airlines will reduce their capacity should passenger demand, as is expected, significantly recede in the weeks and perhaps months to come. Those reductions will take out a large chunk of cargo supply. The Europe-North American market, which includes Canada, accounted for 6.3% of world air cargo tonnage in 2017, according to the Boeing Co.’s (NYSE:BA) World Air Cargo Market Forecast that was published the following year.
On Tuesday, Delta Air Lines (NYSE:DAL) announced a 15-20% cut in trans-Atlantic capacity as part of a 15% network-wide reduction. Following Trump’s speech, the carrier added seven routes, affecting Paris and Amsterdam, to its no-fly list, effective Friday. About 200,000 flights were scheduled during 2019 between the U.S. and the Schengen Area, equal to about 550 flights per day, according to the International Air Transport Association (IATA). Approximately 46 million passengers flew on those routes last year, IATA said.
Freighter aircraft could fill some of the void, but likely not all of it. Boeing in its report said that 1,870 freighters populated the world’s fleet in 2017. Of the major airlines on the trans-Atlantic, only Air France-KLM and Lufthansa German Airlines fly cargo equipment. None of the U.S. big three, which include Delta, United Airlines (NYSE:UAL) and American Airlines (NYSE:AAL), fly freighters. A bulk of the world’s freighter fleet operate in the Asia-Pacific, the world’s busiest air cargo region.
Brandon Fried, executive director of the U.S. group Airforwarders Association, said members have told him trans-Atlantic rates could climb to three times their normal levels very quickly due to the capacity cuts.
Unsurprisingly, all-cargo operators capable of ramping up quickly are expected to be in great demand across the Atlantic, unless total demand slows to the point where all carriers are affected. “We continue to evaluate market opportunities, which are currently on the upswing for main deck freighters, and will continue to leverage our significant commercial charter business to capitalize on customer demand,” said Debbie Coffey, a spokeswoman for Atlas Air Worldwide Holdings Inc., (NASDAQ:AAWW) which provides a range of all-cargo services for customers.
For an industry already coping with COVID-19 supply disruptions and demand hits in China, South Korea and Israel, among other countries, the unexpected European travel ban is a shot in the gut. “This is a scenario we’ve not seen before,” said Brian Bourke, chief growth officer of Seko Worldwide, a U.S.-based multinational freight forwarder that books 80% of its trans-Atlantic goods with passenger airlines. Since Trump’s address, conversations with airline partners have been conducted not just day to day, but hour by hour, Bourke said.
Seko is still managing significant backlogs out of China and South Korea, countries that are farther along than the rest of the world in dealing with COVID-19. In South Korea, users need to book airfreight shipments seven days in advance, an atypical lead time to say the least, he said.
Officially, the Trump ban only affects travel from Europe to the U.S. Yet it impacts cargo and passenger activity bidirectionally. For example, an airline will be reluctant to fly from New York to Paris if its return load isn’t sufficiently compensatory. A scrubbed eastbound flight means less available Europe-bound belly lift for shippers and freight forwarders.
Trans-Atlantic demand has been soft for some time due to global weakness in industrial production, offset somewhat by increases in international and cross-border e-commerce traffic. However, business began to pick up somewhat around the turn of the year before coronavirus concerns arose first in China, according to Fried.
Freighter services are seen as the preferred conveyance option because they are not held hostage to passenger schedules and can be positioned for the sole benefit of the cargo customer. However, it costs less to book goods on a passenger plane because an airline, knowing the aircraft has to fly anyway, prices the cargo movement as a byproduct of the heartier passenger revenue.
U.S. airlines in particular have grown their trans-Atlantic capacity in recent years because the passenger market is lucrative. As a result, trans-Atlantic cargo rates have been abundant and relatively cheap.