Struggling cargo business dragging down Asian airlines

Agence France-Presse

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Languid global economic growth and freight capacity oversupply brought on by new deep-bellied planes is hammering carriers with dedicated cargo businesses

This photograph taken on January 7, 2014 shows a Singapore Airlines Airbus A380 approaching for landing at Changi International Airport in Singapore. AFP PHOTO / ROSLAN RAHMAN

SINGAPORE – Top Asian airlines’s profit margins are being eroded by a struggling air cargo business, even as they capitalise on increasing passenger demand, industry executives said.

Languid global economic growth and freight capacity oversupply brought on by new deep-bellied planes is hammering carriers with dedicated cargo businesses, the insiders said ahead of the Singapore Airshow.

“The biggest worry of the airlines industry right now is probably cargo,” Tony Tyler, director-general of the International Air Transport Association (IATA), told reporters in the city-state.

“For the big airlines in this region (Asia) it is a very important component of their revenue mix,” he said.

Asia’s biggest aerospace and defence show opens on Tuesday and will run until Sunday.

Last week IATA said air freight traffic rose by 1.4% in 2013 compared to the previous year, supported by rising activity from Middle Eastern and Latin American carriers.

Asia-Pacific carriers, which have nearly 40% of the global freight market, however saw volumes drop 1%, while capacity rose 0.8%.

Passenger demand rose 5.2% compared to 2013 while capacity rose 4.8%. Bigger planes are catering for a growing number of passengers.

Andrew Herdman, the director-general of the Association of Asia Pacific Airlines, said major regional airlines with separate cargo businesses are bearing the brunt of the slump in the industry since the 2008 global financial crisis.

“The people who are really suffering in the cargo business are the ones operating big fleets of dedicated freighters and that includes Singapore Airlines, Cathay Pacific, Korean Air, among others,” Herdman told AFP.

Singapore Airlines’ freight arm SIA Cargo operates 9 Boeing B747-400 freighters. Cathay Pacific has a fleet of 25 freighters while Korean Air has 26, according to data on the carriers’ websites.

IATA’s Tyler said full-service carriers could boost revenue by capitalizing on growing demand for ancillary services such as a la carte food on planes.

According to IATA, revenue from ancillary services per departing passenger is likely to rise to around 10% this year, from 0% in 2007.

Tyler also said it was too early to tell whether the airlines industry would be affected by the recent sell-off in emerging markets.

Commercial deals potentially worth billions of dollars are expected to be announced at the 6-day Singapore Airshow.

Vietnam’s first private airline, VietJetAir, is expected to announce the finalization of an order for 62 Airbus A320 planes worth $6.1 billion, an industry source close to the deal said.

An order for 20 Airbus A380 superjumbos worth $8.0 billion by leasing group Doric Asset Management could also be announced, the source said.

Around 1,000 companies are participating in this year’s edition of the event, which occurs every two years.

The total value value of deals during its 2012 edition reached $31 billion, up threefold from 2010, organizers said. –

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