Contrasts in demand may be a bad omen for the airline market

The differing performance of the two elements of the airline market is remarkable, but also disturbing for those operating air cargo services. The global air transport market is growing quite respectably. The latest figures from the Airports Council International (ACI), which is the trade body for international airports, describes “the market for international travel” as being “buoyant”.

Using its ‘Paxflash’ polling index, the ACI saw March passenger traffic in the Middle-East, Africa and Asia Pacific growing in double digit percentages, whilst overall global volume was up by 4.6%. This is despite passenger traffic within Europe shrinking by 5.9%. These numbers are not too dissimilar from IATA’s measurements which recorded ‘Revenue Passenger Kilometres’ as growing year-on-year in March by 6%.

Of course, the important point here is that it is the passenger market that is growing. In contrast, the freight sector is depressed with the ACI ‘FreightFlash’ reporting a 1% fall in the volume of freight moving through its members airports. The only region that saw freight volume grow was the Middle East which expanded by 8.7%. Of the leading freight air hubs, Hong Kong shrank by 2.2%, Memphis by 1.4% and Shanghai by 3%.

It is not news that freight markets are depressed or that the air freight market out of China in particular has experienced a modal shift away from air freight and towards sea freight. This has prompted a short-term rationalisation of freight capacity. However, the steady increase in passenger demand is likely to have the opposite effect as the fleets of major airlines grow to serve to core passenger market and with the side effect of expanding the quantity of available belly-freight.

This is illustrated in the case of IAG, which continues to modernise its fleet with 18 Airbus A350s and 18 Boeing Dreamliners, despite its losses at Iberia. Similarly, Emirates has taken delivery of 34 new aircraft in the past year alone.

Therefore, in addition to the issues around ‘modal shift’, it looks likely that the air freight sector will have to cope with a continuing supply of new capacity in the medium term. Of course, such loose market conditions could result in air freight pricing itself back into the market, but for this to happen container shipping rates would have to rise from their present rock-bottom levels to make this a likely prospect.