The air cargo industry underwent a serious stress test in 2023 as collapsing market demand and rates dragged down revenues, forcing many all-cargo carriers to cut back operations, postpone aircraft investments and tighten budgets, before a late resurgence in volumes lifted offered hope for a greater 2024.
The course correction from 2021, when airfreight business skyrocketed to record highs as businesses looked for methods to beat broken supply chains through the pandemic, began in early 2022 and didn’t stabilize until the autumn. Airfreight wasn’t a priority for retailers because they’d built up an excessive amount of inventory on the misguided notion that online purchases would proceed to blow up while the reintroduction of more passenger flights saturated the market with belly capability.
Most of the 12 months’s important developments in air cargo were coloured by the severe drop in profit margins, with some industry stakeholders withstanding the squeeze higher than others.
Here’s a have a look at how the 12 months unfolded for the air cargo sector.
Freight recession cuts deep
Air cargo was no exception to the recession that gripped the freight transportation sector for nearly 18 months. The industry entered the 12 months on the heels of high-single and double-digit declines in monthly cargo volumes, however the gap regularly improved until hitting bottom in August. Since then, air cargo volumes have improved as the height season proved higher than expected, largely resulting from a surge in e-commerce orders for fast fashion and electronics produced in China.
Improved performance is partially related to very weak comparisons in late 2022, when demand plunged.
Freight rates were down 40% to 50% for much of the 12 months, before rallying in recent months. Rates are actually 50% ahead of 2019 levels after narrowing to about 20%.
Publicly listed airlines saw cargo revenues slide between 25% and 60%, with carriers in Asia feeling the largest reductions. Lufthansa Cargo reported it had no profit within the third quarter in comparison with $352 million the prior 12 months.
Questions remain about whether the peak-season bounce was temporary. Most experts think the market won’t really begin to get better from the prolonged downturn until the second half of 2024 due to mixed economic conditions. But geopolitical events are a wild card that would propel, or constrain, growth in the approaching 12 months. The recent diversion of container vessels around Africa to avoid the chance of missile and drone attacks could present a significant opportunity for airlines and freighter operators if businesses convert some shipments to air transport to avoid delivery delays.
Plugging financial leaks
Airlines and freight forwarders responded to the dilution in revenues by taking steps to rein in costs. Many carriers canceled or postponed purchases or leases of recent freighters that they planned for when the market was booming.
Air Canada reversed course on an order for 2 production Boeing 777 cargo jets and Cargojet scrapped plans to convert 4 777s into freighters. Air Transport Services Group has paused sending Boeing 767s to repair shops for conversion and said several customers have backed out of commitments to lease freighter aircraft. Amerijet has parked one freighter and deferred major maintenance on two more along with eliminating some accounting jobs and shutting a small logistics business.
Defections from three major customers contributed to the financial woes at Western Global Airlines, which declared bankruptcy last summer. The corporate restructured and was released from court protection early this month.
The weak market also impacted the large express carriers, which have in the reduction of on flight activity. FedEx continued a multibillion dollar campaign to eliminate structural costs and consolidate operations for improved efficiency. The trouble includes the Express business taking out $700 million in annual costs by reducing reliance on the hub-and-spoke network, consolidating routes and leaning more on contract carriers, industrial airlift and trucking. FedEx now has more pilots than it needs and is encouraging a few of them to take jobs with a regional passenger airline.
FedEx (NYSE: FDX) and UPS (NYSE: UPS) are accelerating the retirement of older aircraft and have temporarily parked others until the market picks up. UPS offered buyouts to just about 200 senior pilots to lower your expenses.
Freight forwarders starting from Flexport to Kuehne+Nagel, DSV and C.H. Robinson eliminated 1000’s of jobs in response to slower air and ocean volumes.
Fleet freeze
Aerospace corporations that concentrate on converting passenger planes to freighters are expected to crank out a record variety of units this 12 months, but deteriorating international freight and e-commerce volumes chilled orders for brand spanking new and aftermarket aircraft.
Many airlines and lessors are sticking with aircraft commitments to make the most of forecast growth in e-commerce and international trade, and to modernize their fleets. But recent orders have been few and much between this 12 months — each for production freighters and cargo conversions of used passenger jets.
Most concerns about freighter oversupply give attention to standard-size jets just like the 737-800 and the Airbus A321. The variety of conversions for small, standard-size jets exploded through the past three years to unprecedented levels.
A handful of airlines countered the trend and placed orders, or expanded their current fleets. Cathay Pacific and Turkish Airlines each ordered several copies of the brand new Airbus A350 freighter, which continues to be in the ultimate design and certification stage. Japan Airlines relaunched its first freighter fleet in 13 years by taking three of its 767 passenger aircraft and sending them out for overhaul so that they can carry large cargo containers. The primary aircraft was recently delivered and can begin intra-Asia service in February for DHL Express. Spanish cargo airline Swiftair said it’ll lease two Airbus A321 freighters next 12 months. Meanwhile, U.S. startup GlobalX has ambitious plans for cargo after adding its first three freighters this 12 months.
Changes at the highest
How some corporations handled those outside economic forces led to leadership changes.
Air Transport Services Group (NASDAQ: ATSG), which owns cargo airlines and ground handling corporations along with being the world’s largest lessor of freighter aircraft, fired CEO Wealthy Corrado over continued capital expenditures on aircraft while the airfreight market was in a hole and disappointing performance in the corporate’s stock. Amerijet ousted Tim Strauss as CEO when his three-year contract ended.
Freight forwarder Flexport had a messy breakup with CEO Dave Clark, lower than a 12 months after arriving from Amazon, over the direction of the corporate and heavy losses. The corporate laid off greater than a 3rd of its workforce through the 12 months.
Other leadership transitions were planned. Atlas Air promoted Michael Steen to CEO after John Dietrich retired after which went to FedEx to grow to be its CFO. Atlas Air also hired Martin Drew, formerly the cargo chief at Etihad Airways, as chief strategy and transformation officer. Ajay Virmani of Cargojet announced that he’ll step down as CEO in January and get replaced by two top lieutenants in a co-leadership arrangement.
Paying pilots
It was a busy 12 months for labor contracts within the airline and air cargo sectors. The specter of disruption loomed over some carriers as unions flexed their muscles to influence negotiations and recent deals significantly raised operating costs.
Pilot unions were in a position to make the most of favorable economic conditions a decent labor market, high inflation, crew shortages at mainline carriers as they tried to rebuild after pandemic-driven layoffs and a training backlog for brand spanking new hires to recover pay and work schedules.
Plenty of major passenger airlines reached collective bargaining agreements with cockpit crews. Delta Air Lines pilots finalized a contract that features a 34% raise over 4 years. In September, pilots at United Airlines approved a brand new contract that raised pay as much as 40%. American Airlines pilots also received an enormous raise. And Hawaiian Airlines pilots, including those hired to fly the corporate’s first freighters for Amazon, reached a deal that raised pay as much as 33%.
Southwest Airlines pilots struck a tentative deal this month after earlier giving union leaders leeway to call a strike. Strikes are rare in aviation, partly due to federal law that severely restricts the flexibility of unions or management to shut down operations for leverage.
Miami-based cargo operator Amerijet agreed last summer to lift pilot pay no less than 45% in a three-year take care of the union. The pay hike got here against the backdrop of sharply lower revenues due to weak market conditions and value cuts to make ends meet.
Last month, pilots at cargo airline Air Transport International laid the groundwork for union leaders to call a strike when legally allowed. The corporate is one in all the important transportation providers for Amazon Air and DHL Express within the U.S.
Pilots at Western Global Airlines unionized in 2021 and were in search of their first contract when the carrier filed for bankruptcy protection in August. The corporate exited the bankruptcy process earlier this month after disposing the majority of its liabilities.
In July, pilots at FedEx Express voted to reject a proposed deal between management and union negotiators. The deal would have raised pay by 30% over five years. Pilots had authorized union leadership to initiate a strike vote before union negotiators reached agreement May 30 on a brand new deal.
Pilots who voted against the FedEx deal complained about weaker job protections, back pay and alternative pension options and said pay increases were below those achieved by pilots at Delta, United and American.
Meanwhile, 1,100 ramp employees at DHL Express’ Cincinnati air hub went on strike on Dec. 7, with the impact spreading as Teamsters members at other U.S. locations honored the picket line and refused to report for work. An agreement between the 2 sides was reached 12 days later.
Secondary airports
2023 saw continued interest from freight forwarders in smaller, less congested airports which might be in a position to quickly perform cargo transfers and lower cost. Kuehne+Nagel opened an air terminal for a chartered freighter at Birmingham Shuttlesworth Airport in Alabama, while DSV began dedicated freighter flights to Phoenix-Mesa Gateway Airport as an alternative of the large Phoenix Sky Harbor Airport. Maersk Air Cargo is testing a route from Bournemouth Airport outside London.
Hawaiian and Amazon
Hawaiian Airlines in October began flying cargo inside Amazon’s air logistics network, an unconventional partnership that would have significant implications for each corporations and competitors. It’s going to receive more A330-300 converted freighters, provided by Amazon, in 2024 and eventually operate 10 freighters for the e-commerce giant. The partnership got more intriguing early this month when Alaska Air announced a deal to accumulate Hawaiian Airlines for $1.9 billion.
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