The industry is undergoing a dramatic transformation, driven by the advent of flashy new widebody passenger planes. And with those aircraft comes a huge amount of additional belly capacity.
This year should see a 19-percent increase in deliveries of new passenger widebodies, adding 8 percent to the capacity of the existing fleet, according to the latest Cargo E-Chartbook of the International Air Transport Association. The trend could reverse the rise in aircraft utilization rates, which had contributed to stability in the freighter fleet, IATA said.
Not anymore. To meet growth in passenger traffic, we’re seeing a wave of new widebodies, including the Boeing 777, and Airbus’s new-generation A350. They are far more fuel-efficient than such predecessors as the Boeing 747-400 and the McDonnell Douglas MD11 (later built by Boeing) – the “workhorses of air cargo’s golden age,” as FedEx chairman and chief executive officer Frederick W. Smith described them.
Speaking at IATA’s recent World Cargo Symposium in Los Angeles, Smith said the new aircraft “will create increasingly low-cost underbelly lift, and more origin-destination pairs.” A new 777 freighter flying from Hong Kong to Anchorage costs $30,000 less to operate than its 747-400 counterpart on the same route, while carrying nearly the same payload. Of course, the same economics, if not cargo capacity, apply to the passenger version of the 777.
Still, the new planes have plenty of under-deck space. One of the newest widebodies can handle 20 to 30 tons of cargo with a full passenger load, says Stanley G. Wraight, executive director of Strategic Aviation Solutions International (SASI). By comparison, a 747-400F carries around 100 tons, so three 777 passenger planes can handle the equivalent of one older freighter. And the frequency of passenger flights on heavily traveled routes trumps just about any pure freighter service in the market today. According to Wraight, available belly capacity on the Chicago-to-Frankfurt route is equivalent to more than 20 747 freighter loads.
The result to date is at least 43 747-400 freighters being parked in the desert, and six more scrapped. The same fate has befallen the MD-11 freighter: 20 grounded and four scrapped. And they’re far from obsolete. China Southern Airlines recently announced it was parking 747 freighters that are about a dozen years old, in favor of new 777 freighters. Smith said the newest version of the 747 – the 747-8 – is also contributing to the sunsetting of a large portion of the “legacy fleet.”
Sounds like a good deal for the airlines, which can carry cargo at lower cost and don’t have to cope with the overhead of so many freighters. (U.S.-based passenger airlines don’t generally fly freighters anyway.) Unfortunately, they’re faced with a situation similar to that of ocean carriers: the arrival of state-of-the-art equipment has brought about a glut of supply. And that’s challenging carriers’ yield factors.
It’s less of an issue for passenger airlines, which tend to treat cargo as incremental income. As a result, the rate differential between bellies and freighters can be huge.
“Total incremental freight cost [for a passenger airline] may be 50 to 70 cents a kilo,” says Wraight. “You sell it for 90 cents, making 20 cents. In the meantime, the costs of a freighter operator on the same route might be $1.20 to $1.50.”
Smith has to be pleased by the fact that FedEx, DHL and UPS are further eating into the market share of traditional air-cargo carriers, by taking on heavier freight and creating dense, highly efficient service networks. The big integrators make frequent use of their own freighter fleets, but they also book belly space with the passenger lines.
More than 95 percent of freight could go either way. “Integrators are not just dealing in envelopes anymore,” says Wraight. They’re even going after such non-traditional business as horse charters.
What’s more, noted Smith, the rapid growth of electronic commerce has generated more of the smaller packages in which the integrators specialize. New-product introductions requiring main-deck freighter space have slowed considerably.
It’s the traditional all-cargo airlines – the ones that rely on independent forwarders to supply them with bookings – that are suffering the most, according to Wraight. The trend away from freighters has been developing for some time, contributing to the suspension of operations by Evergreen International Airlines Inc. and bankruptcy-protection filings of Atlas Air Worldwide Holdings, Inc. and the parent of World Airways.
All of which means that air-cargo carriers in general aren’t reaping the rewards of a recovering economy, and resulting increases in demand, as much as they hoped. But it’s the old-line freighter operators who have to be most worried about the industry’s current state of affairs.
We could be seeing a lot more cargo planes taking up residence in the desert in the coming months and years. In the words of Smith, freighter profitability will continue to be “very challenging indeed.”