A rollercoaster winter for global logistics has clouded any glimmer of “normalcy” for the airline and air cargo industry, leaving companies to question if and when operations will recover from the COVID-19 pandemic.
From March 2020 onward, airlines experienced a sharp decrease in passenger numbers and a fleet of grounded craft that brought no revenue, but continued to burn money in maintenance, insurance, and hangar costs. Several airlines addressed this by removing seats, in-flight entertainment, and passenger services to create semi-freighter aircraft.
Initially, the main use for freight aircraft was to carry personal protective equipment, food provisions, and medication to communities without essential supplies. As the pandemic progressed, air freight was used to relieve the pressure on global shipping.
Once vaccines were approved, passenger aircraft were used to transport them quickly and directly. Vaccines need to be kept cold, however, and are limited as to how much can be carried on each plane. To address this, airlines converted passenger planes by removing some of the passenger provisions to reduce the cabin weight and create more space for cargo.
From the middle of 2021 onward, governments began to ease border restrictions and allow air travel. Airlines were permitted to fly their fully or partially grounded aircraft. The transition was simple for airlines that simply grounded their craft.
The airlines who maximized cargo revenue by converting planes to freighters had to reinstall passenger provisions. Some took the opportunity to upgrade their passenger seating, in-flight entertainment, and so on, while others ensured that they’re prepared for an uncertain future with hybrid planes that can stow cargo boxes in unsold seats.
The air cargo market continues to grow as capacity is down nearly 12%, according to a 2021 report, which reflects a lack of passenger bellyhold capacity. Airlines are placing orders for freighters, but cargo conversions are expected to continue, and increase, in 2022.
Historically, cargo capacity increased faster than its demand, due to high passenger air traffic. Airliners got out of the freight aircraft market or retired older cargo aircraft. Passenger flights make up a significant portion of the air freight capacity globally.
Passenger air traffic decreased significantly during the pandemic, leading to a reduction in cargo capacity. Currently, capacity dropped more than cargo demand.
This demand is stressing supply chain issues and reduced passenger traffic put cargo capacity under pressure into 2022. Global international air cargo capacity was down 7% between December 2021 and January 2022, compared to two years ago.
The demand for both consumer and industrial goods is booming in the aftermath of the pandemic, creating supply chain upheaval that revealed weaknesses in relying on ocean shipping.
Cargo carriers and logistics companies are relying on air freights to transport high volumes of freight that won’t be tied up in ports or subject to shortages of rail cars, ocean containers, or long-haul truckers.
More and more aircraft companies are looking to add cargo planes to capitalize on the increased demand for air cargo. Virtually every airworthy cargo aircraft was into service to meet the air freight demands, and leasing companies are buying used passenger planes to convert them into freighter service. These conversions may ramp up, since existing slots to retrofit for cargo conversions are booked through 2025.
Passenger flights are increasing, adding to bellyhold cargo space for air freight. A small portion of the space is used for passenger luggage, while the rest is used to carry cargo. This has benefits for shippers, since the cargo arrives to its destination more quickly and more directly than freighter craft, which typically make multiple stops.
Outlook for 2022
The airline industry is poised for a projected 47% growth in passenger capacity in 2022. If this proves correct, capacity could return to 2015 levels by the end of the year. Still, the long-term forecast suggests that the global industry will have a setback of three or four years of growth.
More passengers for air travel means more global traffic and more bellyhold cargo capacity, along with the cargo capacity from dedicated freight aircraft or older cargo conversions.
According to the International Air Transport Association (IATA), global demand for cargo capacity slowed in November after a period of strong performance in 2019. International passenger demand in 2021 was 75.5% below 2019 levels. Capacity declined 65.3% and load factor dropped 24% to 58%. Total traffic for December 2021 was 45.1% below the same month in 2019.
Omicron travel restrictions had an impact on recovery. International air travel demand has been recovering slowly, however, and overall demand strengthened in 2021. Though travel isn’t the “old normal” in many parts of the world, the overall industry trend is showing confidence in travel from passengers, especially with safety measures, despite the threat of Covid.
The drivers of demand, including consumption and new export orders, have strong performance. The air cargo industry is still impacted by ongoing supply chain issues, including congestion at major airports and a lack of capacity in key areas.
In the fall of 2021, the supply chain was congested at key airports due to labor shortages, insufficient storage space, and backed up shipments. It’s important to note that this is typically a busy period for air cargo, however, due to the end-of-year holidays.
Another challenge during this time was the lack of cargo capacity on key trade lanes, including Asia, that caused bottlenecks in the overall chain. This demonstrates that capacity may be available in many areas, but a loss of capacity in the wrong place can disrupt the entire supply chain.
Businesses also need to refill stock to continue to fulfill orders. The supply chain disruptions occur in reverse, as well, leading to obstacles in businesses restocking products or raw materials.
In addition, a surge in COVID-19 or variant cases could return the circumstances to the pandemic with a need for vaccines, supplies, or personal protective equipment transported by air, taking priority in air freighters.
One concern with an increase in passenger air traffic is the increase in CO2 emissions. Airlines and the industry on a whole have been focused on how to reduce their carbon footprint when travel does return to pre-pandemic levels.
Depending on how that unfolds, new emissions rules could ground older freighters, which may include grounding retrofitted passenger aircraft cargo conversions.
The changing COVID-19 situation has a tremendous impact on passenger air travel and air cargo capacity. Even in the post-COVID-19 economic recovery, the airline industry, global supply chain, and logistics industry face challenges and disruptions that are projected to continue.
David Buss is chief executive officer of DB Schenker USA.
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