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2012 State of Logistics: Air Freight: Keep seat belts fastened

So far this year, it has been tough to find a silver lining in the clouds around the air cargo sector. Air freight revenue dipped by 2 percent in 2011, while over capacity led to bad load factors dropping domestic revenue ton-miles more than 3 percent. International air freight cargo, meanwhile, was bolstered by a record $400 billion dollars in export goods transported by air.
By Patrick Burnson, Executive Editor
July 01, 2012

“This was not enough to prevent a decline in international ton-miles, which fell just under one percent in 2011,” says transportation consultant Rosalyn Wilson of Delcan, Inc., the author of the 23rd Annual State of Logistics Report.

Meanwhile, some of the world’s most successful cargo airlines are reporting that the EU’s crisis has been pulling them down. Tim Clark, president of Emirates airline, says international airlines face a “perfect storm” from high fuel costs, a slowing global economy, and volatile exchange rates that could see many carriers forced to downsize.

“The euro is going south, the pound is going south, fuel costs are still too high,” says Clark. Indeed, the International Air Transport Association (IATA) has its revised industry outlook for 2012, noting that the outlook for European, Asia-Pacific, and Middle Eastern carriers has been downgraded, with European losses now expected to be $1.1 billion—nearly double the previously forecast.

Not all of the news was bad, however. Tony Tyler, IATA’s director general and CEO, says that although airlines face the common challenges of high fuel prices and economic uncertainty, the regional picture is diverse.

“Carriers in the Americas are seeing improved prospects for 2012,” says Tyler. “The rest of the world is seeing reduced profitability. For European carriers, the business environment is deteriorating rapidly resulting in sizable losses.”

North American carriers are expected to post a profit of $1.4 billion in 2012, that’s up from the March projection of $0.9 billion and a slight improvement on the $1.3 billion that the region’s carriers made in 2011. The main driver of this performance is a significant improvement in yields on the back of tight capacity management. Capacity growth for North American carriers is basically flat (0.1 percent) against demand growth of 0.5 percent, which, notably, is the slowest among all regions.

Tyler says that one of the notable features of this business cycle has been the limited expansion of capacity by airlines, and the resulting success in sustaining high levels of asset utilization. In any capital-intensive business this is a key factor behind profitability.

Over the rest of the year the forecast anticipates that, although demand is slowing, airlines will add capacity at an even slower pace. Growth in available tons kilometers (a combined measure for the passenger and cargo capacity) is forecast to be limited to 3.3 percent this year, compared with growth in both passenger and cargo traffic of 3.5 percent. Load factors and aircraft utilization are expected to be close to current high levels, limiting the reduction in airline profitability.

“The main upside risk would be a calming of the Eurozone crisis,” says Tyler. “There is no scenario for an immediate solution to the crisis, but actions to provide further liquidity on a large scale and steps towards closer integration for Europe would give a modest boost to industry profitability.”

About the Author

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Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).


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