North America-Asia airfreight may recover slightly in '99

Asia's economic crisis has forced JAL and many other Asian airlines to cut back on service.

By Staff -- Logistics Management, 12/1/1998

Layoffs. Service cutbacks. Delayed debt payments. Canceled aircraft orders. And finally, a complete shutdown.

These are signs of the times for Asian airlines, as they struggle to survive Asia's continuing financial crisis. While some--like Japan Airlines, Cathay Pacific, and Singapore Airlines--are retooling operations to cut costs while maintaining high service levels, others--such as Korean Airlines,

Garuda Indonesia, Thai Airways, and Philippine Airlines (PAL)--have been hard hit by their home countries' financial woes. PAL sent shock waves through the airfreight industry when it "temporarily" shut down operations in September, leaving shippers and forwarders scrambling to find other carriers to take their domestic and international shipments.

Airlines have been particularly vulnerable to the effects of the "Asian flu." Expecting double-digit growth in volumes and revenues to continue well into the next century, they placed orders for dozens of new aircraft. Now, many have found themselves unable to pay for aircraft they ordered two or three years ago that now are ready for delivery.

Currency and credit problems have caused Asian demand for imports from North America to plummet. And although North American demand for cheaper imports from Asia is soaring, eastbound volumes and rates still aren't high enough to counterbalance the free-fall that airlines are seeing in westbound shipments and revenues. Further complicating the situation, passenger traffic in many countries has fallen so drastically that airlines have cut back flights or dropped some routes altogether. For airlines that depend on belly space in passenger aircraft, that has meant the loss of a significant amount of capacity.

Despite some problems, 1997 was not a bad year for trans-Pacific airfreight. Even though Asia's financial markets already had begun to crash, total trans-Pacific airfreight volumes grew by 12.3 percent in 1997, according to the 1998/1999 World Air Cargo Forecast by Boeing's Commercial Airplane Group. That's largely because Asian governments heavily promoted exports in hopes of stabilizing their economies.

When the numbers are all in, 1998 will be a different story. MergeGlobal Inc., an international airfreight consulting firm, forecasts that westbound traffic growth to North Asia will dip into negative numbers, while traffic to Southeast Asia will remain flat. In its annual World Air Freight Industry Analysis and Forecast, MergeGlobal predicts that airfreight demand in Japan and Korea will continue to fall. Eastbound volumes also are likely to fall as a slower U.S. economy reduces demand for Asian-manufactured high-value goods, they say.

Analysts at Boeing and MergeGlobal believe the outlook for the near future is gloomy, but not entirely dismal. "Over the next five years, we expect westbound traffic [from North America to North Asia] to achieve 5.1 percent CAGR [compound annual growth rate], less than half the historical rate," the MergeGlobal analysts write. Growth in eastbound traffic will slow to 6.3 percent during that period, they predict. Traffic to and from Southeast Asia, meanwhile, will grow by 7.0 percent westbound and 9.3 percent eastbound--still far below earlier growth rates. Boeing takes a longer view. The aircraft manufacturer forecasts westbound growth of 6.0 percent for all of Asia over the next 20 years and eastbound growth of 7.7 percent for that same period.