Airlines venture abroad (page 3)

-- Logistics Management, 2/1/2005

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Despite those higher costs, Clancy expects freighters will be competitive on international routes. He anticipates that passenger carriers' share of international cargo will drift downward from 55 percent today to 45 percent as freighters fill the increasing demand.

Other factors could keep rates from declining sharply. If more airlines go out of business, merge, or consolidate their services, it could help the remaining airlines firm up freight rates, says Dave Wirsing, CEO of the Airforwarders Association. He believes it's unlikely, though, that the cost and service impact on shippers would be significant. Instead, international trade developments may have a greater influence on rates. "The weak U.S. dollar is also contributing very much to export growth, [and] the result may be rate strengthening for the carriers on high-demand routes and increased freight costs for shippers," he says.

That's an attractive scenario for airline cargo executives, who are certain that international traffic will be key to improving their financial picture. As Neel Shah, United Cargo vice president of sales and marketing, points out, international services are more profitable than domestic ones.

The upshot for shippers? For the time being, they'll enjoy lower rates and more capacity on international routes while domestic air volumes and services stagnate. But if carriers continue to face higher fuel and operating costs as well as increased international competition, something will have to give. That could trap shippers in a vicious cycle: If rates don't adjust upwards, some carriers will consolidate or go out of business—and that eventually will push rates up anyway.

Author Information

Karen E. Thuermer is a freelance writer who frequently covers international transportation developments.

Middle Eastern Airlines: The Sky's the Limit

Carriers hailing from the United Arab Emirates (UAE) have two things U.S. and European airlines do not: ample cash and access to low-cost fuel.

"We offer very competitive fuel prices," says Anthony D´Souza of the UAE's Fujairah International Airport. "We share our profits to encourage carriers to utilize our airport." Consequently, airline executives in that part of the world rarely bat an eye when adding to their fleets, and they fret less about the rising cost of fuel than do their competitors.

With air cargo growing faster in the Middle East than it is in Asia, it's no surprise that UAE-based airlines are adding aircraft as fast as they can. Emirates Airlines has a total of 99 passenger and freighter aircraft on order, including 26 Boeing 777-300ERs scheduled for delivery this year. Emirates' SkyCargo division, which has more than doubled its volumes in the last five years, will take delivery of three long-range A310-300 freighters this year and next.

Newcomer Etihad Airways, in business for just over a year, operates five passenger aircraft. It has ordered 24 widebody Airbus aircraft for delivery in 2006 and 2007, and has an option to purchase 12 more at a cost of more than US $7 billion.

Etihad devotes two-thirds of its belly space to cargo—an unheard-of ratio in the airline industry today. There appears to be no shortage of cargo to fill that equipment: "With our current aircraft, we are already moving 2,300 tons of freight a month," says Cargo Sales Coordinator Mohamed Sherief.

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