For an industry that is pro-cyclical, projections for air cargo growth are upbeat. With economies expanding worldwide and manufacturing robust, Boeing projects in its World Air Cargo Forecast 2006/2007 that global air cargo volumes should expand at an average annual rate of 6.1 percent over the next two decades.

Robert Dahl, Air Cargo Management Group (ACMG) project director, sees these as exciting times for the industry. “Consolidation, mainly in the freight forwarding sector, coupled with major changes underway in the completion of the fleet of freighter aircraft, signal optimism regarding future growth, despite a modest year-over-year increase in global airfreight traffic in 2005,” he writes.

Some airline executives are more cautious in their optimism. “Certainly the trends suggest that increased global commerce will provide greater demand for air transportation into the foreseeable future,” says Spencer Dickinson, American Airlines’ managing director, cargo marketing. “The question that still remains is where that growth will occur, and whether or not the directional flows will be balanced.”

Much of that growth undoubtedly will originate in Asia. “Air cargo markets linked to Asia will continue to lead other markets through 2025, led by the highest growth in intra-Asia and domestic China traffic,” says Nicole Piasecki, vice president, business strategy and marketing for Boeing Commercial Airplanes. Her group predicts that Asian market growth will exceed the company’s forecasts of two years ago, with the domestic China and intra-Asia markets expanding 10.8 and 8.6 percent per year, respectively. Asia-North America trade will average 7.1 percent growth, and Europe-Asia 6.9 percent, says Boeing. Europe-Southwest Asia will experience 6.2 percent growth.

These projections are in tune with trends the airlines are already seeing. “Growth in general is good, as it is in lanes from Asia to Europe, from Asia to the United States, and intra-Asia,” notes Nils Haupt, spokesman for Lufthansa Cargo AG. “China and India will be the main drivers, as a lot of production has moved to these countries,” he adds. “They are still and will continue to be the 'factory of the world.’ ”

Boeing cites a host of factors that will boost international traffic: increasing international trade, liberalization of air services, improving technologies, increases in lower-hold capacity, and more fuel-efficient freighters. Today’s fast-moving supply chains are another factor. “We see air freight increasingly being used as a tool in the supply chain,” says Ram Menen, divisional senior vice president for Emirates SkyCargo. “For example, with vendor-managed inventory evolving, there is more demand for air cargo service than ever before.”

Some observers add globalization to the list, claiming that no mode of transportation is better equipped to meet the economic realities of globalization than air cargo. “Global sourcing, selling, and just-in-time logistics require that producers receive and ship smaller quantities more frequently, quickly, and reliably over long distances,” states a report by the Center for Air Commerce of the Kenan Institute of Private Enterprise.

How are air carriers responding to this fast-growing and ever-changing demand? Airlines continue to vie for cargo slots in China, despite overcapacity in that market. Last year Continental Airlines began offering direct service from Newark to Beijing. American Airlines, meanwhile, began daily service to Shanghai from Chicago in April. “That’s been a winner for us,” says David R. Brooks, president, AA Cargo Division. But there are signs that demand is slowing in that market. “The yields are starting to soften, even eastbound,” he says.

Even so, American is vying against Continental, Northwest, and United for the right to offer service between Beijing and Dallas. To further increase its capacity in China, AA Cargo interlines with other carriers to fly shipments from China to Tokyo and other cities. There, cargo shifts to AA’s aircraft for the flight to the United States.

American isn’t the only airline using that strategy. Gulf Air Cargo, which operates hubs in Bahrain and Oman, has a strong network in the Middle East but needed better access to other markets. Its interline agreements with Virgin Atlantic, United, AA, Continental, and Air Canada benefit both the carrier and its customers. “We not only facilitate a business exchange over our European gateways between the United States, the Far East, Indian Subcontinent, and the Middle East, we are also able to offer fast transit times and advantageous rates,” says cargo head Des Vertannes.

Political uncertainties notwithstanding, the Middle East has also become a hotbed of air cargo development. One carrier that’s bullish on prospects for future growth in the region is Etihad Airways, based in Abu Dhabi. To support its Crystal Cargo division, Etihad is adding on average one new aircraft every four weeks.

“This will enable the airline to put in place and offer our customers state-of-the-art cargo products and bring more quality to our network,” says Ingo Roessler, vice president, cargo. “We are also ramping up more frequencies for better service.” That’s something of an understatement: In just 30 months, Etihad Airways launched service to 30 destinations and today serves more than 35 destinations on four continents.

Where speed-to-market is concerned, what happens on the ground can sometimes be as important as what happens in the air. ANA Cargo, for example, flies cargo from Asia to Dulles International Airport (IAD) near Washington, D.C., rather than to New York or to Atlanta. From there, ANA moves cargo by truck to destinations in the Northeast, Midwest, Southeast, and Mid-Atlantic—and still makes excellent time. “We can serve Montreal, Miami, and Chicago in as little as one day,” observes Matthew R. Clevenger, ANA’s cargo manager at IAD.

Another airline that is investing in ground operations is British Airways World Cargo. BAWC recently opened its Premia facility at London Heathrow, giving the airline 67 percent greater capacity for premium freight. Five premium products are handled there: live animals, Constant Fresh, Constant Climate, Prioritise, and airmail.

Airlines have cause for optimism, but they still face issues that constrain their growth potential. Many carrier executives are frustrated by the lack of “Open Skies” policies, which allow market forces, rather than government quotas, to determine the number of flights in certain markets. Of the 76 bilateral air-service agreements in place today, only 14 are Open Skies treaties.

Ulrich Ogiermann, president and CEO of Cargolux Airlines, contends that his industry cannot be successful without more Open Skies agreements. “As a global player with global customers, we must be able to offer service to all major economic areas and be able to swiftly react to changes in freight requirements,” he says. “Success can be contingent on market access, which is not being granted very often.”

Fuel costs remain air carriers’ biggest concern today—and with good reason. Spot jet-fuel prices increased 42 percent in 2005 and have continued to rise in 2006, says Tom Crabtree, regional director, marketing for Boeing Commercial Airplanes. The impact on airlines’ costs is staggering. For American, 2006 will be the third consecutive year of $1 billion increases in fuel expenses. “We are spending $3 billion a year more this year for fuel than we were three years ago,” notes Brooks.

Savvy carriers are turning to technology to help them manage such challenges. Emirates, for example, launched its SkyChain IT-based cargo management system. SkyChain’s centralized cargo-reservation and business management solution is flexible because it’s compatible with customers’ systems. It also offers real-time access and updates and can accommodate upgrades and changes through Java architecture.

E-freight, a program now being piloted through the International Air Transport Association (IATA), may be the next big thing in airfreight technology. E-freight will provide a paperless environment in which documents need not physically accompany freight. By some estimates, e-freight will cut transit times by 25 percent by eliminating the need to fill out paper documents.

Airlines need to get on board withe-freight and other programs that will introduce more speed and efficiency if they want shippers’ business. Says Cargolux’s Ogiermann: “In the future, competition will be between the supply chains and not air cargo products.”