Pacific Rim Supply Chain May Soon Become More Air-Centric

Asian airlines are expected to remain at the forefront in promoting further development of the global airline industry, with continued investments in fleet expansion and customer service innovation

By ·

If the moribund air cargo industry is to finally stage a turnaround, the Pacific Rim will play a major role.

Preliminary financial performance figures released in June by the Association of Asia Pacific Airlines (AAPA) showed that Asia Pacific airlines achieved $5.2 billion in combined net profits in 2012, 6.7% above the $4.8 billion reported for the year 2011.

Nonetheless, carriers face a challenging operating environment marked by prolonged weakness in air cargo markets and persistently high jet fuel prices.

Operating expenses totaled $166.5 billion, 7.0% more than the $155.7 billion recorded in the previous year. The main cause of the increase was a 12.2% jump in fuel expenditure to $58.8 billion, with jet fuel prices averaging $128 per barrel in 2012. The share of fuel expenditure as a percentage of total operating costs rose to 35.3% in 2012, from 33.7% the previous year. Non-fuel expenditures grew by 4.3% to $107.7 billion.

“Prudent capacity management maintained relatively high load factors, helping to offset the impact of persistently high fuel prices and an extended period of weak demand in the global air cargo market,” says Andrew Herdman, AAPA Director General.

“Asian airlines are expected to remain at the forefront in promoting further development of the global airline industry, with continued investments in fleet expansion and customer service innovation,” he adds.

Analysts at the International Association of Air Transport (IATA), concur, noting that Asia-Pacific airlines are expected to post a combined profit of $4.6 billion in 2013 (up from the previous projection of $4.2 billion).

It will lead all regions both in terms of absolute profits and earnings before interest and taxes (EBIT) margin (5.0%).

The main driver is strong growth in China and long haul markets, supported by buoyant trade flows and other business activities. Stronger growth is also expected from Japan as market-stimulating measures take effect in the region’s second largest economy. This is helping to overcome weakness in cargo markets in which Asia-Pacific airlines are the major players with a 38% market share.

The chances that U.S. shippers will put their cargo – even high-end perishables and pharma – on Asia Pacific aircraft rather than container vessels seems ever more remote in the coming months, say other industry insiders.

But Brandon Fried, executive director of the Airforwarders Association (AfA), provides a longer-term perspective on the issue.

“Most heavy shipments of any significant weight and volume use ocean carriers despite slower transit times and varying environmental factors,” he says. “However, for those consignments with time constraints, higher value and a need for tight inventory or temperature control, airfreight brings more value.”

Indeed, as global economic challenges persist, AfA has seen some additional cargo move from the maritime leg of the transit to air carrier to cut transit time and reduce cost.

Finally, there’s this.

Boeing projects a demand for more than 35,000 new airplanes over the next 20 years, valued at $4.8 trillion. The company released its annual Current Market Outlook last month at the Paris Air Show, forecasting the world fleet to double over the next two decades – with the Asia Pacific leading the way.

 


About the Author

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 [email protected]

Subscribe to Logistics Management Magazine!

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!

Article Topics

All Topics
Latest Whitepaper
Unlock the Value of Your Supply Chain Through Embedded Analytics
Learn how embedded analytics can provide deeper supply chain intelligence and help you extract maximum value from data for your supply chain operations
Download Today!
From the May 2017 Issue
Everyone is talking about terms like digitization, Industry 4.0 and digital supply chain management, but what sort of technologies fall under these broad terms, and how will they change the management capabilities at our disposal? To find out, we talked to some noted supply chain analysts, consultants and technology executives and gathered six digital trends to watch.
Transportation Trends and Best Practices: The Battle for the Last Mile
2017 Technology Roundtable: Are we closer to “Intelligent” Logistics?
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
Going Beyond Rate Negotiations for Logistics Cost Savings
The pressure to reduce cost is a fundamental part of every organization today leaving many supply chain professionals constantly renegotiating rates. This webcast examines four areas that may hold untapped savings potentials and even help organizations negotiate better rates.
Register Today!
EDITORS' PICKS
The Evolution of the Digital Supply Chain
Everyone is talking about terms like digitization, Industry 4.0 and digital supply chain management,...
2017 Salary Survey: Fresh Voices Express Optimism
Our “33rd Annual Salary Survey” reflects more diversity entering the logistics management...

LM Exclusive: Major Modes Join E-commerce Mix
While last mile carriers receive much of the attention, the traditional modal heavyweights are in...
ASEAN Logistics: Building Collectively
While most of the world withdraws inward, Southeast Asia is practicing effective cooperation between...