FAA to examine health of air cargo industry

When the 36th Annual Federal Aviation Administration’s (FAA) Forecast Conference convenes in Washington next week, shippers should expect to hear that profitability for U.S. carriers will hinge a stable environment for fuel prices.

“To navigate the volatile operating environment, mainline carriers will continue to drive down their costs by better matching flight frequencies and/or aircraft gauge with demand,” said the authors of this year’s FAA Forecast.

Analysts also noted that airlines must delay deliveries of newer aircraft and/or ground older aircraft, while pressuring regional affiliates to accept lower fees for contract flying.

At the same time, the 2010-2030 forecast predicts that aviation will continue to grow over the long term, despite current global economic conditions.

The report begins by observing that since 2000, U.S. airlines have dealt with the impacts of 9/11, the bankruptcy of four network carriers, record high fuel prices, the most serious economic downturn since the Great Depression. Furthermore, there was the heightened concerns about a
pandemic that turned into reality in 2009.

The level of activity and demand in the long term, however, is not expected to snap back to levels published in the previous FAA forecast. The most significant factor preventing recovery to prior forecast levels is the blow to the economy from the Great Recession.
“The recession led to an erosion of wealth, double-digit unemployment, declining corporate travel budgets, and close-fisted consumers, all of which contributed to a softening of demand,” said analysts.

A bright spot is on the horizon, however, they said. After four straight quarters of decline, the U.S. economy resumed growth in the fourth quarter of 2009, albeit driven by government stimulus packages that are winding down.

Brian Clancy, managing director, Logistics Capital & Strategy, LLC, will be addressing next weeks’ forum on the “Cargo” panel. From his perspective, the “value density” of goods will determine whether a recovery is under way.

“Some goods must really be shipped by air,” he said in an interview, “but that might not mean a sustainable trend will get underway. Drill bits for the oil industry, for example, and aircraft spare parts will remain a part of this mix. But just-in-time delivery for a great many other commodities has tapered off.”

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