Daily Memo: Pandemic-Related Capacity Crunch Hurting Air Cargo Operators

Air cargo operators and shippers are facing a severe squeeze on capacity as the sector’s traditional year-end peak season, driven by holidays and retail demand, gets underway, with still-weak long-haul passenger demand making for an ongoing lack of belly-hold capacity.   

Cargo data specialist CLIVE Data Services bases its metric on volume as well as weight, making for a more accurate picture than the traditional industry measure based on weight. In its analysis, CLIVE has seen a record-high “dynamic load factor” in recent days of 72%, up from an average of 70% in September—which itself was a figure eight points higher year-on-year.  

In the short-term, the capacity gap is such that operators are scrambling to meet demand on major trade lanes—with a carryover effect on pricing. For airlines suffering from the lack of passenger demand, the higher rates are a welcome relief; that’s not the case for shippers looking to make use of the sparse capacity.  

Global capacity measured in available cargo ton-kilometers was down 29.4% in August, and the 67% drop in belly space for international operations was offset only partially by a 28.1% increase in dedicated freighter capacity, according to IATA. Daily widebody freighter utilization was close to 11 hr. per day, the highest level since tracking of those figures began in 2012. 

Global air cargo capacity in September was, on average, 25% less than in the same month of last year, according to CLIVE. 

“Uncertainty over how the market will develop alongside very high load factors is a toxic combination for the buyers of airfreight capacity,” CLIVE MD Niall van de Wouw said. 

If the imbalance continues, it could lead to a resurgence of passenger aircraft being used to transport freight.  

For the higher yields to spell longer-term positive news for the industry, they need to stem from growing demand for shipping goods, not from the lack of available capacity.   

As it reported third-quarter results Oct. 30, Air France-KLM Group said its cargo business was performing strongly—in stark contrast to the passenger side—with unit revenue up 104% at constant currency. Cargo capacity at the group has been slashed by a third, partly because of the lack of belly-hold space on long-haul passenger flights that are still not operating. However, the group has offset that problem partly by increasing full-freighter capacity and operating cargo flights using passenger aircraft without passengers.

Longer-term, Air France-KLM expects the capacity gap to narrow with worldwide airfreight volumes set to rebound to 90-95% of pre-COVID-19 levels in 2021. 

“The supply-demand gap of the past months is foreseen to narrow as industry capacity supply will increase,” Air France-KLM said, but it added that would depend on the passenger traffic recovery. With travel restrictions in place, long-haul demand is just a fraction of what it once was. And with the slow progress in developing mass COVID-19 testing, the timing of that recovery remains all-too uncertain.