Airfreight is showing an uptick in demand, but the market remains weak
Growth in airfreight has begun to accelerate, but major European airlines such as - remain cautious in their outlook and continue to restructure their cargo operations.
The Franco-Dutch group had targeted to have its airfreight business break even in 2014 but this will be a “challenge,” Chairman/Chief Executive Alexandre de Juniac admits citing the persistently tough economic environment, especially in Europe, and subdued growth in the airfreight market. Air France-KLM's cargo business, which combines the Air France Cargo, KLM Cargo and Martinair Cargo activities, posted an operating loss of €100 million ($133 million) in the first six months of 2013. This represents a 25% improvement on the €134 million loss in the year-ago period.
“We are making progress, however the airfreight market is in a terrible situation. We have to take additional initiatives to reduce losses and achieve a turnaround,” de Juniac stresses. Discussions are ongoing with labor representatives, and a new cost-cutting program will be implemented beginning in January to further decrease unit cost. And capacity will continue to be cut back.
Air France-KLM reduced capacity in terms of available ton kilometers (ATKs) in the first six months of the year by 4.2%. About 14% of this reduction was in its full freighter capacity and comprised an 18.3% cut in the second quarter that ended June 30. This summer, Air France, KLM and Martinair are deploying four fewer full freighter widebodies than last year: an Air France-400F has just been parked and will be returned to the leasing company in November, a 747F and MD-11 have been returned to their lessors in October 2012 and last March, respectively, and one 747-400F from KLM has been wet-leased to . In addition, a Martinair 747-400F is used in a joint venture with .
Unit-cost-per-available ATK declined by 5.2% in the first semester, but unit revenue per ATK declined by 3.6% and traffic fell sharply—by 6.3%. The cargo business is important to Air France-KLM. It is the group's second-largest activity, accounting for roughly 11% of the total revenues last year. Cargo revenues shrunk 6.8% in the first six months to €1.4 billion, whereas all other business segments of the group reported an increase in revenue.
Air France-KLM Cargo underperforms compared toCargo, which is also cutting capacity and implementing numerous cost-cutting measures. However in May it stated it still expects to post an operating profit in the triple-digit million-euro range for 2013. Moreover, it said it anticipates “an increase on the previous year's result” despite a drop in both revenue and volumes in the first quarter. Lufthansa Cargo revenue for the first quarter of 2013 fell by 9.5% year-on-year to €599 million while it reduced capacity by 7.4%. Freight volumes fell by 7.2% compared with the previous year.
Theasserts there are some signs of a conservative recovery in airfreight demand. The latest statistics show a 1.2% growth of air cargo traffic for June. That compares to a 0.9% rise in global airfreight ton kilometers (AFTK) in May and 0.1% for the first half of the year. Airfreight volumes in June also rose and were the highest they have been since mid-2011.
“It is too early to tell if June was a positive turning point after 18 months of stagnation,” Director General and CEO Tony Tyler cautions. The global economic environment remains weak, and the basis for the acceleration of air cargo growth in June appears to be fragile, he says.
Capacity trends are a reason for concern as airlines are expanding capacity faster than justified by demand. For June, carriers offered 2.7% more capacity year-over-year and also for the first half of the year capacity growth (1%) outpaced demand significantly.
North America and the Asia-Pacific area proved to be the weakest regions in terms of international AFTKs and cargo demand in the first half of the year, contracting by 2.7% and 2.9%, respectively. Europe was down 0.2% in the first six months, but grew 2.5% in June. Middle Eastern carriers continued their rapid expansion with an 11.3% increase in demand on 10.2% more capacity. Also African carriers performed well, and reported an above global average growth in freight traffic.