Cargo Softens Amid Booming Conversion Market

Korean Air remained profitable during the pandemic in part due to its cargo business.

Credit: Korean Air

Korean Air was one of few airlines to maintain profits through the pandemic as it benefited from bumper revenues from its cargo arm.

In its most recent earnings, though, the flag carrier noted that quarterly cargo revenue had dropped by almost a third, year on year, due to global economic slowdown and pressure on freight rates due to the return of bellyhold capacity on passenger aircraft.

For Korean and other airlines, this is no bad thing, as the return of core passenger revenues will, for most, more than offset any decline in cargo sales, which were always set to fall after the end of the artificial operating conditions experienced during the pandemic.

Expected as this fall was, however, it still raises the familiar question of whether airlines and investors over-committed to freighter conversions during the years of bumper cargo profits.

In its most recent cargo market analysis, trade body the International Air Transport Association (IATA) noted that by November 2022, cargo load factors had declined for four months in a row, and it forecast further downward movement.

More seriously, it also noted that air cargo demand in November was 10% lower than its pre-pandemic level.

IATA said the difference was due to high inflation, trade flow disruption from the Ukraine war and the strength of the dollar.

Many lessors continue to back the air cargo market. Some have invested in conversion programs themselves, others see them as useful exit routes for aging passenger aircraft in their portfolio.

Either way, most claim a structural shift in air cargo demand due to the growth in e-commerce.

This argument has some merit: e-commerce penetration retains is still low in many markets around the world and it is tempting for aviation executives to link rising living standards in developing countries to more online shopping—in the same way they do for rising passenger demand.

Yet there are limits. In Europe e-commerce more or less flattened following a pandemic boost, while internet sales appear susceptible to many of the same pressures as conventional retail business.

Alex Derber

Alex Derber is a UK-based aviation journalist and editor of the Engine Yearbook. He contributes regular features, news and opinion pieces about the…