Demand For Air Cargo Capacity Is Urgent — Who Will Fill It?

The global decline in passenger airline service has created vast demand for air cargo capacity, but so far, no clear beneficiaries have emerged.

Normally, about 50% of the world’s air cargo is carried in the bellies of passenger aircraft, which have been all but idled due to the coronavirus crisis.

In the absence of those flights, both passenger carriers and cargo carriers have sought to step up cargo service. They are restrained, however, by shortages of properly configured aircraft, a lack of pilots, and international restrictions, even as the urgent need for medical supplies swells.

Cargo carriers “are seeing a true spike in demand,” said Patrick Donnelly, senior associate for industrials, materials and energy at Third Bridge, a New York-based global research firm. “They are so busy they don’t have sufficient capacity to meet that demand, in part because of the availability of suitable aircraft and air crews.

“The main industrial air freight providers like Kalitta Air, Atlas Air and ATSG are even in the process of taking idled aircraft out of storage and getting them back on the line,” said Donnelly.

“It now becomes a matter of which air freight firms are able to move quickly enough to capture additional volumes, or whether that volume will be re-absorbed by the idled passenger airlines converting passenger aircraft to freight aircraft,” he said. “It comes down to which players are able to shift capacity to the ad-hoc charter market.”

The airlines operated by sprawling global overnight delivery companies FedEx

FDX
, UPS and DHL, which tend to focus on express and parcel delivery rather than industrial freight and charters, are experiencing their own capacity constraints, Donnelly noted.

Meanwhile, passenger airlines “are providing cargo flights to carry urgently needed medical supplies, but the aircraft obviously are not configured for cargo and theoretically would one day have to be reversed,” Third Bridge said.

Air cargo provides for about 35% of global trade by value, according to the International Air Transport Association. In general, that cargo includes pharmaceuticals; consumer electronics such as laptops and mobile devices; auto parts for just-in-time delivery, fruits, vegetables and flowers.

“So much of the world passenger fleet is grounded that there is a capacity shortfall,” said IATA spokesman Perry Flint. “It’s not that overall demand for air cargo is rising, it’s that capacity has fallen through the floor.”

At the same time, demand for medical supplies is urgent.

“Bulky medical supplies, such as face masks and PPE would in normal times be transported by ocean,” said Glyn Hughes, IATA global head of air cargo, in an email. “But as time is critical in dealing with Covid-19, air is the only option. That, coupled with the reduced fleet of passenger flights, has caused a general shortage of available capacity on some high demand routes.”

For passenger airlines, an opportunity exists, but a conversion to cargo is hampered by aircraft configuration and by long-term implications.

On March 20^th, American Airlines

AAL
operated its first all-cargo flight since 1984, flying a Boeing

BA
777-3—from Dallas-Fort Worth to Frankfurt. In 1984, American retired the last of its Boeing 747 freighters.

Four scheduled flights by the 777 were booked to capacity, carrying medical supplies, mail for active U.S. military, telecommunications equipment and electronics to support people working from home, and e-commerce packages, American said.

“Of course there is some benefit, but cargo is not their core market,” said Cowen Inc. airline analyst Helane Becker, in an e-mail. “Their core business is carrying passengers, and although the cargo will help them out, we still forecast 2Q revenue will be down 90%.” In the fourth quarter, cargo accounted for just 2% of American revenue.

Lufthansa Group has operated 94 special cargo flights with relief supplies on board, and another 183 flights are planned, a spokeswoman said Friday. “We are doing everything we can to maintain supply chains during this crisis and ensure that people receive sufficient supplies,” said Lufthansa CEO Carsten Spohr, in a prepared statement. “This is an important part of our corporate responsibility as a leading European aviation group.”

Lufthansa operates a fleet of 17 cargo freighters, which has been operating continuously. This week it has also operated 25 flights with passenger aircraft used as freighters.

Delta said Tuesday it will operate daily cargo flights from Shanghai to either Detroit or Los Angeles, making stops in Inchon. United

UAL
flew an all-cargo flight on March 19 and now flies more than 150 weekly cargo flights.

Besides insufficient aircraft availability, another obstacle for cargo flights has been government restrictions.

“We are still seeing examples of cargo flights filled with life-saving medical supplies and equipment grounded due to cumbersome and bureaucratic processes to secure slots and operating permits,” IATA said Thursday, in a prepared statement.

“These delays are endangering lives,” the association said. “All governments need to step up to keep global supply chains open.”  The association has sought fast track procedures for overflight and landing permits for cargo operations, particularly in key manufacturing hubs in Asia — China, Korea and Japan.