Belly cargo capacity ‘unlikely to return to pre-pandemic levels’

And rising oil prices are making ‘preighters’ less viable, warns Flexport’s Neel Jones Shah, suggesting they may also disappear from the market next year.

Boeing is forecasting that it will take another two and a half years for global aviation to return to pre-pandemic levels. But the amount of belly cargo capacity available in a re-configured industry could be well down on pre-pandemic levels, leaving air freight capacity very tight for some time to come, according to a senior air freight forwarding executive.

The US aircraft manufacturer’s vice president of commercial marketing, Darren Hulst, recently said Boeing now expects the aviation industry to recover to 2019 levels of traffic by the end of 2023 or early 2024, with domestic routes returning first. Long-haul international passenger routes – the main capacity of interest for air cargo carriage – would take the longest to recover, partly due to government restrictions related to the pandemic.

But Neel Jones Shah, global head of air freight at US-based forwarder Flexport, recently warned that the belly capacity available for cargo on international routes in the future is likely to be reduced over what it was previously.

“If you talk to the CEOs of the major airlines in the world, they will tell you that this pandemic crisis has structurally changed their business forever. Those are very powerful statements coming from people who run the largest airlines in the world,” he said.

Hub-to-hub flying

“So, we expect international air networks to be smaller than they were (pre-pandemic). We expect many cities that had international service to lose out because airlines will be relying more on hub-to hub flying, and then rely on their alliance partners to take the passengers the last mile.”

He continued: “Without that front cabin, full fare business-class passenger, the airlines have to rethink their strategy. They’re probably going to fly smaller-gauge aircraft; they’re going to have fewer frequencies going forward. Now all this still remains to be seen because the consumer is a bit of a wild card; and who knows how it will play out? But I think over the next 24 months, (cargo) capacity is still going to be tight.”

He said freighters are going to continue to be a very core part of Flexport’s air cargo capacity going forward “because they go where the cargo originates, and they fly to where the cargo is destined to end up. They’re not constrained by passenger flow.”

Shah underlined that Flexport was “very heavily invested” in its “own network” freighter capacity.

“It’s no secret that we have a long-term agreement for freighters that we signed with Atlas. These freighters have been a godsend for us because they’ve allowed us to really take care of our customers and they’re also created the opportunity for us to serve new customers. And so, we are committed to this capacity for the long term and we think it’s going to form a core basis of our overall performance.

“But by no means is that the only thing that we do – it’s a component. We work very closely with many of the commercial carriers on their maindeck as well as their belly capacity. I just think it’s worth reiterating the point that belly capacity is going to be less than it was before and so we’ll rely on it less.”

Preighter economics

Commenting on the role of preighters – passenger aircraft operating in cargo only mode – in the current capacity squeeze, Shah commented: “They were a godsend for us because it was an amazing opportunity to get capacity to take care of very urgent needs. The issue with preighters is that the economics of operating a passenger plane for only cargo, whether you remove the seats or not, is quite difficult.”

He underlined that at the beginning of the pandemic, oil prices had been relatively low at $35-$40/barrel and operating preighters made good business sense. He said airlines “jumped into this very quickly”, adding: “It was an opportunity for them to keep their planes working, keep their pilots with job assignments and things like that. And we were very thankful for it.”

However, today the oil price has risen to around $75 per barrel and could go even higher, making the economics of preighters extremely challenging.

“You need US$10-11 a kilo to make a preighter breakeven,” Shah estimated. “These sorts of yields become very, very difficult to obtain. Maybe for a short-term project there could be opportunities to deploy preighters, particularly for very dense cargo. But I think the number of preighters that are flying today is already significantly less than it was before.”

Shah highlighted that preighters are also very time-consuming to load and unload, particularly if the upper deck is used. “They have to be hand-loaded, for the most part, putting a lot of strain on the ground handling. In some cases, it can take four to five hours to load a preighter, whereas it takes 35 minutes to load a regular freighter. It puts a lot of strain on ground handling in an industry that has had massive disruption over this crisis.”

He added: “So I do think that the days of the preighters are probably numbered. We’ll see what happens over the course of the next 12 months. But I don’t know if we’re going to see preighters in summer ’22 – particularly if oil prices go much higher.”

Source: Lloyd’s