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AirFreight Market Update - December 2021

Updated: Feb 18

The latest edition of Air Freight Market Update - December/2021.


Contents

  1. Market Overview

  2. Focus

  3. Jet fuel monitor

  4. Global demand & capacity

  5. Trade route analysis


Market Overview


As in recent months, the underlying dynamics have been favourable for air cargo, with strong demand reinforced by supply chain disruptions prompting some mode shift to airfreight. This was fueled by continuing elevated demand levels and aided by problems in supply chains. These are beginning to show impact on production, but the market situation looks likely to keep rates lofty going forward.


Industry-wide demand (CTKs) grew by 9.4% in October 2021 compared to the same month in 2019. Air cargo volumes have trended sideways for the past six months or so, at elevated levels.


The economic drivers of air cargo are currently disparate, with a slowdown in manufacturing activity and trade caused by issues such as congestion and input and labour shortages. However, those metrics are still broadly supportive, and air cargo benefits from favourable supply chain conditions, notably the need of businesses to rapidly get goods.


Cargo capacity improved for the second consecutive month in October, with global available cargo tonne-kilometres (ACTKs) down 7.2% versus pre-crisis. This means load factors also eased somewhat in October.


Consumer demand has remained robust. With major consumer events looming ahead and inventory levels still tight, this momentum is expected to continue. There are rising concerns that supply chain problems could affect global trade.


Inflation is worryingly high, with the consumer price index for all items up 4.1% year-on year in September in the G7 group of consumption-intensive countries. In the US, the same metric was up 6.2% year-on-year in October, while it rose 4.2% in the UK and 4.4% in the EU.


Global goods trade and industrial production have both trended lower in recent months, but in September 2021 remained respectively 3.1% and 2.1% above precrisis levels, a resilient outcome.


Focus




Jet fuel monitor




Global demand & capacity


Despite the start of the peak air cargo season, there was only a marginal uptick in air cargo volumes growth in October. Industry-wide CTKs (Demand) rose by 9.4% in October 2021 versus October 2019.


Growth was at 9.1% in September, and overall, air cargo performance has stayed fairly constant for the past six months or so. Seasonally adjusted (SA) CTKs have also trended sideways recently, increasing by 0.1% month-on-month in October. The upshot is that monthly air cargo volumes remain close to all-time highs and most of the gains compared to 2019 happened earlier.


There was a second consecutive month of strong gains in air cargo capacity in October, as ACTKs (Capacity) were 7.2% below October 2019 levels in October 2021. In September, the fall versus 2019 had been at 8.8% (12.5% in August). In SA terms, there was a 1.3% month-on-month increase in global ACTKs in October, largely driven by improvements in Asia Pacific (4.7%) and Europe (2.0%). This is likely to have contributed to the solid performance of CTKs in October.


The improvement in ACTKs led to a modest easing of the industry-wide cargo load factor (CLF), which was at 56.1% in October 2021, 8.5 percentage points (ppts) above October 2019 levels





Trade route analysis


In October, African airlines posted a 26.7% increase in international cargo volumes versus 2019, a deterioration from the 35.0% increase in September. SA CTKs have been mostly flat for the past six months or so.


Cargo capacity also improved in September – industry-wide ACTKs fell by 8.9% vs September 2019, compared with a 12.7% fall in August. African airlines continued to outperform the rest of the industry with ACTKs up nearly 5%.


As of November, African airlines are scheduled to receive 29 aircraft deliveries in 2022, up 61% vs. 2021





Airlines based in Asia Pacific saw their international CTKs rise by 7.9% in October 2021 versus the same month in 2019, following a 4.0% growth rate in September. The large Europe-Asia market was an important contributor to the above, partly because the reopening of some international passenger routes. Indeed, belly cargo capacity between Europe and Asia was down only 28.3% on 2019 levels in October, compared to 37.9% in September, which is likely to have supported volumes carried.


The manufacturing PMIs increased across the three key economies that we regularly track for the Asia Pacific region. In Indonesia, the manufacturing sector expanded at the fastest rate in the history of the country’s time-series (since 2011), reflecting a positive impact of easing COVID restrictions. The PMI improvement in both Japan and India was largely driven by recovering production and demand.


Asia Pacific RPKs fell by 69% in September, a robust improvement on August (-78.3%) when passenger traffic was adversely impacted by COVID outbreaks in many key domestic markets. Asia Pacific airlines’ international RPKs remained very weak at 6.8% of pre-pandemic levels due to strict travel restrictions in the region. On a more positive note, some countries, such as India, Australia or Singapore, started to ease some of their crossborder travel regulations, which should support international volumes in the future.


As of November 2021, Asia Pacific airlines are scheduled to receive 67% more aircraft deliveries in 2022 compared with 2021. Most of these deliveries will be a narrow-body Max 737 (36%) and A321 (19%).




For European airlines, international CTKs growth improved from 5.8% in September to 8.6% in October, when compared with precrisis levels. The manufacturing sector in the United Kingdom and Eurozone faced significant supply side issues in October but continued to expand at a robust pace. The manufacturing PMI rebounded in Russia, reflecting recovering demand and employment.


Recovery in global cargo capacity (ACTKs) was also adversely impacted by pandemic developments in Asia Pacific. European airlines reported ACTKs down 12.1% vs. precrisis 2019 – a slightly better outcome than in July. Cargo load factors were elevated across the industry amidst lasting capacity shortages.


European airlines reported a 50.3% RPK decline in September – a slight deterioration from August (-48.7%). The resurgence of COVID-19 in the region weighed on passenger traffic results and has been negatively reflected also in bookings for future travel. Russia remained the fastest growing key domestic market for the ninth consecutive month (RPKs up 29.3% vs. 2019).


As of November, European airlines are scheduled to receive 26% more aircraft deliveries in 2022 vs. 2021. Most of these deliveries will be a narrow-body Max 737 (36%) and A321 (21%).





Carriers in Latin America registered a 6.6% decline in international CTKs in October compared to the same month in 2019, a marked improvement from the 17.0% fall a month earlier. Based on segments rather than airlines’ region of registration, several routes such as Nth-Sth America (up 22.2% in October) are performing well, suggesting that airlines in the region have lost market shares to other carriers.


Manufacturing PMIs continued to trend downwards in Brazil in October due to material shortages. That said, they remained in the territory associated with expansion of the manufacturing sector. Supply-side constraints weighed also on Mexican manufacturing sector, which has been contracting since Q4 2019.


Latin American airlines continued to lead the industry’s recovery, benefitting from rising passenger volumes in their key domestic markets (Brazil). Latin American airlines reported RPKs down 39.4% in September (vs. September 2019).


As of November, Latin American airlines are expected to receive 81 aircraft deliveries in 2022 (vs. 87 in 2021). In terms of aircraft type, most of the 2022 deliveries will be a narrowbody Max 737 (45% of the total).





There was a large deterioration in international CTKs growth for carriers in the Middle East, from 18.4% in September to 9.4% in October, compared to 2019. This was driven by deteriorations in traffic on several key routes, such as Middle East-Asia and Middle EastNth America.


Middle Eastern airlines reported a 65.9% revenue passenger-kilometres (RPKs) decline. Amongst the key regional markets, Middle East–North America has been the most resilient, recording passenger traffic at ~68% of pre-crisis levels in September.


As of November, Middle Eastern carriers are expected to obtain 68 aircraft deliveries in 2022 – 31% more than in 2021.




Airlines based in North America registered an 18.9% growth in their international CTKs in October 2021 versus 2019, unchanged from September. Most of the growth was realized in H2 2020 and H1 2021 and SA CTKs in fact fell by 0.4% month-on-month in October.


On the one hand, persistently strong inflation (6.2% in October) and slowing manufacturing activity and new export orders in the US threaten to impact demand for air cargo. But US retail sales are proving resilient (up 1.7% month-on-month in October) and supplier delivery times are also particularly high, making air freight attractive for businesses there.


North American airlines continued to lead the industry’s recovery, benefitting from rising passenger volumes in their key domestic markets. North American airlines reported RPKs down 30.5% in September (vs. September 2019).


North American airlines are scheduled to obtain 403 aircraft deliveries in 2022, up 45% vs the previous year. Same as in Latin America, most of these deliveries will be the narrow-body 737 Max aircraft (43%).







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