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The global airline industry is back on the track to profitability next year as the pent-up demand for travel keeps booking and airline websites busy. Bloomberg reports that the industry will post a cumulative $9.7 billion loss for 2022 and that industry-wide profitability will emerge at some point in 2023. “We are rebounding,” IATA’s Willie Walsh said. “By next year, most markets should see traffic reach or exceed pre-pandemic levels.”
Christoph Hemman, EVP Head of Airfreight Americas Region, DB Schenker said, “These trends directly impact the airfreight industry, which relies on both passenger and cargo planes to get goods from point A to point B. When passenger planes were grounded during the pandemic, for example, air freight capacity shrank accordingly. The situation has since righted itself, but there are some key airfreight trends that are taking shape and shippers should be paying attention to in 2023.” Here are five to watch:
- All eyes are on the economy. Talk of a possible recession emerged midyear and got a bit louder and more emphatic as we progressed through 2022. The signals have since been decidedly mixed—the labor market is hot but inflation is high, and interest rates are high but consumer spending is holding steady—ever since. The airfreight industry is keeping a close eye on the signals. In October, for example, Air Cargo News reported that IATA was painting a picture of a sector that was “not too hot/not too cold.” An IATA spokesperson said air cargo traffic was “proving resilient” despite the declines in demand reported in 2022. According to Air Cargo News, IATA’s most recent market roundup reported that air cargo traffic in July fell by 9.7% year-over-year in cargo tonne km terms and that it was 3.5% below 2019 levels.
- High fuel costs could keep airfreight rates elevated. In its most recent Air Update, Maersk discussed how the global air cargo market is facing a “mixed outlook” for the next few months. It says high fuel prices help support freight rates which, in turn, remain “significantly above pre-COVID-19 levels but demand growth is likely to flatten.” “That comes as air cargo capacity is continuing to recover to pre-COVID-19 levels globally,” Maersk points out, citing data from Seabury Consulting. “Return of capacity between Asia and Europe is comparatively slow due to various impacts such as the Russia-Ukraine conflict and Covid-19 control in China.”
- Airfreight forwarders are largely bullish on the year ahead. A recent survey of Airforwarders Association members revealed that while the air cargo business is decelerating after one of the industry’s strongest years ever, volumes remain robust and many predict the first half of 2023 will be relatively positive. “Forecasts indicate that airfreight will account for almost 25% of airline revenue, which is significant, especially after passenger revenue had been so adversely impacted during the pandemic,” Air Cargo News “The positive outlook is tempered by existing global and macroeconomic challenges that could change the current prosperity wave, but [freight] forwarders remain optimistic and prepared for what may lie ahead.” Hemmann tells shippers to expect stronger demand for airfreight during second half of 2023, noting that consumer market inventories are “rather high at the moment.”
- Capacity constraints could become a bigger issue in 2023. Capacity is not expected to be a major challenge at the start of the year due to high inventory levels, but once that stock declines the air cargo market is expected to rebound. Overall, however, capacity is expected to remain rather flat based on the developments taking place within specific trade lanes. According to Air Cargo News, airfreight forwarders are concerned about the availability of capacity, since most passenger flights from Asia—and their belly capacity—remained grounded as of October. “The lack of space will certainly create demand for cargo planes in an already constrained market,” it says, “especially considering the loss of aircraft owned and operated by Russian entities, now embargoed from doing business with the US.”
- Demand for new planes and capacity isn’t expected to wane anytime soon. Air freight is a fairly small player in the overall cargo market, but supply chain problems, travel restrictions and voracious consumer spending pushed the niche to the forefront during the pandemic, CNBC reports. “Boeing and Airbus are both selling freighter versions of their newest wide-body planes, which are more fuel-efficient than older cargo jets,” it says, “and demand to convert older passenger planes into freighters has been so strong some slots are booked up for years.” In addition, older aircraft—and in particular the older B747F planes—will be retired and freighter operators are expected to start the transition into the future structure to deploy new B777F and A350F aircraft.
According to CNBC, e-commerce is one segment that could keep demand for airfreight capacity elevated over the next 12 months. Consumers may have eased off their cooped-up shopping frenzy during the height of the pandemic, it says, but aren’t likely to become much less demanding as we move into 2023. “If you look at the e-commerce segment of air cargo, that has grown significantly,” Ascend by Cirium’s Rob Morris told CNBC, “and that’s probably not going to cycle back [just] because we’ve all learned to acquire things in a different way.”