ANALYSIS: US cargo carriers optimistic despite weak demand

Washington DC
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Economic recovery has been slower than expected in the global air cargo market and executives of US-based cargo operators maintained a cautious tone when sharing their third quarter results. However, the major carriers continue to turn a profit and, in most cases, are still hopeful that they will see cash flow in 2013 and growth opportunities despite the challenging market.

A few months ago, the industry remained hopeful that weak demand in the cargo market would see improvements by the end of 2012. In its second quarter cargo report, the International Air Transport Association had predicted from a survey of executives that a slight improvement in demand, seen in the first half of 2012, would continue. However, it revised that outlook in its third quarter report to reflect declining yields after speaking to executives again in July. It expects this trend to last until mid-2013.

Memphis-based FedEx has said several times that global weakness is a concern. Therefore, it has been taking steps to increase earnings and margins and to tailor its fleet to match the softness in demand. Customers' shifting demand to deferred shipments instead of priority services affected its Express segment results. Operating income in the carrier's Express segment declined by 28% year on year for the first quarter of FY2013 ended 31 August, falling to $207 million from $288 million in same period a year earlier. International export average daily package volumes increased by 1% as a result of an increase in economy traffic in Europe and Asia. Domestic average daily package volumes, on the other hand, declined by 5%.

FedEx remains hopeful that it can improve results with a programme to achieve $1.7 billion in annual profit improvements by FY2016. Its goal is to see improved earnings per share of 10-15% per year. It is also looking to save $50 million per year by combining certain routes in Europe and Asia. The cargo carrier saw overall revenue rise by 3% year on year in the first quarter of FY2013 ended 31 August. It also recorded a 1% decline in net income.

UPS narrowed its full-year guidance after recording its third-quarter results, which showed a 0.7% year-on-year decline in revenue and a 56.3% decrease in net income. Despite this, it saw its highest third quarter ever for its international segment, with $449 million in profit for that part of the business, or a 7.7% year-on-year increase. Its export package volume to the region was higher than it had been in months, but at the same time, the carrier saw an overcapacity in the Asian market that caused revenue and margins in its forwarding unit to decrease. Domestic revenue also increased.

Canadian operator Cargojet recorded a 3.7% year-on-year increase in revenue in the third quarter, but this was offset by higher expenses that brought down net income. The carrier operates a fleet of 10 Boeing 727-200s, two Boeing 767-200ERs and one Boeing 757-200ER.

The Mississauga, Ontario-based carrier says it has been able to increase revenue by expanding into eastern Canada and through an increase in ad-hoc charter flights. The carrier says that its overnight network has been impacted by the financial environment, yet it continues to see demand for charter and aircraft, crew, maintenance and insurance (ACMI) flying for its customers. The carrier is expecting to see future organic growth and to gain new customers internationally and within Canada.

Air Transport Services Group (ATSG) saw a $41.7 million decrease in revenue for the third quarter and lowered its guidance for the year. However, it increased its net earnings for the quarter to $11.6 million, a reversal from a loss of $4.8 million in the same period in 2011. The operator said that it had seen delays throughout the quarter in deploying aircraft for ACMI service, as a result of customers deferring their need for the aircraft and longer-than-expected maintenance for some of its aircraft. As a result, the airline will have seven aircraft it needs to find homes for at the end of the year. Despite the delays, ATSG says it remains hopeful that it will still see strong earnings for 2013 because of lower expenses and investment in its fleet.

Atlas Air Worldwide saw a 13% revenue increase in the third quarter and a 10% jump in adjusted net income despite the delicate financial state of the industry. Atlas Air Worldwide's chief executive William Flynn told investors that the operator planned to see double-digit growth in 2012 but acknowledged that it expects to see a softer-than-expected peak cargo season. He expects 70% of 2012 block hours to be for ACMI service and 15% to be for its charter services.