REPORT BY NICHOLAS IONIDES IN SINGAPORE
Fallout from the economic woes in the USA is taking its toll on Asia's struggling air cargo industry. Some, though, are predicting an upturn in the sector's fortunes
Alittle over a year ago, virtually all was bright for Asia's air cargo industry. The sector was experiencing strong growth after two years of depression caused by the region's economic downturn, and airlines were aggressively enlarging their freighter fleets.
Now, however - even before the 11 September attacks threw the global airline industry into turmoil - Asia's carriers had been suffering through more than nine months of deteriorating market conditions.
Cargo volumes in some parts of the region were falling by amounts not seen since the worst of the 1997-9 downturn, and rationalisation programmes were again being launched, as overcapacity pushed down yields.
There have already been new consolidation moves since the attacks in the USA, and more are likely. In South Korea, Asiana Airlines announced in late September that it would make internal cuts, with cargo targeted. Although not finalised, it appears the airline will kick off the programme by returning a wet-leased freighter to its owner.
Korean Air (KAL) has also been looking to make reductions. One of the world's biggest cargo carriers, it now seems unlikely to go ahead - at least in the short or medium term - with a long-planned order for new freighters.
In Taiwan, China Airlines (CAL) was already planning to reduce some cargo growth, and had returned several wet-leased Boeing 747Fs to Atlas Air over the past year. In 1999, the carrier ordered 13 747-400Fs - in part to replace older 747-200Fs. Having taken delivery of six, it may convert some of its seven remaining firm orders to passenger aircraft as a result of falling cargo traffic volumes.
Fellow Taiwan carrier EVA Air may also scale back planned growth of its cargo operation. Its freighter fleet comprises nine Boeing MD-11Fs and two Boeing 747-400Fs, in addition to 747-400 Combis. A third 747-400F is due for delivery next year.
The carrier had seen its cargo operation grow steadily in recent years. Last year it accounted for 43% of total revenue. The carrier had been aiming for 50% by next year, and ultimately 60%. To accommodate this growth, EVA said earlier this year that it would have its three MD-11 passenger aircraft converted into freighters in the medium term. Analysts feel this may be delayed.
The main problem for airlines in Japan, South Korea and Taiwan has been a sharp drop in IT exports to the USA as a result of slowing economic growth. Owing largely to this fall, Japan Airlines saw its cargo volumes fall 12% in April against the same month a year earlier. That represents the biggest drop since 1992. Tokyo's Narita International Airport suffered by the same reduction in throughput - its biggest-ever decline.
Meanwhile, in Taiwan, freight forwarders and airline sources earlier this year reported that several categories of IT exports to the USA were down as much as 30-40%. This fall in US-bound cargo traffic is hitting Asian carriers hard, as the eastbound market has traditionally been the lucrative one (westbound aircraft have for some time been flying with marginal loads).
But many in the region continue to see a bright long-term future. Hong Kong's Cathay Pacific says cargo has been suffering from sharp traffic declines, but is confident that it will bounce back. Singapore Airlines (SIA) has also said its cargo division is proceeding with ambitious growth plans.
SIA Cargo began operating independently of its parent on 1 July and intends to grow capacity by 10% annually over the next five years. It operates nine 747-400Fs and has eight more due for delivery up to 2006. Cargo revenue accounts for only around 20% of SIA's business, unlike some other large carriers in the region - such as Cathay, which has seen it creep up towards 30% in recent years.
China is also seen as a promising market for cargo, as the industry is still in its infancy with only a handful of freighters in the country's aircraft fleet.
China Southern Airlines launched dedicated freighter operations last year using a 747F wet-leased from Atlas. It also has two 747-400Fs on firm order with Boeing, due to arrive next year.
China Eastern Airlines is meanwhile continuing to build up its China Cargo Airlines subsidiary, the country's first all-cargo airline, established in 1998. China Eastern and minority shareholder China Ocean Shipping recently agreed to sell a 25% stake to Taiwan's CAL, raising additional funds for expansion. Government approvals are expected by the year-end.
Domestic operations should also get a boost in China. China Eastern is considering having three Boeing 737-200s it inherited through a take-over of Great Wall Airlines converted into freighters, while other domestic carriers are considering similar moves. Five Tupolev Tu-204Fs were also ordered in September by the Chinese Government for use by China Southwest and China Northwest Airlines.
In Hong Kong, Dragonair launched dedicated cargo services in mid-2000 using a 747-200F wet-leased from Atlas. It took delivery of its first purchased freighter, a 747-300F, in September, with a second due for delivery in October.
It says it is confident that the sector's future is bright despite the downturn, particularly with China soon due to join the World Trade Organisation.
Source: Airline Business
