Eventually the crisis in Asia had to catch up with the air cargo market. And so it has. Growth finally came to a shuddering halt earlier this year and, with Asian carriers scrabbling to fill capacity, the rest of the world has felt the fallout.
Although passenger traffic was an immediate casualty of the Asian crisis, cargo growth rates managed to hold up for most of last year. Then in January the numbers turned negative. Incoming freight from Europe and North America has fallen by as much as 10% as the local economies reined back on imports and intra-Asian traffic has fared no better.
It is the worst shock since the Gulf War, says Carlos Chua, commercial director of the Association of Asia Pacific Airlines (AAPA). In fact, he believes it could be worse. "Now it is more sustained," he says, describing the "double whammy" of falling traffic and declining yields. Weak domestic currencies, however, have allowed the Asian carriers to switch aggressively to exporting to the USA and Europe at the expense of their western counterparts.
Europe's cargo airlines are already beginning to feel the impact. Swisscargo admits to having experienced a substantial decline in yields. The US-Pacific market has been subject to intense capacity dumping and even the US-Europe market has been affected. "Asian carriers are, unbelievably, starting to fly European freight over Asia. They have undercut our prices by 40-50% on some routes," says Swisscargo chief executive Ludwig Bertsch. On the North Atlantic there has been a 3-5% decline in yields, he adds.
KLM Cargo's strategy director Boubby Grin says that the Dutch carrier has managed to sustain yields but only after dropping capacity by 4-5 percentage points on Asian routes.
There is little better news across the Pacific. "Severe meltdown" is how Brian Clancey of US consultants MergeGlobal characterises the Asia-US market. It has not be helped by a 15% hike in capacity since the US-Japanese bilateral.
Japan's big freight carriers are clearly nervous over the increased competition, but are not yet ready to panic. So far, Japan Airlines (JAL) has left freighter capacity largely untouched although less passenger flying has led to reduced belly space. JAL is still looking for an upturn next year, pinning its hopes on the government's latest attempt to kick-start the Japanese economy.
All Nippon Airways too expects a fall in cargo of up to 10%through to next March, although rising US and European exports have helped the carrier to find full loads on a good proportion of outbound flights.
Others in the region are also holding their nerve. Korean Air Cargo says that it has resisted dumping freight charges and claims to have clawed back prices despite keeping capacity steady.
Singapore Airlines has slimmed back cargo capacity by more than 7% since the onset of the crisis. But the carrier's vice-president, cargo planning, Freddy Khoo, is optimistic, predicting "moderate" growth for the rest of this year.
Khoo adds that SIA has not changed its ambitious medium-term plans, which involve a 6-7% annual boost in cargo traffic and the delivery of its eighth 747-400 freighter before 2000.
But Peter Negline, financial analyst with Salomon Smith Barney in Hong Kong, warns that yields in the region, which are already down by double figures, will continue to soften into 1999. He concedes that there looks like being strong demand for US-bound cargo heading out of Asia over Christmas, but doubts that it will carry over into the New Year.
China's currency and economy have held relatively steady, a fact which has helped benefit Hong Kong's Dragon Air, a small but growing player in the Asian cargo business. Chief financial officer Francis Wai says his cargo business is "...booming despite the economic disturbances" and sees strong growth over the next year. One cause for optimism is China's more liberal policy on cargo flights to Hong Kong, which is giving Dragonair greater "freedom to participate in outbound cargo", he adds.
But the cargo market need not lose too much heart. Longer term forecasts are still for comfortable growth. The surge in demand over the past five years may be over, but MergeGlobal's latest long-range forecast suggests that the world's international air freight market should get back on track over the next decade with an annual growth rate of some 6.6%.
While traffic within Asia-Pacific may not again reach the heady heights of 15% that it managed in the mid-1990s, the region is still expected to lead the world with annual growth averaging close to 8%. A thought which is worth holding amid the gloom.
Source: Airline Business
