IATA April Industry Report (2021)

Hello everyone, this month’s IATA industry report is here. Without further ado, here is the translation.

 

Air cargo on the rise against a favorable backdrop

• Global freight volumes continue to trend upward at a strong pace. Industry-wide cargo ton-kilometers (CTK) increased by 12.0% in April compared to the pre-crisis figure in April 2019. The seasonally adjusted CTK rose 4.0% sequentially and is now about 5% above its pre-crisis peak in August 2018, before the U.S.-China trade war began.
• The industry is supported by a strong economic rebound as well as favorable supply chain dynamics, particularly with very low inventory levels in recent months and more competitive prices relative to container shipping.
• Air cargo rates and volumes are near all-time highs, providing strong financial support for several airlines.
• Airlines in most regions performed strongly, especially in Africa and North America. But the Latin American-based airline is losing market share to airlines elsewhere and has underperformed in recent months.

Global air cargo volumes on a strong upward trend amid a strong economic rebound and favorable supply chain dynamics

Global air cargo volumes climbed further in April despite a lack of capacity amid a V-shaped economic recovery and broadly supported conditions. In fact, industry-wide cargo ton-kilometres (CTK) increased by 12.0% in April 2021 compared to the same month in 2019. The strength partly reflects a weak month in April 2019, when the industry was hit by the U.S.-China trade dispute. After stripping out fluctuations caused by seasonal patterns, air cargo showed a sharp upward trend, beginning with the lifting of strict lockdowns in May 2020. Seasonally adjusted (SA) freight volumes rose 4.0% month-on-month in April, the highest growth rate since September 2020. SA CTK is now around 5% above its pre-crisis peak in August 2018 (Figure 1).

 

The month’s strong cargo growth performance was primarily driven by North American airlines (7.5 percentage points out of a 12.0% increase). But all regions except Latin America contributed positively to the growth results. The V-shaped recovery in manufacturing and trade-related economic sectors continues in 2021 so far. Cross-border trade in goods reached a new high in March 2021 (up 4.2% from March 2019), with industrial production also increasing and growing (Figure 2).

 

 

The strong growth in transport demand is favoring air cargo as well as other modes of transport such as container shipping. The increase was not fully anticipated and is causing tensions in global trade due to insufficient capacity, problems caused by trade measures constrained by Covid-19 control.

 

One result of these tensions was extremely low inventory levels compared to U.S. sales, down 6.4% from pre-crisis levels in April.

 

Typically, at the beginning of an economic upturn, businesses turn to air freight to quickly replenish inventories when demand rises, supporting CTK. In the current context, supplier lead times have increased significantly and many supply chains are now operating on a “just-in-time” basis. This means that businesses are likely to use air freight to meet urgent needs and to cushion inventories (Figure 3).

 

Another situation is that the relative price of air freight has changed compared to container shipping. Before the crisis, air freight used to be about 12 times more expensive than ocean freight. While air freight rates spiked in the early stages of the crisis around April 2020, they have since stabilized, with container rates growing even faster (Figure 4).

 

Relative prices for air cargo are currently low compared to recent averages. In addition to being fast, air cargo is also relatively cheap now, creating a strong competitive advantage that may appeal to some businesses.

 

The rapid increase in container capacity (which would make air cargo less attractive) and difficulties restocking, coupled with continued strong economic demand mean these dynamics are likely to continue into late 2021. We think air cargo will continue to perform well in the coming months.

 

Air cargo capacity on a moderate upward trend, but load factors and profits near record

In April, industry-wide available freight ton-kilometres (ACTK) were 9.7% below April 2019 levels. It was the third consecutive month of improvement, and South Australia also rose to its highest value since January 2020 for the third consecutive month.

 

International passenger traffic – which corresponds to the amount of cargo carried in the belly hold of airliners – did not increase in April from March. But the ACTK of international freighters in 2019 increased by 26.2% compared to the pre-crisis value. As has been the case since the beginning of the crisis, airlines have regularly increased freighter fleet size as well as day-to-day freighter utilization (Figure 5).

 

The result is that cargo capacity remains insufficient. While this is not to the same extent as the containerized trade, the lack of capacity has had some headwinds on demand since the crisis began.

 

In addition, it means that load factors continue to approach record levels. The industry-wide cargo load factor in April was 57.8%, up 11.2 percentage points from April 2019. International load factors are at record highs – relatively close to April 2020 levels, with the exception of Latin America (Figure 6).

 

As air cargo rates broadly followed the trend in load factors, they were up about 85% compared to April 2019, but 3% lower than April 2020 (including fuel and other surcharges). Rates and loads are near all-time highs, which is a big plus for some airlines.

 

International CTK growth keeps pace with the industry

The strong performance of global air cargo volumes was also reflected in the international CTK, which increased by 13.0% in April 2021 compared to April 2019. Among the regions we track, Latin America remains the major underperformer, while Africa and North America are growing the fastest (Figure 7).

 

For the fourth consecutive month, Africa-based airlines achieved or exceeded 25% growth compared to 2019. In fact, in April, their international CTK increased by 30.6% compared to April 2019. This was mainly driven by CTK flying on routes between Asia and Africa, which were less affected by the outbreak.

 

North American airlines posted a 25.6% increase in international CTK in April 2021 compared to April 2019, following a 16.9% increase in March. Airlines in the region benefit from U.S. consumer demand for products made in Asia. They are also able to expand their market share on routes such as North America-South America due to their large fleet of freighters.

 

The growth performance of airlines registered in the Middle East, Europe and Asia is closer to the international total. But all three regions improved significantly in April compared to March, with South Australia showing a strong uptrend in cargo volumes, underscoring the breadth of air cargo strength outside Latin America.

 

In April 2021, Latin American airlines’ international CTK decreased by 32.7% compared to April 2019, in stark contrast to other regions. CTK in South America has not made significant progress since the crisis first erupted. That being said, segment volumes across the region (Europe-Central America, North America-South America) performed well in April (Figure 8).

 

This underscores the difference between data based on an airline’s registration area and segment-based data. In this particular example, the bankruptcy proceedings of some of the largest operators in Latin America meant that their market share was taken away by operators in North America and Europe. While there is still demand for routes to and from Latin America, airlines in the region are operating fewer routes than before the crisis.

 

Overall market conditions in April