Beyond the Headlines

Air Line Pilot, March 2004, p.31

Growth and challenge: A snapshot of the U.S. cargo airline industry

Nearly every segment of the U.S. airline industry has suffered catastrophic losses and painful reductions in both the number of customers and profits for nearly 3 years. The terrorist attacks of Sept. 11, 2001, were final blows to an already declining U.S. economy, airlines were already losing their business and leisure passengers, large numbers of airline employees were being put on the street, and aircraft manufacturers and parts suppliers were beginning to feel the brunt of carriers’ loss of revenue. One segment of the airline industry, however, has managed to survive and even grow slightly during this period—cargo airlines and cargo divisions of passenger airlines.

ALPA’s Economic and Financial Analysis Department reports:

• Worldwide revenues for the air freight and express market were $75 billion in 2003.

• Freight traffic is growing worldwide about 6-7 percent per year, with the market doubling about every 10 years.

• Approximately half of the world’s freight is transported in passenger airline holds. Cargo revenue is only about 5 percent of total revenue for U.S. passenger carriers, 15 percent for European carriers, and 20–30 percent for Asian carriers.

• Half of the world’s air freight traffic moves to, from, or within the United States. Asia will take the lead by 2020.

• Express-package air carriers will continue to dominate U.S. air freight for the time being.

• As passenger airlines adjust their capacity by acquiring more small jets and retiring aging widebodies, thereby reducing passenger airliner hold capacity, freight operators will enjoy rising load factors and rates.

The U.S. air cargo industry does face a number of challenges:

• Security—Pending new security rules and regulations may reduce air cargo demand while the air cargo shippers adjust to the new environment. Security requirements could cause international carriers to reroute shipments to Canada and Mexico. Security issues will like increase costs for cargo carriers that will be passed on to consumers through shippers.

• Trucking—Hauling cargo by trucks can greatly affect the level and type of demand for air cargo capacity and facilities.

• Marine shipping—As air cargo becomes more expensive and security regulations slow transport, marine shipping may siphon cargo from airlines, especially cargo that does not require immediate delivery.

• E-mail—The use of electronic transfer and e-mail technology will grow in coming years. As electronic information transfer becomes accepted for legal documentation (such as signatures), the need for shipping hard copies will diminish.

• Aging aircraft—The only "new" cargo aircraft on manufacturers’ drawing boards is the cargo version of the A380. Current cargo aircraft are swiftly nearing retirement and will be replaced with "parked desert" aircraft, passenger aircraft conversions, and the A380F.

• New entrants—With cargo being the growth portion of the U.S. airline industry, new cargo operators may spring up to take advantage of the depressed prices for "large" aircraft and the availability of furloughed pilots.

• Internet and e-commerce—Boomed, busted, and now apparently on the upswing again—appreciable increases in cargo freight have not emerged as more people order goods and services online. The good news is that the decreased shipping of goods ordered online did not adversely affect the airline cargo industry during the "bust" period.