The big question on the air cargo industry’s minds is how this year is going to shape up. While virtually the entire industry is already feeling the pain of high fuel prices, yield pressure from over-capacity and modal shift to sea, along with the credit-market upheaval are already looking set to spoil the industry’s short-livedparty last year where most carriers reported rosy numbers.
The International Air Transport Association estimated a global airline industry profit of US$5 billion in 2008, down from previous guidance of US$7.8 billion. The trade group maintained its forecast of a US$5.6 billion profit this year, which will be the industry’s first since 2000, as higher oil prices were more than off set by strong traffic and revenue growth. But will carriers be able to repeat that this year – most likely not, especially cargo carriers that feel the sting of high fuel prices even more acutely.
Record high oil prices were expected to add US$14 billion to the airline industry’s total fuel bill of US$149 billion next year, based on an average price of $78 per barrel. A barrel of light sweet crude in late February broached the US$100 mark in afternoon trading on the New York Mercantile Exchange, no doubt sending shivers down the backs of most airline CEOs. But juxtaposed against this increasingly pessimistic view of the carriers is that of Airbus and Boeing. The two airframe manufacturers are practically euphoric, having clocked up record orders last year.
Boeing signed up customers for 1,413 planes, while the Airbus tally reached 1,341. The US plane maker also registered a record in freighter orders, which climbed to 83 in 2007. Some 400 cargo planes are due to enter service over the coming four years. By some estimates demand has to grow by six percent in order to fill all that capacity. But IATA statistics show that international air freight traffic grew a relatively modest 4.3 per cent last year, down from 4.6 per cent in 2006 and both years were well below the seven to eight per cent growth trend of recent years.
The picture looks no better this year. "The air freight demand environment will remain challenging. Growth is expected to slow in the first half of 2008 before picking up with overall growth of 4 – 4.5 per cent projected for 2008," IATA predicted. So no doubt, supply is going to continue to exceed demand, in fact the disparity may well grow with substantial new capacity coming onstream.
A recent report by credit rating firm Fitch Ratings, like IATA also warned of smaller profit margins for the airline industry this year.
"After two solid years of industry cash flow and debt reduction, 2008 is therefore shaping up as a year of growing financial uncertainty when attention will return to the need for strict industry capacity discipline, tighter non-fuel cost control and liquidity preservation," Fitch said. But what may be different this time around is a similar trend to what the sea freight industry has already witnessed – a compression of the troughs and peaks. Downturns don’t last as long as they used to and because they’re shorter, they’re impact is not as great.
Airbus’ John Leahy also made similar comments at the recent Singapore Air Show where he said the peaks and canyons have become more like hills and valleys. Only time will tell, but I’m sure there’s at least a few sets of crossed fingers in the market.
