Carriers adding planes as air cargo demand surges

by Ian Putzger

Buoyed by record cargo volumes, Canadian carriers are investing in freighter aircraft. Capacity remains tight, though, especially in the outsized cargo segment.

Air Canada still wrote red figures in the first quarter of this year, despite significant improvements, but its cargo business kept soaring, showing a 42 percent increase in revenue to $398 million. Cargojet reported a 13.3 percent rise in revenues for the past year.

Cargo has also been strong for Edmonton International Airport, rising five percent over its 2020 tally. It was the second consecutive year of record throughput, says Alex Lowe, manager of global network development.

However, surging inflation, which has pushed airfreight fuel surcharges into the stratosphere, has prompted warnings of a slowdown in global trade, and in demand for air cargo capacity. The World Trade Organization has dialled back its forecast for growth in merchandise trade this year from 4.7 percent to 3.0 percent and expects 3.4 percent growth in 2023.

“We’re seeing a slight softening of yield,” said Jason Berry, vice-president, cargo, at Air Canada. Berry attributes the drop to the lockdowns in China and a resurgence in bellyhold capacity as passenger flying ramps up again.

Still, demand has remained strong. While shippers are concerned about the economic outlook, supply chains remain stressed, he observes.

“We’ve not seen volumes go down. They are way ahead of last year in all three segments – ACMI, charter and international,” says Jamie Porteous, executive vice-president and chief strategy officer of Cargojet.

Gary Vince, head of airfreight, Canada, at DHL Global Forwarding, has not seen a pullback from airfreight. Customers have not reported a slowdown, nor have they signalled that they anticipate business to lose momentum, he says.

Like Berry, he does not expect clients to shift away from airfreight to reduce costs. Ongoing slowdowns with maritime container traffic continue to put pressure on shippers to move cargo in a timely manner. While airfreight is a strategic necessity for the pharmaceutical sector, retail customers have to use airfreight to cope with the challenges in ocean transportation, he notes. Likewise, manufacturing and the automotive industry have to rely on airfreight.

Even perishables, which are more sensitive to price fluctuations, have not shown a significant retreat from airfreight, says Chris Connell, senior vice-president perishables, North America, at Commodity Forwarders Inc., part of Kuehne + Nagel.

Vince expects activity around the sector to heat up, as the passenger airlines continue to put more planes in the air.

Regional variations

In terms of geography, the trans-Pacific market has been challenging, chiefly because of the impact of lockdowns on both airfreight and ocean cargo, he notes. New Zealand and Australia have been difficult markets, both in terms of finding capacity and high rates.

“The trans-Atlantic sector is the rock star right now,” Vince says. Latin America, historically an underserved market, is benefitting from the deployment of Air Canada’s first B767 freighter. “Any freighter space is great in that market.”

Edmonton has seen dozens of new or reinstated routes with the introduction of the summer schedule. They are mostly within North America, but KLM brought its Amsterdam service back to pre-pandemic frequency at the end of March, and other carriers have been talking about additional international flights, mainly to Europe, reports Lowe.

Passenger growth

The recovery in the passenger market has been hampered by Covid-related measures in response to new outbreaks, but airlines like Air Canada are optimistic their operations will see significant expansion in the months ahead.

However, predictions of demand for freighters drying up as this happens have been widely dismissed, in part due to the strength of e-commerce growth, but also because passenger carriers have retired older widebody aircraft from their fleets and are now fielding narrowbodies like the B737MAX and A321neo on routes formerly served with mid-sized widebodies like the B767.

Air Canada is a case in point. In late April, management announced that it was boosting its order for A321XLR aircraft from 26 to 30 planes.

Cargojet president and CEO Ajay Virmani regards this as a structural shift that reduces bellyhold capacity on longhaul sectors. “DHL wouldn’t sign a five-year contract if they thought everything was going back to bellies,” he said in an analysts call following the announcement of an agreement under which the integrator will add more Cargojet freighters to its operation.

Air Canada’s capacity is affected by the departure of its cabin freighters. The airline removed seats from altogether 11 widebody planes to carry freight in the cabin as well as in the cargo hold. All but one have returned to passenger service, which is limiting the airline’s lift across the Pacific. The last one is flying mostly on trans-Pacific routes and will shift to passenger operations before the end of the year.

Growing fleets

Overall Air Canada’s cargo capacity is on the rise as its freighter fleet grows. The second converted B767 cargo plane was due to begin service in May, flying mostly to trans-Atlantic destinations. In the current market it would be possible to deploy a 767 freighter across the Pacific, but it is better suited to other markets, says Berry.

Rather than pursue ad hoc charter opportunities, Air Canada has used its freighter and cabin freighter contingent to build up network and schedule integrity, a strategy that will continue as it gets more freighters.

“We’ll continue to add robustness to current markets, then expand our Canadian presence and connect dots internationally,” Berry says.

In addition to eight converted 767 cargo planes, the airline ordered two brand new 767 freighters in April, which are expected to enter service before the end of the year.

Cargojet’s fleet is also growing at a rapid clip. Canada’s largest cargo airline is due to take delivery of at least three more 767 freighters this year, as well as two B757s.

“We can’t get the aircraft fast enough. As soon as we get one, we get demand from customers,” says Porteous. The latest move on that front was the agreement with DHL announced in April, which calls for Cargojet to deploy five more 767 freighters for the express company in the next two years under a five-year contract that also assigns the airline’s first two B777 freighters, due to arrive in 2024/25, to DHL.

The Russian problem

Global freighter capacity tightened after the outbreak of the war in Ukraine, as western sanctions effectively removed the Russian freighter operators from the international market. Primarily this hit the Asia-Europe sector, where Russian carriers accounted for about 10 percent of the available lift.

Globally the biggest impact in terms of freighter lift has been in the outsize segment, which has been dominated by Antonov 124s and Ilyushin 76s, alongside the single Antonov 225, the world’s largest cargo aircraft, which was destroyed by Russian forces. The global AN-124 fleet comprises 35 units, of which 13 are with the Russian air force, 12 are operated by Russian carrier Volga-Dnepr and seven by Ukrainian carrier Antonov Airlines. With the Russian planes barred and Ukrainian AN-124 committed to humanitarian missions, this leaves a huge gap in the market.

“We had a lot of Antonov activity prior to the conflict in Ukraine,” says Lowe, adding that more B747 freighters have landed at Edmonton since.

There has been talk of building a new AN-225 at an estimated cost of US$3 billion, which would take years. Some relief will come from the entry of the Beluga into commercial operations. This is a modified A300-600 freighter used by Airbus to move aircraft sections between manufacturing facilities, which the plane manufacturer is going to replace with a new version based on the larger A330 platform.

This year, however, only about 20 Beluga flights are expected with a single aircraft. The fleet should be up to five units in 2024.