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Reports | Air Cargo is Critical (Part 1)

By:Mark Diamond, Vice President of SASI

The passenger airline industry news these days is unremittingly bleak: 

· Commercial flights decreased 74% globally in April 2020 compared to April 2019.1

· Passenger traffic has declined even faster:  by the end of April 2020, the number of US air passengers had fallen 94% compared to the previous year. 2

· Passenger aircraft are flying nearly empty. US carrier load factor, normally above 80%, was only 22% for the week ending May 3, 2020.3

· More than 16 thousand passenger jets were parked worldwide as of the end of April 2020, representing 55% of the total global fleet. 4

· Flybe, Virgin Australia, South African Airways, Air Mauritius, Avianca, Trans States, Compass Airlines and Miami Air International have entered administration, and this may be just the beginning of a wave of airline bankruptcies and liquidations. 

· IATA projects that the global airline industry will lose US $314 billion in 2020, representing a 55% reduction in 2019 revenue. 5

· Warren Buffett’s Berkshire Hathaway has sold off all of its airline stockholdings, seeing limited future prospects for a positive return in the industry. 

Even with a gradual lifting of social distancing restrictions, the industry will remain in a perilous state for a long time to come. It is likely that airlines will maintain some sort of social distancing on aircraft as well as other health protocols, either required by law or to lure back passengers. However, social distancing on aircraft, by its nature, equates to low load factors, and until a vaccine is found for COVID-19 the traveling public may be very reluctant to begin flying again in any event. 

Passenger willingness to pay will remain low as travel propensity decreases in line with the global economic collapse. Leisure passengers will forego discretionary travel, and business travel will return only at a slow pace as businesses become more accustomed to videoconferencing and companies continue to put limits on employee travel. If passenger yields continue to decrease, break-even load factors will surely rise, even with the benefit that airlines are getting from the current low fuel prices. Some in the industry have noted that air fares must increase for airlines to make money with onboard social distancing, but any fare increases would further limit the return of air passenger demand.6

Price elasticity in most major passenger air travel sectors – leisure, VFR (“visiting friends and relatives”) and business – will increase and this will likely endure for years, even after a COVID-19 vaccine is found, as the global economy slowly heals from what will have been the biggest economic cataclysm since the Great Depression. The traveling public – in North America, Europe, Asia, Russia/CIS and elsewhere -- will simply not have the resources or willingness to pay to return to the level of flying that it had done prior to the crisis.

In short, it is difficult to foresee passenger airlines returning to profitable operations anytime soon. Many airlines will shed assets to try to right-size to the new demand realities, getting rid of older, less efficient aircraft. Other airlines will disappear entirely. But it is unlikely that the same equilibrium of supply and demand will return for years, and many industry experts are predicting that load factors will remain lower even after the COVID-19 crisis is over.

This situation calls for renewed attention to alternative sources of revenue

If passenger revenue will be insufficient for airlines to reach break-even, then airlines must seek alternative sources of revenue. Carriers – particularly LCC’s -- have for a long time sought to generate ancillary revenues as a key part of their business models, not only to provide supplemental revenue but also as a means of keeping passenger fares competitive.

Products have been unbundled, with airlines charging “a la carte” for items such as checked baggage, fast track security screening, priority boarding, extra legroom seats, buy-on-board meals and so forth, and ancillary offerings also have included sales of frequent flyer miles, duty-free sales and commissions on car rentals and vacation packages.

At some low-cost carriers, ancillary revenues accounted for nearly 50% of their total operating revenue before the crisis, and even such major carriers as Qantas, American and United were averaging more than $35 in ancillary revenue per passenger.7

However, the major drawback for most ancillary revenue in the current crisis environment is that it is very much linked to passenger traffic. If fewer passengers travel, there will be less spending as well on ancillaries.

Furthermore, with increased price sensitivity across all segments of travel, it is much less likely that the passengers who do return will choose to spend as much on ancillary purchases as they had prior to the crisis.

The increasingly important role of air cargo 

Cargo is a core source of revenue for every passenger airline, but it has not always accounted for a large percentage of airline revenue for passenger carriers (that are not also operating freighters). Nonetheless, with most airline operating margins in the single digits prior to the COVID-19 crisis, cargo revenue has meant the difference between profit and loss on most intercontinental passenger widebody routes.

Air Cargo as a Percentage of Total Airline Revenue, 20188 
Airlines Operating Passenger Aircraft Only

004 Air cargo will be a critical area--Table 1.png

Now, the situation has changed dramatically.  In April 2020, global cargo capacity was reported to be 45% lower than in 2019, as a result of the widespread grounding of passenger airplanes.9 In turn, freight rates have skyrocketed, more than tripling between China and Europe.

Year/Year Percentage Increase in Air Freight Reates, Selected Ex-China Trade Lanes 10
Week Ending 22 April 2020 

004 Air cargo will be a critical area--Table 2.png

Airlines have started placing their passenger aircraft back into service temporarily as quasi freighters, carrying cargo at first on the seats but more recently removing the seats entirely.

All of a sudden, cargo has changed from a contribution to fixed overhead, to virtually the ONLY source of revenue for many airlines. It is an island of stability when everything else in the industry is collapsing.

Unlike most “traditional” ancillary revenue, cargo’s demand characteristics are entirely independent of air passenger demand.  Furthermore, while cargo volumes globally have declined due to the current economic crisis, they have not dropped nearly as far as passenger demand.  Cargo demand is not affected by social distancing or other health-related restrictions that affect passenger demand.

While global passenger traffic has almost completely evaporated, global air cargo volumes declined by only 47% by the end of March 2020 vs. March 2019, and there has been a rebound since with volumes down only 32% by the end of April 2020.  This rebound suggests that much of the decline was caused by capacity constraints (which have started being relieved as passenger aircraft have been pressed into service carrying cargo), rather than simply demand drivers such as GDP and manufacturing production.

Year/Year Percentage Decline in Global Air Cargo Capacity by Week 

                                                         Selected Ex-China Trade Lanes

Week Ending 22 April 202011

004 Air cargo will be a critical area--Table 3.png


1.  “Scraping along the bottom: April air traffic statistics”, FlightRadar24.

2. Tracking the Impacts of COVID-19”, Airlines for America.

3. Ibid.

4. Brian Pearce, “COVID-19:  Wider economic impact from air transport collapse”, IATA, 7 April 2020.

5. “COVID-19 Puts Over Half of 2020 Passenger Revenues at Risk”, IATA, 14 April 2020.

6. Lewis Harper, “Social-distancing on flights would end cheap travel: IATA”, FlightGlobal, 21 April 2020.

7. Source:  IdeaWorks/CarTrawler, 2018 Top 10 Airline Ancillary Revenue Rankings

8. Source:  Airline annual reports

9. Alex Lennane, “Air cargo volumes looking 'less bad', as the market has 'probably bottomed'”, The Loadstar, 6 May 2020.

10. Greg Knowler, “Record air freight rates recorded on ex-China routes”, Journal of Commerce (, 24 April 2020.  Based on TAC Index data.

11. Alex Lennane, “Air cargo volumes looking 'less bad', as the market has 'probably bottomed'”, The Loadstar, 6 May 2020.  Based on data from CLIVE Data Services.