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Air Cargo Market Analysis September 2020 Recovery in Air Cargo Modestly Accelerated in September • the Speed of Recovery in Air Cargo Increased Slightly in September

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Air Cargo Market Analysis September 2020 Recovery in Air Cargo Modestly Accelerated in September • the Speed of Recovery in Air Cargo Increased Slightly in September Air Cargo Market Analysis September 2020 Recovery in air cargo modestly accelerated in September • The speed of recovery in air cargo increased slightly in September. Industry-wide cargo tonne-kilometres (CTKs) fell by 8.0% year-on-year compared with 12.1% decline in August. Month-on-month, CTKs showed the fastest growth since May, at 3.7%. The industry rebound remains largely driven by North American airlines. • Key demand drivers of air cargo remain supportive despite the resurgence of COVID-19 cases. In Q4, cargo demand should be reasonably solid amid traditionally large e-commerce events & launches of popular consumer electronics. • The lack of cargo capacity remains a key obstacle for faster recovery in air cargo business. Global available cargo tonne-kilometres fell by 25.2% year-on-year in September – more than three times faster contraction than in demand. Air cargo demand improved further in September to recover only slowly, offsetting the performance of The pace of recovery in air cargo volumes accelerated the improving markets as shown in the chart below. slightly in September. Industry-wide cargo tonne- Chart 2: Contribution to annual CTK growth (airline kilometres (CTKs) contracted by 8% year-on-year – a region of registration) solid improvement on 12.1% decline in August. In Percentage points month-on-month terms (blue line in Chart 1), CTKs 15% Latin America Africa picked up by 3.7%, which represents the fastest 10% Middle East North America Europe Asia Pacific increase since May. 5% Total Chart 1: CTK levels, actual and seasonally adjusted 0% Industry CTKs (billion per month) -5% 25 -10% 24 23 Actual -15% 22 -20% 21 -25% 20 -30% 19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 18 Sources: IATA Economics, IATA Monthly 17 Seasonally adjusted In most regions, the demand for air cargo has been 16 driven by relaxation of restrictions linked to COVID-19. 15 As countries unlocked and people returned to work, 14 2016 2017 2018 2019 2020 key economic indicators such global manufacturing Sources: IATA Economics, IATA Monthly Statistics output and manufacturers’ business confidence rebounded strongly. This in turn helped to revive As in the previous months, North American airlines appetite for goods shipped by air. continued to lead the industry-wide rebound (CTKs up 8.6%yoy), benefitting from robust demand for e- Key demand drivers hint that recovery will continue commerce in domestic US market and solid In the near-term, cargo demand is likely to improve performance of Asia – North America trade lanes. further. As the world economy emerges from the September marked also considerable improvement crisis, companies would be normally expected to turn for African carriers that showed a strong 8.2% CTK to air as their preferred mode of transport to get expansion – the best outcome since the crisis started. inventories into their production facilities as quickly as However, European and Asia Pacific airlines continue possible. CTKs should be also supported by three traditionally large e-commerce events (Single’s Day, Air cargo market overview - September 2020 World September 2020 (% year-on-year) % year-to-date share 1 CTK ACTK CLF (%-pt)2 CLF (level)3 CTK ACTK CLF (%-pt)2 CLF (level)3 TOTAL MARKET 100.0% -8.0% -25.2% 10.6% 56.9% -13.2% -24.7% 7.0% 53.3% International 86.8% -9.9% -28.0% 12.8% 63.8% -14.5% -25.2% 7.4% 58.5% 1% of industry CTKs in 2019 2Year-on-year change in load factor 3Load factor level Air Cargo Market Analysis – September 2020 1 Black Friday & Christmas) as well as launches of Although passenger fleet gradually comes back to popular electronics (iPhone & PlayStation 5). service, the belly cargo capacity recovers only slowly (Chart 4). This can be explained by airlines taking out The development in leading economic indicators also of storage mostly narrow-body passenger aircraft that bodes well for the near-term outlook. The new export cannot accommodate as much cargo as larger wide- orders component of the Global Manufacturing PMI body planes. rose above 50-line for the first time since mid-2018 (Chart 3). This indicates a robust recovery in demand Freighters available capacity has increased for manufactured items. Global merchandise trade has significantly over the recent months and their been also improving and is expected to strengthen in utilization rates remain at record-high levels. However, late-2020. Indeed, the World Trade Organization the total industry capacity, expressed in global revised their 2020 trade forecast from -12.9% annual available cargo-tonne kilometres (ACTKs) is still down contraction under optimistic scenario, to -9.2% fall. 25.2% year-on-year (compared with -42% at the peak of the crisis). As a result of this insufficient capacity, Chart 3: CTK growth vs. global new export orders many airlines continue to use ‘preighters’ to ship Net balance 50=no change expected % year-on-year 75 35% goods. As of early October, the number of passenger 30% 70 aircraft adapted to transfer in-cabin cargo is 25% estimated to be at around 2,500. 65 Growth in 20% industry CTKs 60 (RHS) 15% The industry-wide capacity picture hides differences 10% 55 5% across regions. North American airlines added the 50 0% most capacity back so far (-15.0%yoy) followed by the -5% 45 carriers in the Middle East (-23.6%yoy). On the other -10% 40 Global PMI new -15% hand, Latin American ACTKs recover only slowly, and export orders 35 component (LHS) -20% were down 36.5% year-on-year in September. -25% 30 -30% All-time high industry load factor for another month 25 -35% Since recovery in global capacity lagged the rebound in cargo volumes, the industry-wide cargo load factor Sources: IATA Economics, IATA Monthly Statistics, Markit (CLF) reached a record-high for September (up Despite these positive developments, there is still a 10.6ppts vs. a year ago). At the regional level, the considerable uncertainty about how the pandemic highest load factors were posted by airlines in the Asia plays out over the next months. Many countries have Pacific and Europe regions (Chart 5). been experiencing second waves of COVID-19 since Chart 5: Industry-wide cargo load factors by region August and as a result started to reimpose Sep 2020 Sep 2019 restrictions. The new virus spikes might lead to All-time Sep low* All-time Sep high* renewed need for medical goods which would support Industry 56.9% 46.2% air cargo demand. On the other hand, a potential fall in Asia Pacific 64.2% 53.8% economic activity and business confidence might reverse the CTK recovery. Europe 62.0% 49.9% Available cargo capacity is still insufficient Middle East 57.9% 45.5% The lack of cargo capacity remains one of the main Africa 50.7% 33.7% obstacles for faster rebound in air cargo volumes. N. America 48.4% 37.9% Chart 4: Int’l belly cargo and freighter capacity growth L. America 45.6% 37.4% International ACTKs, % year-on-year 60% Dedicated Freighters Belly Cargo Total 10% 20% 30% 40% 50% 60% 70% Cargo load factors (% of available freight tonne kms, actual) 40% Sources: IATA Economics, IATA Monthly Statistics 20% International CTKs mirror the industry-wide image 0% International demand continues to follow the similar -20% recovery path as the industry. International CTKs fell -40% by 9.9% annually in September, a solid improvement -60% on 13.3% contraction in August. All regions showed -80% better year-on-year outcomes compared with the -100% previous month (Chart 6). Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Source: IATA Monthly Statistics Air Cargo Market Analysis – September 2020 2 Africa continues to lead the recovery in int’l cargo Middle East shows V-shaped air cargo recovery African airlines led the international CTK growth chart Middle Eastern airlines recorded 2.5% annual for another month, recording 9.7% annual increase in contraction in international CTKs in September, cargo volumes. This small and quite volatile market compared with 6.7% annual fall in August. The region recorded one of the smallest declines during the crisis was one of the most severely hit at the peak of the and its volumes returned back to the pre-crisis levels crisis. However, it showed a sharp V-shaped recovery in two months or so. That said, it has been largely since then (Chart 7) as airlines quickly added capacity Africa-Asia trade lanes that drove the region’s back to the market after the peak of the crisis. recovery (+21.6%yoy), due to the solid foreign Chart 8: International CTKs by route (segment-based) investment from recovering China into the region. International FTK growth by route (Sep 2020, % year-on-year) Other key routes (to/from Europe and Middle East) 30% remain deep in contraction territory (Chart 8). Afr - Asia North - Cntr'l.Am Chart 6: International CTK growth 15% Asia - Nth.Am Sep 2020 Aug 2020 ME - Asia 0% Industry -9.9% ME - Nth.Am -13.3% North - Sth.Am Eur - ME Africa 9.7% -15% Afr - ME 1.0% Eur - Nth.Am Eur - Asia Afr - Eur Within Asia N. America 1.5% Eur - Sth.Am -3.3% -30% Within Eur Eur - Cntr'l.Am Middle East -2.5% -6.7% Americas - S/w Pac Asia - S/w Pac -45% Asia Pacific -14.6% -16.4% 0% 4% 8% 12% 16% 20% 24% 28% Share of total international CTKs (%, Year-ended Sep 2020) Sources: IATA Economics, IATA Monthly Statistics by Route Europe -15.7% -19.6% L.
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