Airlines swap passengers for cargo as travel demand drops

Bloomberg

Unable to fill planes with passengers as the coronavirus destroys travel demand, airlines are instead using their fleets to transport more cargo, including medicines, smartphones and Korean strawberries.
The likes of Cathay Pacific Airways, Korean Air Lines and American Airlines are hauling a greater amount of goods in the belly of their passenger planes to keep up with demand. Cargo rates have risen over 10% in recent weeks as some companies are prepared to pay more to ship goods after drastic cuts in passenger flights left airlines with less capacity for cargo.
Airlines typically don’t operate in this fashion. Yet they are desperate to use whatever capacity they can for cargo as earnings from passenger operations have almost vanished with traffic down 90%. Though travel has been decimated, global trade continues, especially with factories reopening in China and demand surging for medical supplies to fight the pandemic.
“At least for the short term, as long as passenger flights are disrupted, cargo operations are expected to help some airlines make up for some of the losses,” said Um Kyung-a, an analyst at Shinyoung Securities in Seoul. “With oil prices falling and higher rates, it’s become economical for some airlines to be using passenger planes for cargo.”
Airlines could lose $252 billion in revenue from passenger operations this year because of the pandemic, according to the International Air Transport Association (IATA). In normal times, about half of the world’s air cargo is transported on dedicated freighters and the rest goes in the bellies of passenger aircraft along with people’s baggage. Airlines have increasingly relied on passenger planes to transport cargo since the global financial crisis.
Airlines are asking governments to ensure vital cargo supply lines remain open and efficient, calling for measures including the removal of slot restrictions and operating-hour curfews, and exempting crew who don’t interact with the public from 14-day quarantine requirements, IATA said. “We are still seeing examples of cargo flights filled with life-saving medical supplies and equipment grounded due to cumbersome and bureaucratic processes to secure slots and operating permits,” it said.
While about 90% of global trade is carried by sea, air cargo transports over $6 trillion worth of goods annually and accounts for about 35% of trade by value.
Airlines including Cathay and Korean Air have more exposure to airfreight operations, which account for over 20% of their annual revenue. While many other airlines around the world become more reliant on passenger aircraft to haul cargo, they still operate freighters. Cathay, Korean Air and Deutsche Lufthansa are the world’s top cargo airlines. While it won’t be enough to salvage the fortunes of airlines this year, earnings from cargo operations will help them narrow losses from the collapse in passenger operations, Um said.
Some carriers such as Delta Air Lines Co, Japan Airlines Co and Air Canada don’t have freighters and have relied on passenger planes to carry cargo. That’s because many companies have been opting to move products by using less expensive modes of transport like ships.
“There’s a shortage of cargo space in the short term while demand is still there,” said James Teo, an analyst at Bloomberg Intelligence in Singapore.
For these flights, the belly holds of passenger aircraft are filled with items including mobile-phone parts and perishable goods in containers mounted on pallets to prevent items from shifting during flights. Usually, the cargo hull is shared with luggage from passengers.