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Air Canada cargo business hurt by aircraft mix, Asia weakness

Air Canada and International Airlines Group, the parent of British Airways, said Friday the phaseout of cargo-only flights with passenger aircraft as travel recovers from the pandemic heavily contributed to declines in third-quarter cargo revenue compared to 2021. 

Most airlines reporting so far are registering some declines in cargo revenue as the market softens this year. However, Air Canada’s 23% drop is significantly greater than its competitors and notable because it also added two dedicated all-cargo jets to its fleet this year.

Air Canada’s (OTCUS: ACDVF) earnings report showed cargo revenue of $207.2 million, down nearly a quarter from a year ago but a 59% gain from 2019. The company said the year-over-year (y/y) decline was primarily due to lower traffic in the trans-Pacific market after returning seven widebody aircraft, which were temporarily modified to carry extra cargo during the COVID-19 crisis, back to passenger service.

But Air Canada didn’t eliminate all auxiliary freighter activity. It continued to fly a handful of jets using only the belly space for dedicated cargo business, including seven weekly flights between Toronto and Shanghai as recently as August.

The airline also cited a slide in yields from pandemic-induced records to more normal levels, especially in U.S. cross-border and Atlantic markets, for impacting revenue performance.

Pacific market cargo revenue fell 58% to $56.2 million. That was partially offset by increased capacity, passenger and freighter, in other markets. The trans-Atlantic market, where the Boeing 767-300 freighters are operating, produced a 14% revenue gain.

Global air cargo demand through September is down more than 2% compared to the same period last year and y/y for October is down 16%, according to WorldACD. The drop-off in demand is most pronounced in the trans-Pacific market, where tonnage is down 23% y/y in October, it said. Global air rates are 17% below last year’s highs at this time but still nearly twice the 2019 level. 

Data from Freightos, a freight marketplace and rate index, shows rates from China to the U.S. have plateaued during the normal busy period and are now 48% lower than a year ago. 

By comparison, United Airlines, Delta Air Lines and American Airlines saw third-quarter cargo revenues slip by 4% to 16% y/y without the benefit of any freighters. United is a larger airline, but its $498 million tally was 76% better than three years ago. Lufthansa Airlines’ cargo division, which has 11 larger 777 freighters plus others in a DHL Express partnership, posted a 31% gain in cargo revenue ($1.1 billion) despite losing capacity reductions from the forced fly-around of Russian airspace and exposure to COVID-related manufacturing slowdowns in China.

Air Canada’s cargo revenue, year-to-date through September, is 3% below the same period last year. Other airlines were in positive territory for that stretch.

Air Canada made a strategic decision during the pandemic to capitalize on long-term forecasts for air cargo growth, especially e-commerce shipments, by creating a dedicated freighter fleet with eight retired 767 passenger planes converted to carry containers on the main deck. It introduced one 767 freighter to its fleet in December, added a second one in April and is finalizing induction of a third aircraft that will open up new service to Dallas, Atlanta and Colombia.

Earlier this year, Air Canada took delivery of two factory-built 767 freighter aircraft expected to enter service in 2023. The airline plans to have seven 767 dedicated freighters flying by the end of 2023, as well as two new Boeing 777 freighter aircraft scheduled for delivery in 2024 for a total of 12 freighters.

Overall, Air Canada lost $374.5 million but achieved its first operating profit since the start of the pandemic. Operating revenue more than doubled to $3.9 billion as Canada and other countries lowered cross-border travel restrictions, allowing the airline to reintroduce more flights. 

IAG Cargo

Across the pond, International Airlines Group (IAG) reported a 7.9% decline in cargo revenue to $373.8 million on a 3.7% decline in cargo carried. Cargo revenue for the January-September period was 3.6% higher than a year ago. The airline only operated 480 passenger-freighters, down from 3,334 in the first nine months of 2021. 

Yields for the first three quarters of 2022 increased 1.8% y/y, supported by supply chain disruption such as the Russia-Ukraine war, especially in the first half of the year. 

IAG Cargo, the umbrella group that supports British Airways, Iberia, Aer Lingus, Vueling and BMI, said cargo business was highlighted by perishables, up 114% versus the third quarter of 2021, and small- and medium-size shippers.

Extra lift out of the U.S. from new passenger services helped increase shipments of food products by U.S. growers across the Atlantic, with many of them ultimately transshipped through London Heathrow airport to the Middle East. 

Year-to-date transactions from smaller shippers increased 20% from last year, according to IAG Cargo. In June, it signed a partnership with Neutral Air Partner, a buyer cooperative for airfreight. 

IAG had net income of $853 million, also its first profitable quarter in 2 1/2 years. 

Finnair

Finnair, which has disproportionately suffered from the closure of Russian airspace due to the war in Ukraine, said third-quarter cargo revenue increased 12.2% to $73.5 million. 

The loss of access to the Russian shortcut to Asia from Helsinki, as well as COVID-related restrictions in Asia, forced Finnair to operate a lower number of scheduled passenger flights since February, which cut cargo volume below 2019 levels. 

Finnair said volume was also sequentially decreased because of weaker demand as capacity increased. The airline said it too almost entirely replaced cargo-only flights with scheduled passenger flights that are able to carry cargo in the belly. 

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

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