With most countries’ borders still remained closed approaching a second year, how does air cargo enable global trade during this pandemic and help to build a more resilient aviation industry?
The financial impact of the global COVID-19 pandemic has been huge to the aviation industry. The International Air Transport Association (IATA) reported that passenger demand in April 2020 hit the lowest, plunging by 94.3% as compared to April 2019. According to a tally by the International Civil Aviation Organization (ICAO), the losses from airlines revenues were reported to be at approximately $391 billion U.S. Dollars and deep industry losses continue into 2021, even though performance is expected to improve over the period of the forecast. Even though airlines have been forced to cut costs by over 45%, revenues are still down 60.9% and airlines are expected to continue bleeding cash until at least the fourth quarter of 2021. The biggest driver of the industry losses was the evaporation of passenger demand as international borders closed and countries locked down to prevent the spread of the virus.
Bright Spot in the Dark Days
Despite the dark days, there is one bright spot, however, on air cargo operations. In comparison to 2019, overall freight tonnes carried are expected to drop by 10.3 million tonnes to 51 million tonnes. However, due to the unavailability of belly cargo on passenger aircraft (which are grounded), there is a severe shortage in cargo capacity and rates have been on a rise, pushing yields up by some 30% in 2020 according to IATA.
Cargo businesses have evolved strongly to become a significant key to airline revenues and cargo revenues are the reason why airlines are able to sustain their skeleton international networks. Air Cargo is expected to continue with strong performance and the important role that air cargo should play in vaccine distribution is expected to see cargo volumes grow to 61.2 million tonnes. A continued struggle in capacity due to the slow reintroduction of belly capacity from passenger services combined with a higher proportion of time and temperature sensitive cargo (vaccines) will see a further 5% increase in yields.
The Rapid Emergence of E-Commerce and Accelerated Digital Transformation
As lockdowns became the new normal, businesses and consumers increasingly “went digital”, providing and purchasing more goods and services online, raising e-commerce’s share of global retail trade from 14% in 2019 to over 17% in 2020. Having said this, as destructive as COVID-19 is for aviation, the pandemic has also accelerated a global transition to e-commerce, and this benefitted the cargo transportation providers and cargo airports.
With passenger air travel being grounded temporarily, e-commerce and accelerated digital transformation have been led to a surge. For instance, East Midlands Airport saw a 10% bump in freighter movements at the end of March 2020 as Britain and other EU countries scrambled for medical equipment. At the height of the pandemic’s first wave, it saw a 20% increase in the volume of goods being handled as weekly flights from China and Hong Kong and this transformed the airport’s hub status, from a cargo hub for the U.K. to a European cargo hub.
E-commerce and digital transformation have revolutionized the logistic industry. According to an estimate from IBM, the pandemic may have accelerated the global transition to e-commerce by five years and the air cargo business have been playing a significant role. With online businesses and consumers requesting fast deliveries, operating models had to evolve to not only speed up transportation but increase transportation security as well. With e-commerce on the rise, IATA and other industry bodies have also been stressing the need to improve shipment-tracking technology, in part to better monitor and secure the flow of global trade’s highest-value goods, which typically move by air. Accounting for approximately 35% of global trade by value, the global aviation sector brings air connectivity to countries at all levels of development, plays a critical role in humanitarian missions, and remains vitally important to global economic recovery given that e-commerce is expected to constitute 96% of international mail shipments by 2025.
About To70. To70 is one of the world’s leading aviation consultancies, founded in the Netherlands with offices in Europe, Australia, Asia, and Latin America. To70 believes that society’s growing demand for transport and mobility can be met in a safe, efficient, environmentally friendly and economically viable manner. To achieve this, policy and business decisions have to be based on objective information. With our diverse team of specialists and generalists to70 provides pragmatic solutions and expert advice, based on high-quality data-driven analyses. For more information, please refer to www.to70.com.