Air cargo poised to propel growth for the aviation industry

While all major industries have immensely suffered, the COVID-19 pandemic has done unprecedented and most severe harm to the aviation Industry. The whole world remained shut during March-May 2020 and even thereafter each country posed hitherto unknown restrictions on passenger movement and the Air Service Agreements (Bi-lateral agreements between various countries) have largely remained suspended since early 2020. With such uncertainty prevailing all over the globe, airlines face the bleakest period in the history of aviation. If there was a silver lining in this dark cloud engulfing the airline industry, it was buoyancy in the cargo movement which gave it some life support.

If we go back to March 2020, the suddenness of locking borders of almost all countries shocked the entire transportation sector across the world. Surface movement was nearly banned, and sea freight lanes were choked. Containers got stranded in the heartlands of various countries and, with no trucking, it was impossible to get them back to the ports for further circulation. This resulted in a sharp increase in the sea freight rates coupled with a lack of container availability. Data shows that sea freight rates went up by as much as 1000%. At the same time, there was an urgent need to transport goods required to fight the pandemic and keep the essential commodities in normal supply. With most countries having an ‘open sky’ policy, air freight provided the much-needed panacea to this issue.

With air cargo yields firming up, airlines not only profitably deployed most of the available freighter capacity but also pressed passenger aircraft, sometimes sans passengers, into cargo service. While some such aircraft carried cargo in the belly only, the airlines even used passenger cabins to carry cargo. Thus, the aircraft, cockpit crew, airport and ground handling staff were gainfully employed in an otherwise inactive period.

Air cargo has in fact always played a crucial role in ensuring timely deliveries of critical medical equipment and medicines while also keeping the global supply chain functions up and running on time. Utilizing the passenger aircraft, or dedicated cargo freighter operations, all have come in handy at times of direness when major other commercial flight operations were hindered.

IATA, which continuously monitors cargo demand and supply positions across the world, has reported encouraging development for air cargo. After the second pandemic wave, July 2021 saw a demand that was higher by 8.6% (in terms of cargo ton KM) though the capacity was short (mainly due to non-availability of pax aircraft belly capacity) by 10.3% as compared to July 2019.  During August 2021, the demand was up by 7.7% and capacity down by 12.2% as compared to August 2019. This situation of higher demand and lower capacity continues to keep the air cargo yields firm making it attractive for the airlines.

According to IATA estimates, cargo revenues are expected to reach a record $175 billion in 2021, and stay around that level, at $169 billion in 2022 as cargo yields soften from 15% to 7% growth. Airlines generated $128 billion in cargo revenue last year which was also a historic high. Witnessing this demand, International Air Transport Association (IATA) has also recently urged the air cargo industry to continue working at the same pace as during the COVID-19 pandemic to overcome future challenges and build an overall industry resilience. IATA pointed out sustainability, modernisation, and safety as the key priorities for the industry post-COVID-19 pandemic.

In a nutshell, a strong demand coupled with various lessons learnt during the pandemic are going to help the cargo industry immensely. Although the aviation industry is slowly recuperating from the aftereffects of the pandemic, cargo operations will remain relevant in the near future whilst simultaneously spawning more revenues for the airlines wherever needed. Return to the normalcy of the entire freight system encompassing land, sea and air freight is likely to take another 3-4 quarters. Till then, air freight will play a major role in the transport industry and will provide much-needed respite to the airline sector.

This article is authored by Siddhanta Sharma, President, and CEO, InterGlobe Air Transport

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