Air Cargo Freight Rates Soar... A Blessing for Airlines Losing Their Wings

IATA "Cargo Demand Down 27% but Belly Cargo Supply Reduced by 75%"
Supply-Demand Improvement and Increased Urgent Transport Demand for Emergency Medical Supplies

[Asia Economy Reporter Yu Je-hoon] Despite the economic recession caused by the novel coronavirus infection (COVID-19), air cargo freight rates continue to soar. For airlines suffering from drought due to international flight shutdowns, the cargo sector is becoming a 'saving grace.'

According to the TAC Air Freight Index announced in Hong Kong on the 3rd, as of the 1st, the average air cargo freight rate on the Hong Kong-North America route was $6.73 per kg (approximately 8,200 KRW). This is about twice as high as the same period last year (first week of June), when it was $3.41 per kg (approximately 4,100 KRW).

In February, before the full-scale spread of COVID-19, the average air cargo freight rate on the Hong Kong-North America route hovered in the $3 range, maintaining a level similar to the previous year. However, after the spread of COVID-19, the monthly average rose sharply to $4.03 in March, $5.69 in April, and $7.73 in May.

The reason air cargo freight rates are rising despite the global economic recession is due to the suspension of international flights. Airlines typically transport cargo not only with cargo planes but also using belly cargo in passenger aircraft, which accounts for about 30-40% of total cargo volume. Since the COVID-19 outbreak, international flights have been largely suspended for both domestic and foreign airlines, naturally adjusting supply and demand. According to the International Air Transport Association (IATA), air cargo demand in April decreased by 27.7% year-on-year based on cargo ton-kilometers (CTK), but belly cargo supply dropped by about 75%. IATA stated, "Demand decreased by 27% year-on-year, but total supply decreased by 42%."

The increased demand for emergency medical supplies such as COVID-19 test kits has also positively influenced freight rates. In fact, Asiana Airlines reported that its emergency medical supplies volume doubled in April compared to the previous year. A representative from a domestic airline said, "Since March, the volume of emergency medical supplies transported has increased significantly," adding, "This trend is expected to continue for the time being."

In response to this cargo boom, domestic airlines are converting passenger planes into cargo planes. Foreign airlines are also actively engaging in belly cargo operations. Although the expanded supply due to airlines' active cargo operations has led to a downward trend in rates, the operating environment is still favorable, with rates maintaining about twice the level of the previous year, according to industry evaluations.

For this reason, the securities industry forecasts that some domestic airlines, including Korean Air, may return to profitability in the second quarter. This is due to the strong air cargo freight rates and the recent low oil price trend, which could help improve airline profitability. Hana Investment & Securities stated, "Cargo performance will remain favorable in the second half," adding, "Despite concerns about demand slowdown, proactive semiconductor stockpiling by global cloud centers, non-face-to-face industry items, quarantine-related items, and fresh food exports will lead this."

This content was produced with the assistance of AI translation services.