On November 1, 2021, the Airports Council International (ACI) issued a depressing press release. An organisation devoted to the collective interests of airports worldwide published global passenger volume estimates as the Covid-19 crisis continues to wreak havoc on the airline industry.
“Global passenger traffic in 2021 is expected to reach only half of what it was in 2019, with traffic totaling only 4.6 billion of the 9.2 billion passengers served two years ago,” the report said. And even before the Omicron variant forced new restrictions on air travel, ACI’s estimate for 2022 travel was bleak, about 28 per cent lower than 2019 levels.
Tight race
Before 2019, passenger airlines would rent out unused space in baggage holds to logistics companies and pocket extra cash. As the world switched habits to stay at home and buy online, the freighter market has exploded as airlines canceled flights, eliminating baggage hold space altogether. Freighters are the large cargo planes emblazoned with FedEx, DHL, and UPS logos that we see at airports.
Bloomberg recently reported that Qatar Airways placed an order with Boeing to develop a new freighter model, the 777X, the first time a passenger carrier is outlining freighter specifications to a commercial manufacturer. Qatar Airways is the world’s third-largest air cargo carrier (after FedEx and UPS), operating 26 Boeing 777 freighters. It also has one of the world’s largest 777 fleets of nearly 60 planes.
Boeing said that the new aircraft would be the world’s largest twin-engine cargo jet, with a range of 4,410 nautical miles and a maximum payload of 118 tonnes. It will be released in 2027. The Qatar Airways order for 34 of these giant planes will keep the Boeing assembly line humming for two full years.
When airlines buy new planes, essential considerations relate to flight training, spares, and maintenance. Qatar pilots are already familiar with the 777 cockpit, so re-training them on the new 777X would be a relatively easy task. This was a point Boeing stressed when it made the sale announcement.
Cargo planes rarely fly at their permitted capacity, but 118 tonnes of cargo is a mind-boggling number. In the US, the maximum cargo capacity of an 18-wheeler tractor-trailer is 80,000 lbs, about 40 tons. The new Boeing freighter can take in the equivalent of three full tractor-trailer loads.
Fluctuating load factor
The world’s airlines operate on shoestring budgets for a reason. Airlines can only recover all their fixed and variable costs when planes fly, and passengers buy tickets and pay fees, from baggage to meals. The passenger load factor — the proportion of seats on a plane that carries paying passengers — is a critical metric in the aviation industry.
Load factor swings of just a few percentage points can mean a profit or a loss. According to IATA, the average passenger load factor in 2015 was about 80 per cent.
Freighter companies make money with far lower load factors than passenger airlines. Peter Morrell and Thomas Klein estimated in their book, Moving Boxes by Air: The Economics of International Air Cargo, that the breakeven load factor for FedEx in 2015 was about 50 per cent.
Lower operating costs — cargo planes do not need flight attendants or offer meal service — contribute to healthier balance sheets and operating incomes.
How can airlines survive when passenger volumes — and therefore load factors —are down 30 per cent three years in a row? And if airlines cannot survive, what happens to the big aircraft manufacturers, Boeing and Airbus? In November at the Dubai Air Show, Stan Deal, executive vice president of Boeing, told CNBC’s Dan Murphy, “The freighter markets are on fire right now. That’s where we see real growth. We’ve booked about 309 new orders net this year, 720 gross. That’s a pretty good start. And those discussions are continuing at this air show. It’s not over; we expect more orders before the year-end. And that will position (us) well into 2022.”
The novel coronavirus ushered in tectonic shifts in how the world conducts business. Commercial real estate markets and business meetings are down. Technology companies, such as Zoom and other cloud providers, are up as more employees work from home.
No matter how life has changed, the consumption of products will not decrease. Ocean-plying ships and air freighters will have to continue to carry the burden of world commerce. Literally.