EXTRANS GLOBAL - Air Freight News - Week 04 2024

Air Cargo General

Jin Air, Unhappy Even at Home Celebrations

The prospects for Jin Air's recovery in the domestic LCC market, relinquishing its second-place position to T'way Air, seem challenging. The merger of Asiana Airlines with Korean Air, a long-cherished plan of the parent company Hanjin Group, is overshadowing Jin Air's status.
Jin Air's estimated revenue for the past year is 1.2772 trillion won, a 115% increase compared to the previous year. During the same period, operating profit is expected to turn positive, reaching 1.816 trillion won from a 673 billion won deficit the previous year, and net profit is anticipated to be 1.852 trillion won, reversing from a 494 billion won deficit. The surge in post-COVID passenger demand has led to the achievement of record-breaking revenue.
However, despite impressive financial results, Jin Air faces stiff competition from its rival T'way Air, which has also improved its performance amidst the surge in passenger demand. T'way Air's revenue outlook for the past year is an astonishing 1.3189 trillion won, a 150% increase from the previous year. With T'way Air surpassing Jin Air and claiming the second position, the domestic LCC market continues to be dominated by Jeju Air, T'way Air, and Jin Air.
It is anticipated that it will take a considerable amount of time for Jin Air to regain its second-place position. T'way Air is considered a strong candidate to take over some of the overlapping European routes of Korean Air and Asiana Airlines.
Korean Air proposed transferring traffic rights and slots to T'way Air after the European Commission (EC), as the 12th review country, expressed concerns about potential competition restrictions on four European routes (Frankfurt, Paris, Rome, Barcelona). T'way Air's decision to accept this offer is interpreted considering its experience in long-haul flights to destinations like Sydney, Australia.
If T'way Air takes over some European routes, it is expected to generate an additional revenue of at least 500 billion won, assuming the transfer of all 21 slots held by Asiana Airlines on these routes. This would significantly increase T'way Air's annual revenue to 2 trillion won.
Despite the potential setback for Jin Air, there is an opportunity for the company to restore its reputation by participating in Korean Air's plan to launch a "Unified LCC" (Jeju Air + Air Busan + Air Seoul) through the acquisition of Asiana Airlines. However, discussions on the merger are seen as premature, given the challenges faced in the Asiana Airlines acquisition.

Rise in Freight Rates for 'Container-Air Cargo' Accompanying the Crisis in the Black Sea

The crisis in the Black Sea has led to disruptions in maritime supply chains, causing a sharp increase in both container and air cargo freight rates.
Moreover, instances of shipping companies rejecting bookings for previously contracted transport at low rates are gradually increasing. Some shippers who contracted at low rates claim that over 80% of their shipping requests are being rejected by shipping companies.
According to Zeneta freight index, spot freight rates for the Asia-North Europe route have surged by 25%, reaching an average of $4,612/FEU (Forty-foot Equivalent Unit), a 200% increase compared to the previous month.
It is expected that the rates will exceed $10,000/FEU soon, with an anticipated increase in pre-transport demand due to the upcoming Lunar New Year holidays in Asia. The spot freight rates for the Asia-Mediterranean route have also sharply risen to $6,500/FEU, compared to just $2,300/FEU in December of the previous year.
The crisis in the Black Sea is expected to lead to a significant increase in air cargo freight rates for the Asia-Europe routes.
According to Zeneta, air cargo demand from Vietnam to Europe increased by 62% compared to the previous week as of the third week of January.
Consequently, air cargo rates have also increased by 10%. The disruption in maritime supply chains has led manufacturing companies to increasingly opt for air transport, contributing to the upward trend in air cargo rates.
In this context, the German shipping company Hapag-Lloyd has officially launched a Sea & Road combined transport service that routes through Saudi Arabia as an alternative to the Suez Canal, which is affected by the crisis.
Although not considered the optimal solution, Hapag-Lloyd's service transports to Saudi Arabia overland from Jeddah, Dammam, and Jubail ports, reconnecting with the Hong Kong port. The company explains that the transportation schedule is shorter than detouring via the Cape of Good Hope.

Current Status of Vietnam-Europe Air Cargo Routes

Geneta expects an increase in spot freight contracts in the air cargo market next year, especially in Vietnam, where about 70% of the total air cargo volume is indicated to be under spot freight contracts. This expectation is due to the significant volatility in freight rates.
As the crisis in the Black Sea continues, there are signs that shippers are increasingly sending more goods by air cargo. However, it remains to be seen whether there will be an actual shift from sea freight to air freight in the coming weeks.
According to the latest data released on January 19, the air cargo volume from Vietnam to Europe increased by 62% for the week ending on January 14, a figure 6% higher than the peak in October 2023 and 16% higher than the volume recorded in the same week 12 months ago.
This signals the first impact of the Black Sea crisis on air cargo, and it is essential to recognize that this increase may also contribute to the upcoming surge in cargo volume during the Chinese New Year.
While airfreight rates from Vietnam to Europe increased by 10% compared to the previous week, the growing volume puts pressure on capacity (Capa) and load factor (L/F), indicating potential further cost increases.

Jeju Air, the Sole Bidder for Asiana Airlines Cargo Business: Between Gains and Losses

While the European Commission (EC) is expected to give final approval for the merger of Korean Air and Asiana Airlines, the sale of Asiana Airlines' cargo business is progressing rapidly. Jeju Air's exclusive bid increases the likelihood of a successful merger. If the acquisition is confirmed, Jeju Air will emerge as the only "Mega LCC," challenging the integrated LCC (Jin Air-Air Seoul-Air Busan).
However, concerns arise not only about the blueprint but also about the immediate need for funds for the acquisition of Asiana Airlines' cargo business. Considering the debt accumulated during the COVID-19 pandemic, acquiring a property that may cost up to 1 trillion won is a significant burden. Self-acquisition is difficult given the current financial situation, requiring external funds or support from a holding company, considering acquisition funds and ongoing operational costs.
Jeju Air recently submitted a Letter of Intent (LOI) for the acquisition of Asiana's cargo business, and discussions with the EC on the acquisition are underway. Other potential acquirers such as Air Premia, Air Incheon, and Eastar Jet are reported to have withdrawn from the acquisition process.
Jeju Air is the only domestic LCC with cargo planes, using two converted Boeing B737-800s for cargo transport. However, due to their smaller size, the cargo capacity is less compared to larger freighters like the B747 and B777. Jeju Air's annual cargo revenue is 28.7 billion won, accounting for about 2% of its passenger revenue. While recent growth in the Chinese direct purchase market has led to handling China-origin e-commerce cargo, Jeju Air's cargo business is still relatively small compared to its passenger operations.
On the other hand, Asiana Airlines owns a total of 11 cargo planes, generating annual revenue exceeding 1 trillion won. With 30 years of business, Asiana's cargo business, considering trust with shippers and industry reputation, could offer substantial benefits to Jeju Air. If the merger of Korean Air and Asiana Airlines is finally approved, their LCC subsidiaries, including Jin Air-Air Seoul-Air Busan, will form a unified LCC. Jeju Air, with Asiana Airlines' cargo business, could become the only significant domestic LCC among them.
However, numerous challenges exist before Jeju Air fully acquires Asiana's cargo business. Immediate acquisition funds are a major concern. The estimated price for selling Asiana Airlines' cargo business, which accounted for about 20% of its revenue, is around 500 billion to 700 billion won. In addition to the acquisition, assuming a debt of approximately 1 trillion won and considering expenses such as employment transfers, aircraft leases, and maintenance costs, Jeju Air may need funds exceeding 1 trillion won.
As of September last year, Jeju Air had cash and cash equivalents of 345.5 billion won. While this figure more than doubled compared to the previous year, it is still insufficient for acquiring Asiana's cargo business. External funds or support from the holding company, Aekyung Group, are currently necessary.
Jeju Air is currently repaying loans taken during the COVID-19 pandemic. From 2020 to 2021, Jeju Air borrowed 400 billion won and 1.82 trillion won from the Industrial Bank and the Industrial Stability Fund, respectively, to improve its financial structure. Last year, Jeju Air repaid part of this debt, including 650 billion won in convertible bonds (CB) and 250 billion won in cash.
The repayment is based on strong performance. Jeju Air's revenue for the third quarter of last year was 1.2422 trillion won, with an operating profit of 143.5 billion won, marking a 201% increase in revenue and a turnaround to profitability compared to the previous year. While profits have accumulated, with significant remaining debt and substantial capital required for operations, an M&A exceeding 1 trillion won is a burden.
Aekyung Group's support would be invaluable, but their financial situation is also challenging. Furthermore, with the recent shift in demand from sea freight to air cargo due to the Hong Kong logistics crisis, unexpected positive effects have been realized. However, the significant revenue volatility in the air cargo business is an essential factor to consider.
During the COVID-19 pandemic, Asiana Airlines' cargo business accounted for 70% of total revenue, but this share dropped to the 20s as the pandemic continued. Jeju Air's cargo business, while currently not a significant portion of its operations, could face more significant challenges in performance if it acquires Asiana Airlines' cargo business.
Industry insiders state that while Jeju Air could establish itself as a competitor in the integrated LCC with the acquisition of Asiana Airlines' cargo business, concerns about repayment of loans borrowed during the COVID-19 pandemic, and the additional funds required for M&A could lead to potential challenges despite becoming a prominent player in the integrated LCC.

5) Airlines/GSA Event Update

(1) Air Premia (YP), Opening of San Francisco Route in May

ICN to SFO (ICNSFO) 4 times a week (Monday, Wednesday, Friday, Sunday) with flight number D1357.

Departure (ETD) 1730 / Arrival (ETA) 1230.

SFO to ICN (SFOICN) with ETD 1500 / ETA 1900+1 using a B787-9.

Service begins on May 17.

Air Premia currently operates regular flights to four cities: Narita, Bangkok, Los Angeles, Newark, and irregular flights to three cities: Takamatsu, Barcelona, Honolulu.

(2) T'way Air (TW) Announces Schedule for Incheon-Zagreb Route

Due to limitations of the A333 model and the impact of the Russia-Ukraine war, flights to Zagreb (ZAG) will make a fuel stop at Bishkek (FRU).

The route FRU-ZAG is not available for sale due to restrictions.

Incheon to Zagreb route (ICN-FRU-ZAG) operates 3 times a week (Tuesday, Thursday, Saturday) with flight number TW505.

Departure: 1100-1530 / Arrival: 1630-1925 using A333 (Flying Hour: 12H25M), from June 18 to October 26.

Zagreb to Incheon route (ZAGICN) operates 3 times a week (Tuesday, Thursday, Saturday) with flight number TW506.

Departure: 2055 / Arrival: 1455+1 (Flying Hour: 10H).

(3) Cebu Pacific Air (5J) Upgrades A330 Model for ICN to MNL Route

Upgrade to A339 model for flight 5J187, which operates twice daily on Fridays, Saturdays, and Sundays on the ICN to MNL route, starting from January 20.

From April 1, flight 5J187 operates daily with A339, excluding Wednesdays.

(4) DHL-SQ Introduces 5th B777F

The last cargo plane from the 5-plane B777 lease agreement between DHL Express and Singapore Airlines (SQ) begins full operation.

The B777F model with a total payload of 102 tons will focus on transportation between Asia and the Americas, based at the Singapore hub.

The 5 B777F planes operate 12 flights per week, with a total transportable weight of 1,224 tons.

Three planes operate the route SIN-TPE-ICN/NGO-CVG-HNL-SYD-SIN 7 times a week, and the other two operate the route SIN-NGO-LAX-HNL-SIN 5 times a week.

(5) Korean Air (KE) Resumes Incheon to Zhengzhou Route from April 24

Flight KE131 operates from ICN to CGO at 0800, arriving at 0935 using B737-800/-900ER with flight number D3467.

The return flight CGO to ICN (CGOICN) with flight number KE132 departs at 1045 and arrives at 1420 using B737-800/-900ER with flight number D3467.

Share this article :

top