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EXTRANS GLOBAL - Air Freight News - Week 08 2024

Air Cargo General


1. Despite the decrease in Chinese goods due to high tariffs in the United States, Chinese components are increasing in imports from Mexico and Vietnam.


  • According to the Wall Street Journal on the 7th, the high tariff policy introduced by the United States to cut off dependence on China did not yield the expected results.
  • Although the U.S. trade deficit with China has greatly decreased, it appears as if decoupling has occurred in statistics, the reality is the opposite.
  • Although the United States implemented a policy of diversifying imports, there is a flaw in that Mexican and Vietnamese products are filled with mostly Chinese components.
  • As the U.S.-China trade war intensified, many manufacturing companies moved factories from China to countries like Mexico and Vietnam to avoid tariffs.
  • Accordingly, last year, the U.S. trade deficit with Mexico soared to over $152 billion, more than double that of 2017. The trade deficit with Vietnam approached $105 billion, nearly triple that of 2017.
  • Although the proportion of China in U.S. imports of manufactured goods decreased from 2017 to 2020, the proportion of China in the value added by goods consumed in the United States has actually increased.
  • Now, attention is focused on the fact that former President Trump pledged to impose tariffs of over 60% on Chinese products if he were to be re-elected and whether it would actually be implemented and exert some power.
  • Professor Amit Kandewal of Yale University estimates that the total cost of current tariffs on the U.S. economy is 0.04% of GDP, but predicts that if a 60% tariff is imposed, the figure could rise to 0.8%.
  • Historically, supply chain relocation is a gradual process, so over time, the amount of Chinese components imported by the United States from third countries may decrease, but China is also not staying idle as a variable.
  • Chinese electric vehicle and battery companies are already building or considering new factories in countries such as Mexico, South Korea, and Morocco, which have trade agreements with the United States.
  • Analysis has emerged that China's influence on global supply chains could expand as the United States reduces its dependence on imports from China.
  • According to a report on changes and impacts of China's role in the global supply chain by the International Financial Center on the 11th, the United States is currently lowering its dependence on imports from China and diversifying its sources, including India and Mexico.
  • However, in this process, China is trying to evade U.S. trade restrictions by relocating production bases to ASEAN countries and continuously attempting circumvention trade.



2. Korean Air Prepares Legal Basis to Recover T'way European Traffic Rights in Case of Failed Merger

  • If the Korean Air-Asiana Airlines merger, which has crossed the ninth barrier, fails, Korean Air will pursue legal means to regain the traffic rights it has transferred to T'way Airlines. This is seen as a minimum safety measure for Korean Air and ascribing appropriate risks to T'way Airlines, which is considered the biggest beneficiary of the merger. T'way Airlines is expected to receive Korean Air's European traffic rights around the end of April.
  • According to the Ministry of Land, Infrastructure, and Transport on the 19th, the government is preparing legal grounds regarding the transfer of traffic rights related to the Korean Air-Asiana Airlines merger. The current regulations on the allocation of international air transport rights do not include clauses transferring air traffic rights to specific airlines among countries.
  • Currently, it is necessary for Korean Air to voluntarily return the traffic rights, and after the Ministry of Land, Infrastructure, and Transport retrieves them, a process of reallocating them to T'way Airlines will be necessary. The process is complex, and there will inevitably be controversy over how to handle the already transferred traffic rights in the event of changes in the merger after reallocation.
  • A Ministry of Land, Infrastructure, and Transport official stated, "In the event of a final failure, we are considering imposing conditions for returning the traffic rights," and "In this case, after recovering Korean Air's traffic rights transferred to T'way Airlines, the process of returning them to Korean Air will be carried out."
  • Korean Air must enter T'way Airlines as a substitute airline on routes to Frankfurt, Germany; Barcelona, Spain; Rome, Italy; and Paris, France, as required by the European Union's competition authority's conditional approval of the merger. Korean Air plans to reduce its weekly flights to Paris, Rome, and Frankfurt from seven to six, four, and four times a week, respectively, starting in August. It also plans to discontinue its flights to Barcelona, which currently operate four times a week.
  • Until the merger is completed, Korean Air cannot touch Asiana Airlines' traffic rights. It is necessary to transfer Korean Air's traffic rights first. Except for Spain, which has a bilateral air transport agreement, the remaining countries except Spain require traffic rights for operation.
  • T'way Airlines is already recruiting employees to work at Paris Charles de Gaulle Airport and is taking preliminary steps to operate simultaneously on four European routes. Normally, airlines allocate 6 months to 1 year to prepare for operations with secured traffic rights to reduce risks, but this time, they must prepare for operations without fully securing traffic rights.
  • It is premature to expect that T'way Airlines will become the top low-cost carrier (LCC) in the wake of the merger, but the risks are high accordingly.
  • The transfer of traffic rights is expected to take place around the end of April, with legislative notice required for 40 days and consideration of the legislative process examination period by the Legislative Office. It is explained by the Ministry of Land, Infrastructure, and Transport that they will announce the legislative notice by March at the latest. To operate to Paris from June, T'way Airlines needs to complete the work by May.



3. Asian Air Cargo Demand Increases by 29% Year-on-Year

  • In the sixth week of this year (February 5th to 11th), the average air cargo freight rate worldwide rose slightly to $2.39/kg from the previous month's $2.2/kg.
  • However, it remains at a lower level compared to $2.77/kg in the same period last year.
  • Supply expansion remains a problem as it outpaces air cargo demand.
  • Based on chargeable weight, air cargo demand increased by 10% compared to the same period last year.
  • However, supply expanded by 16%, outpacing the increase in demand. As a result, airline freight revenue decreased by 14%.
  • Particularly, in the Asia-Pacific region, air cargo demand increased by 29% compared to the same period last year, while supply expanded by 40%.



4. Korean Air Nearing Megacarrier Status, but Presidential Election Variables Remain

  • As the journey towards Korean Air's acquisition of Asiana Airlines approaches its final destination, various speculations abound. There are concerns that becoming a 'megacarrier' (giant airline) might not be smooth sailing due to the reinforced antitrust stance in the United States, particularly as a late variable. Despite this, there is a positive outlook gaining strength, as Korean Air has devised measures to alleviate competition concerns, which could lead to final approval.
  • Recently, Korean Air submitted an approval request for the merger related to the acquisition of Asiana Airlines to the European Union's competition authority, the EC (European Commission). This completes approvals from 13 out of 14 mandatory reporting countries. Only the approval from the United States' competition authority, the DOJ (Department of Justice), remains pending.
  • However, it is considered premature to relax even after crossing the ninth barrier. There is a view that the late variable could be the U.S. DOJ, which has extended the deadline for reviewing the Korean Air-Asiana Airlines merger from November 2022 to the present.
  • Recently, the U.S. DOJ filed a lawsuit in the Massachusetts Federal Court when local LCC (Low-Cost Carrier) JetBlue attempted to acquire Spirit Airlines in March of last year. The reason was the concern that if the two leading airlines in the industry merge, competition in the LCC market will be limited, leading to higher airfares. Ultimately, in January, the court sided with the DOJ, leading to the cancellation of JetBlue's acquisition of Spirit Airlines.
  • There is also a view that the U.S. presidential election scheduled for November this year could negatively affect the Korean Air-Asiana Airlines merger.
  • One of the 'Big 3' in the United States, United Airlines, opposes the combination between the two airlines. If the merger goes through, there is a high probability that the relationship with Asiana Airlines, a major international partner, will be disrupted. United Airlines and Asiana Airlines are key members of the global airline alliance 'Star Alliance.' However, if Asiana Airlines is acquired by Korean Air, it is likely to withdraw from the alliance and join 'SkyTeam' (Korean Air's affiliate).
  • If the trend of U.S. protectionism intensifies ahead of the presidential election, the DOJ may make a decision favorable to United Airlines, a domestic carrier.
  • However, despite such pessimistic views, there is weight to the observation that Korean Air will pass through the 'final gate.'
  • Applying the case of JetBlue, an LCC that minimizes services to reduce prices, to full-service carriers like Korean Air is difficult. Furthermore, it is unlikely that the DOJ will impose strict standards on Korean Air and Asiana Airlines, which have Korean, not American, customers, as it did with JetBlue. There are limitations to the DOJ's involvement in mergers of foreign airlines.



5. Airlines/GSA Event Update

(1) Japan Airlines (JL) to Commence New Cargo Flights from ICN to NRT on February 20
ICN-NRT 5W(D23456) JL6750 0555/0815 B767F, starting from February 20

NRT-TPE 5W(D12345) JL6719 1550/1855 ICN-NRT-TPE THRU FLIGHT

(2) AeroMexico (AM) Resumes Operation on ICN-MEX Route
The only direct flight between Korea and Central/South America, which was suspended due to COVID and the Ukraine conflict, is set to resume after a hiatus of over two years.
MEX-MTY-ICN will operate daily from August 1, AM090 2000(MEX), 2355(MTY)/0600+2, and ICN-MEX will operate daily from August 3, AM090 1140/1040, using B787-800 aircraft.

(3) WestJet (WS) Announces Schedule for Incheon-Calgary Route
ICN-YYC 3W(D146) WS87 2140/1658, YYC-ICN D357) 1650/1940+1 B787-00, starting from May 18

(4) Etihad Airways (EY) Increases Frequency on Incheon-Abu Dhabi Route
ICN-AUH increases from 7W to 11W, with additional flights EY859(D1246) 0055/0550 and EY858(D1357) 0915/2240, using B787-900 aircraft, starting from May 1.

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