EXTRANS GLOBAL - Air Freight News - Week 10 2024

Air Cargo General

1) The increase in air cargo volume at Incheon Airport is attributed to the strong demand for freight shipments from China.

The air cargo business at Incheon International Airport is experiencing a positive trend thanks to the strong demand for freight shipments. While the overall performance of air cargo at Incheon Airport declined for two consecutive years, starting from the second half of last year, there has been a successful turnaround in the mood, resulting in continuous growth until the beginning of this year.
In 2023, the air cargo volume at Incheon Airport reached a final tally of 2,744,000 tons, a 6.8% decrease compared to the previous year. After reaching a record high in 2021 (3,329,000 tons) due to the special effects of the COVID-19 pandemic, Incheon Airport's cargo business entered a declining phase due to global economic slowdowns and other factors.
However, since the second half of last year, there has been an active influx of transshipment cargo from China, leading to an upward trend in cargo volume. Particularly in the third quarter of last year, cargo volume increased by 1.3% compared to the same period the previous year, marking the first positive growth in six quarters since the first quarter of 2021. In the fourth quarter, there was a further increase of 4.0%, recording a transportation performance of 731,000 tons and indicating an expanding growth rate.
In January of this year, there was a successful double-digit growth, continuing the upward trend. Incheon Airport's air cargo volume in January increased by 11.3% compared to the same period the previous year, reaching 225,000 tons. Analysis suggests that the airport's strategies, such as cargo incentives for airlines and effective marketing to attract cargo volume, played a significant role.
In fact, Incheon Airport's cargo transshipment rate in the past year increased by 3.3 percentage points to 41.3%, reaching the highest level in 10 years since 2013 (42.9%). While most regions experienced double-digit declines in trade volume, the slight increase in cargo volume from China has been a notable achievement.
The airport authorities stated that Incheon Airport actively utilized its geographical advantage of being located between the United States and China to attract transshipment cargo from China.
Looking at specific product categories, exports recorded high growth rates, with the export value of flat panel displays (FPD), which shifted to focus on OLED production, increasing by 7.9%. Additionally, aircraft and parts (rank 11, $1.984 billion) saw a growth of 107.6%, and cosmetics (rank 12, $1.97 billion) increased by 11.9%. Imports, on the other hand, witnessed a significant increase of 102.2% for aircraft and parts (rank 7, $4.637 billion), while most other top product categories experienced a decline compared to the previous year.

2) Foreign logistics companies are also participating in the sale of Asiana Cargo.

The Ministry of Land, Infrastructure and Transport is reportedly considering the participation of foreign logistics companies in the acquisition of Asiana Airlines' cargo business. A government official from the Ministry of Land, Infrastructure and Transport stated that low-cost carriers (LCCs) have shown great interest in acquiring Asiana Airlines' cargo business, and that the ministry is internally reviewing this possibility.
According to the current Airline Business Act, foreign corporations or organizations can obtain permission from the Minister of Land, Infrastructure and Transport to engage in air transportation services, even if they are not domestic LCCs.
There is speculation that the government may relax the requirements for obtaining the Air Operator's Certificate (AOC) necessary to operate an airline. The government evaluates factors such as aircraft and facility purchases, workforce size, and business plan implementation schedule, in addition to safety-related requirements, when granting an AOC. It is possible that the government could relax these criteria to accommodate specific operators, such as adjusting the criteria for experience or the amount of spare aircraft parts, and potentially awarding higher scores in the subjective evaluation category.
However, the industry anticipates that the range of potential candidates may expand to include logistics companies. Industry insiders have already heard of several foreign logistics companies expressing interest in acquiring Asiana Airlines' cargo business. Additionally, there is an atmosphere within the Asiana Airlines organization where employees are determined to defend the cargo business, as they believe that a shift towards specialized logistics companies in the cargo industry could be beneficial for their careers.
Given the current circumstances, it is expected that the sale of Asiana Airlines' cargo business will not be an easy process. The estimated sale price for the cargo business is around 500 to 700 billion Korean won, but it would also require assuming a debt of 1 trillion won, resulting in an actual acquisition cost of over 1.5 trillion won. Furthermore, the cost of replacing aircraft would also need to be factored in. As of this year, 10 out of the 11 cargo aircraft owned by Asiana Airlines are over 20 years old. Considering that aircraft are typically used for up to 30 years, most of them would be due for replacement.
Jeju Air, which was considered a strong candidate, seems to have lost interest. An industry insider mentioned that Kim Ee-bae, the CEO of Jeju Air who has been in charge of finance and planning since the Asiana Airlines era, does not seem particularly enthusiastic about the acquisition. Additionally, Jeju Air's financial situation is reportedly not very stable, with cash assets of around 350 billion won and a debt ratio of 473% as of the third quarter of last year. If they do not receive support from their parent company, AK Holdings, it would not be easy for them to jump into the acquisition independently.
Another potential candidate, Air Premia, is in a similar situation. While they have formed an internal task force and are preparing a bid proposal, it is uncertain whether they will actively pursue the acquisition.
Eastar Jet, which has expressed its intention to acquire Asiana Airlines, is also expected to face financial limitations in funding the acquisition.

3) The imminent merger of Korean Air and Asiana Airlines is on the horizon, shaking up the aviation industry.

The integration of low-cost carriers (LCCs) such as T'way Air and Jeju Air is a key aspect of the merger.
Whether it's a major airline or a low-cost carrier, reducing the number of operators will result in dominant players and a decrease in competition, which market insiders believe will lead to improved profitability through airline fare increases.
It is expected that the integrated LCCs will focus on operational efficiency (1), T'way Air on strengthening long-haul routes (2), and Jeju Air on enhancing medium-haul routes (3).
However, if one of these three companies acquires Asiana Airlines' cargo business, which is estimated to be worth 1.5 trillion won, their corporate size could more than double.
UBS, the company in charge of the sale of Asiana Airlines' cargo business, closed the preliminary bidding process on November 28th, and it has been reported that Jeju Air, as well as Eastar Jet (VIG Partners), Air Premia (JC Partners), and Air Incheon (SOCAR) have submitted letters of intent (LOIs) for acquisition.
Korean Air plans to avoid operating overlapping flight schedules on major routes after the integration with Asiana Airlines.
Industry insiders state that by dispersing the operating schedules of overlapping routes, consumers' options for choosing flight schedules will increase, thereby securing more demand for international transfer passengers.
It is also emphasized that with a larger presence in the global full-service carrier market, negotiating power with aircraft manufacturers and lessors will increase, potentially resulting in the ability to acquire aircraft at lower prices.
Expectations are also high for improved operational efficiency through the sharing of training facilities and increased MRO (Maintenance, Repair, and Overhaul) competitiveness due to increased self-maintenance capabilities.
However, there are challenges ahead. Hwang Ho-won, the dean of the Graduate School of Aerospace Policy at Korea Aerospace University, stated, "While the operating rights of the merged company will decrease, the assets (aircraft) and human resources will essentially remain the same." He added that if they don't establish new management strategies and innovate, they will face difficulties in their operations.
T'way Air is scheduled to launch flights to Croatia in June.
Concerns have been raised about potential insufficient capacity for new routes, such as in the US, for Air Premia. The allocation and retrieval of air traffic rights should be conducted transparently through the deliberation of the Aviation Traffic Rights Commission in accordance with the "Rules on the Allocation and Utilization of International Air Transport Rights and Overflight Rights."

4) The United States plans to expand the number of flights by Chinese airlines to the US to 50 per week.

(Terminal 1 at JFK Airport in New York, USA.)

The United States has decided to expand the number of flights by Chinese airlines to their country to 50 per week.
• In a statement on February 26th, it was announced that Chinese passenger airlines will be able to increase their round-trip flights to the US from the current 35 per week to 50 per week starting from March 31st.
• The Ministry of Transportation explained that this approval is an important step towards further normalization of the aviation industry between the US and China, aligning with the summer vacation season this year.
• The 50 flights per week represent approximately one-third of the pre-pandemic levels. Until 2019, the US and China allowed each other's airlines to operate over 150 flights per week. However, due to the impact of COVID-19, the number was significantly reduced to 12 flights per week in August last year. It gradually increased to 18 and 24 flights in September and October, respectively, and reached 35 flights in November.
• With the withdrawal of COVID-19 prevention measures and an accelerated movement towards economic recovery, both the US and China are anticipating an increase in summer air travel demand. China has already taken steps to simplify visa applications for US tourists and reduce the required documentation. Gina Raimondo, the US Secretary of Commerce, expressed her desire to revive travel and tourism between the two countries, stating that if Chinese tourism returns to 2019 levels, it could add an additional $30 billion to the US economy.

5) Airline/GSA Event Update:
(1) CargoLux (CV) bans the transportation of disposable e-cigarettes by announcing a complete halt in the transportation of disposable e-cigarettes, including its subsidiary CargoLux Italia (C8).

(2) Asiana Airlines (OZ) announces the addition of four B747 cargo planes this year, disposing of three older ones. Asiana Airlines will purchase two B747-400F cargo planes and lease two other planes of the same model until 2030, while disposing of three of their older cargo planes to maintain their business scale.

(3) The permanent agreement of the air cargo liberalization between Central and South American countries. The temporary agreement reached in 2021 has now been permanently concluded. The signing countries include Brazil, Chile, Costa Rica, Cuba, Panama, Paraguay, Peru, the Dominican Republic, Uruguay, and Venezuela. Through this agreement, airlines from member countries of the Latin American Civil Aviation Commission (LACAC) can provide cargo services without route or capacity restrictions between the signing countries.

(4) Qatar Airways (QR) will completely halt the operation of the 'B747F' cargo planes from March 1st. After retiring this model, Qatar Airways will expand its cargo transport with 'B777' aircraft, increasing the fleet from 13 to 27, and ordering 34 new 'B777-8F' planes.

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