EXTRANS GLOBAL - Air Freight News - Week 21 2024

Air Cargo General  

1)  Cross-Border LCC Alliance, Korean Airlines' Global Expansion Slows Down

• Low-Cost Carriers (LCCs) in the Asia-Pacific region have repeatedly failed in their efforts to establish their own airline alliances in order to complement the lack of international routes compared to Full-Service Carriers (FSCs). The recent closure of the world's largest LCC alliance, "Value Alliance," has prompted domestic LCCs like Jeju Air to independently build partnerships to maintain their competitiveness.

• According to the aviation industry on the 21st, Jeju Air has terminated its joint venture contract and disposed of all related shares due to the suspension of Value Alliance's operations. Jeju Air had held a 13.04% stake in Value Alliance Travelsystems until the end of last year, but fully divested from it in the first quarter. Jeju Air explained that the joint venture contract was terminated and the shares were disposed of due to the suspension of Value Alliance's business.

• Value Alliance was the world's largest LCC cooperative, formed in 2016 by eight LCCs in East Asia and Australia, including Jeju Air, Cebu Pacific (Philippines), Nok Air (Thailand), Vanilla Air (Japan), and Tigerair Australia.

• The alliance pursued an "interline" strategy, combining the routes operated by each airline without the need to introduce long-haul aircraft. However, the early withdrawal of LCCs from Australia and Japan, coupled with the global aviation crisis during the COVID-19 pandemic, eventually led to the inevitable suspension of operations due to weakened internal cohesion among member airlines.

• Similarly, Eastar Jet joined another LCC alliance, "U-Fly Alliance," in 2016, but this alliance has also been practically inactive. The alliance was centered around Hong Kong Express, but after it was acquired by Cathay Pacific in 2019, the focal point was lost.

• In response, domestic LCC companies are strengthening their own interline agreements with foreign airlines to enhance their competitiveness. For example, Jeju Air has independently signed interline agreements with a total of 14 airlines, including United Airlines, Air Canada, and Etihad Airways, covering routes to the Americas, Europe, and Southeast Asia, starting from its initial agreement with United Airlines in 2016. Likewise, T'way Air has entered into an interline agreement with Virgin Australia Airlines since March this year and is operating connected flights.

2)  Air transportation and freight luck are weak due to poor supply and demand environment, but still maintain good levels

• The air transport industry is experiencing a weakening in cargo freight rates due to a deteriorating supply and demand environment, but the rates are still maintaining a relatively favorable level. Since the second half of 2022, the trend of decreasing air cargo demand due to the global economic slowdown, coupled with the increase in Belly Cargo supply through passenger aircraft, has alleviated the imbalance in the air cargo market, leading to a full-scale adjustment of freight rates.

• Specifically, the continued sluggishness in semiconductor business and the decline in IT demand have led to a slowdown in the export of related items, and the demand for emergency transportation of products such as COVID-19 test kits, which had increased during the pandemic period, has also decreased. As a result, the international cargo transportation volume at domestic airports has fallen below the pre-COVID-19 level (2019) since July 2022, indicating a further slowening of demand. However, global air cargo demand rebounded in the fourth quarter of 2023, and in the domestic market, the recovery in semiconductor exports and the increase in e-commerce demand from China have led to a recovery in cargo volume compared to the same period last year, maintaining a favorable level of cargo freight rates

• The favorable supply and demand environment in the passenger segment has led to excellent performance for domestic airlines. Despite the slowdown in cargo market conditions, high fuel prices, and high exchange rates, domestic air transport companies have achieved excellent operating results, driven by the rapid recovery in passenger demand.

• The restructuring of the aviation industry is expected to lead to a deterioration in the profitability and financial burden of low-cost carriers (LCCs). The process of Korean Air's acquisition of Asiana Airlines is underway, and with the conditional approval by the EU in February this year, the likelihood of the merger of the two companies has increased. Pending the approval of the US and the fulfillment of the EU's conditional approval requirements (the sale of Asiana Airlines' cargo business and the entry of 4 new airlines on overlapping passenger routes), Korean Air plans to acquire a 63.9% stake in Asiana Airlines (final deadline: December 20, 2024).

• Meanwhile, the other LCCs, which will become relatively smaller in scale with the launch of the integrated airline, are pursuing business expansion to secure competitiveness. Jeju Air is diversifying its business into the cargo sector, including the introduction of cargo-only aircraft, and T'way Air is expanding its medium- and long-haul routes through the introduction of A330-300 aircraft. Additionally, in the process of meeting the EU's pre-conditions, T'way Air is preparing to launch new European routes through aircraft leasing and personnel support from Korean Air, and Air Premia, Air Incheon, and Eastar Jet are participating in the final bidding for Asiana Airlines' cargo business, indicating ongoing restructuring in the aviation industry.

• The domestic LCC market was previously led by Jeju Air, Jin Air, and T'way Air, but the integrated LCC (Jin Air + Air Busan + Air Seoul) is expected to have a significant impact on the competitive landscape, as it will account for over 40% of the LCC international passenger market share, securing a dominant market position.

• Excluding the integrated LCC, the remaining LCCs are pursuing business diversification into long-haul routes and cargo, but it is expected to be challenging for them to establish a stable business by securing competitiveness in terms of service quality and pricing to compete with full-service carriers (FSCs). The initial investment burden and the increase in costs due to business expansion are likely to lead to a heightened financial burden.

3)  Customs Service, Blocking of illegal acts of illegal use of overseas fastballs

• The Korea Customs Service has been riding on the recent surge, and all of the customs administration to block illegal items that are highly likely to flow into Korea at the border stage.
  It has been focused on capabilities.
• First, the Korea Customs Service has been screening and teaching and checking the allegedly through overseas fastball transaction information analysis, Food and Drug Administration and Agriculture, Forestry and Livestock Quarantine Headquarters Intensive inspections,  Intensive inspection of large -scale discount events (Gwanggun Festival, Black Friday).
• Recently, through the overseas fastball platform, we analyzed the ingredient analysis in fear of the safety of ultra -low -priced goods flowing into Korea.
  38 of the 252 children's products detect harmful ingredients such as heavy metals of more than the standard. Accordingly, for children's products, electric and household goods, etc.
  If there is a request for blocking of the brought off by the relevant ministry, it plans to suspend customs clearance based on the Customs Act.
• In addition, in order to create a safer overseas fastball customs environment, the Korea Customs Service must have a personal customs clearance even for Koreans and foreigners from October last year.
  Revised relevant regulations to submit. In order to prevent theft of unique codes in the future, the effective period for future codes is set in the future, and long -term unused code is used.
• Above all, the Korea Customs Service is actively establishing a customs clearance infrastructure, which is linked to the 'monitoring equipment-inspection personnel-system'.
• The Korea Customs Service has already had the latest surveillance equipment in Incheon and Gunsan Port in December last year so that there is no gap in the overseas fastball response system.A new logistics center is newly built.
• The Korea Customs Service is promoting the construction of the 'e -commerce -only customs clearance platform' (~ '26).
• This project is to establish a reporter for e -commerce, establish a supply -based risk management system using order information, and  blocking the act of the codes of personal customs clearanceIntroducing the identity certification system, a dedicated portal and mobile app (APP) development for providing one -stop public service

4)  In the first quarter, the demand for air cargo continues

• The demand for air cargo remained strong in the first quarter of this year, showing a positive trend across the Asia-Pacific region, including the Americas. Domestic airlines in Korea have also experienced a significant increase in cargo volume, driven by the thriving export of Chinese e-commerce goods.

• According to the Ministry of Land, Infrastructure and Transport's aviation information portal system, the total air cargo volume in the first quarter of 2024 increased by 15.2% compared to the same period last year, reaching 1,058,700 tons. International cargo recorded a 16.5% increase, reaching 1,007,700 tons, while domestic cargo decreased by 6.2% to 51,000 tons. Monthly breakdown shows that January recorded 349,300 tons (17.8% increase), February recorded 332,300 tons (12.6% increase), and March recorded 377,100 tons (15.2% increase).

• The combined cargo volume of domestic and foreign airlines increased by 16.5% to 1,007,700 tons, while air cargo (excluding baggage) increased by 8.1% to 306,600 tons. The total performance of Korean Air and Asiana Airlines, the major Korean airlines, increased by 14.2% to 579,000 tons. Korean Air recorded a 17.2% increase to 396,900 tons, while Asiana Airlines saw an 8.1% increase to 182,100 tons.Foreign airlines such as Vietjet Air (8,900 tons), China Eastern Airlines (6,600 tons), Vietnam Airlines (6,500 tons), and Delta Air Lines (5,000 tons) recorded a 14.0% increase to 313,600 tons.

• Most of the domestic low-cost carriers (LCCs), excluding Air Incheon, continued to see double-digit volume growth. Among the LCCs, Jeju Air recorded 32,000 tons (43.5% increase), Jin Air recorded 22,300 tons (41.0% increase), T'way Air recorded 21,400 tons (26.4% increase), Air Busan recorded 11,300 tons (41.4% increase), Air Incheon recorded 9,200 tons (-11.6% decrease), Air Premia recorded 8,700 tons (65.7% increase), and Air Seoul recorded 4,900 tons (40.6% increase).Eastar Jet and Aero K also transported 3,600 tons and 1,800 tons of cargo, respectively.

5)  항공사/GSA Event update

(1) LOT Polish Airlines (LO), due to weak passenger demand, is canceling a significant number of direct flights in June-July.
Cancellation of 7 BUD-ICN-BUD round-trip flights (6/6~7/18)
Cancellation of 1 WAW-ICN-WAW round-trip flight (6/16)

(2) Air Premia (YP), increasing flights on the Incheon-Newark route
ICNEWR increased from 4 times/week to 5 times/week (D13457) YP131 2130/2230, EWRICN D24567 0100/0455+1, during 7/11~8/16

(3) Air Incheon (KJ), launching Incheon-Ulaanbaatar route and increasing Incheon-Zhengzhou flights
ICNUBN D3 KJ811 1330/1610, UBNICN KJ812 1710/2130 B737-800F, starting 5/22
ICNCGO increased from 2 times/week to 3 times/week (D26) KJ251 0120/0300, CGOICN KJ252 0400/0720 B737-800F, starting 5/18

(4) Asiana Airlines (OZ), increasing Incheon-New York (JFK) flights to 2 DAILY for 2 months
Current 13 weekly round-trip flights on the Incheon-New York route will be increased during 7/1~8/31.
ICNJFK 7 times/week OZ222 0950/1105, JFKICN OZ223 1255/0510+1, A350-900
ICNJFK 7 times/week OZ224 2100/2300, JFKICN OZ221 0035/1730+1, A350-900

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