EXTRANS GLOBAL - Air Freight News - Week 31 2024

Air Cargo General 

1)  Air cargo from China and Hong Kong surges by 24%

  Trend in air cargo growth from China & Hong Kong (%)     

Regional air cargo demand growth in the first half of 2024

• In the first half of this year, export air cargo from China and Hong Kong increased by 24% compared to the same period last year. This follows the strong growth of 12% for the whole of 2023.There are expectations that this robust growth in air cargo from China and Hong Kong will continue into the second half of the year as well.

• According to an analysis by WorldACD, the region that saw the largest year-on-year increase in air cargo demand in the first half was Central Asia, which expanded by 36%.

• This was followed by the Gulf region, which grew by 31%. The sharp rise in air cargo in Central Asia and the Gulf region was due to the increased demand for air freight as a substitute for maritime supply chain issues caused by the Red Sea crisis.

• Other regions that saw significant air cargo growth include South Asia (+20%), Southeast Asia (+19%), and Northeast Asia (+16%).

• In June, global air cargo capacity also increased by 4% year-on-year, largely driven by the expansion of passenger belly capacity.

• The other regions that saw strong air cargo demand growth in the first half include North Africa (+22%), Balkans & South-East Europe (+22%), Southern Africa (+17%), Australasia & Pacific (+17%), and Eastern Europe (+12%).

• Regions with relatively weaker demand include Western Europe (+7%), South America (+6%), Canada (+5%), West Africa (+5%), and the United States (+3%). Central Africa, East Africa, and Central America saw little change compared to the previous year.

2)  Despite the imposition of tariffs on Chinese EVs, export volumes are not expected to decline     

• According to a recent report by Clarksons, a global shipping market analysis firm, even though the EU has declared tariffs on Chinese-made electric vehicles (EVs), China's export volumes are not expected to decline sharply as a result.

• First, the tariffs on Chinese EVs will be an additional 10% on top of the standard tariff rate, resulting in tariffs ranging from 17% to 38% depending on the manufacturer. However, Chinese automakers can avoid these tariffs by increasing production in countries that have free trade agreements with European countries. For example, Chinese company BYD has already broken ground on a $1 billion EV production facility in Turkey.

• Furthermore, the growing automotive demand in Southeast Asia means increased exports to these regions can offset the impact of tariffs imposed by developed countries, as it can increase the volume of finished vehicle sea freight.

• China's automotive exports (by sea) were less than 1 million units pre-COVID, but are expected to exceed 4.4 million units by 2023. In response, BYD has established Southeast Asia's first electric vehicle factory in Thailand.

• While it is true that the U.S. has raised tariffs on Chinese EVs from 25% to 100%, resulting in more than a doubling of sales prices, the market share of Chinese EVs in the U.S. is less than 1%, so the impact is minimal.

• This is because (1) there is a limit to the damage that can be done to Chinese EV brands, and (2) Chinese EV brands have already shifted production to Mexico to avoid tariffs through near-shoring.

• Furthermore, the Chinese government is strongly promoting manufacturing exports, and automakers are pursuing a strategy of "just shipping them out" regardless of sales volumes, meaning tariffs are not expected to reduce export volumes.

• A logistics expert noted that Chinese EVs are already occupying space at major European ports, and Chinese EV brands are shipping vehicles regardless of regular consumer sales, ignoring the burden of storage fees."

3)  Express freight transport growth rate surpasses regular freight transport

• Airbus published a report on the aviation market outlook for 2023-2043. According to the report, air cargo traffic is expected to grow at an average annual rate of 3.1% from 2023 to 2043. Express cargo and regular cargo are forecast to grow by 4.4% and 2.7% respectively, and air cargo demand is expected to increase to 52.5 billion FTK by 2043.

• An Airbus official said, "The air cargo market will continue to grow driven by economic growth and trade expansion, and the express cargo market in particular is expected to grow rapidly."

4)  The launch of the integrated low-cost carrier (LCC) has made Jeju Air tense - a sense of foreboding is in the air

• Jeju Air is expected to face difficulties in maintaining its position as a top low-cost carrier (LCC) in the industry. The emerging competitive LCCs are standing out from the unprecedented industry transformation and reorganization period.
• Jeju Air has hinted at mergers and acquisitions, but industry assessments believe this may not be achievable. According to aviation industry news on the 24th, Jeju Air CEO Kim Yik-pyo recently mentioned the timing of private equity funds withdrawing their investments in airlines, indicating Jeju Air's strong willingness to actively respond. This is essentially an implicit suggestion that Jeju Air is strongly willing to pursue mergers and acquisitions.
• The main reason behind this is the merger of Korean Air and Asiana Airlines. Once the merger is completed, their subsidiaries Jin Air, Air Busan, and Air Seoul will also form an integrated LCC. Furthermore, the competitiveness of T'way Air, which has taken over European routes during the merger process, and Incheon Air, which has acquired Asiana Airlines' cargo business, have also become a source of concern for Jeju Air.
• First, the scale of the integrated LCC will far exceed that of Jeju Air. The total number of aircraft owned by Jin Air, Air Busan, and Air Seoul is 58, surpassing Jeju Air's 42. The number of aircraft is directly linked to performance, so the integrated LCC is likely to become the industry leader.
• In fact, the combined revenue of these three companies last year was 2.4785 trillion won, significantly higher than Jeju Air's 1.724 trillion won. It is believed that due to route adjustments during the merger process, the projected revenue of the integrated LCC should not be simply calculated as the sum of the existing three companies.
• The second and third positions in the low-cost airline industry are also at risk in the future. This is because T'way Air and Incheon Air have sufficient room for sales growth. T'way Air is part of the Korean Air and Asiana Airlines merger process. It has taken over routes to Rome, Paris, Barcelona, and Frankfurt, which are excellent routes with an average passenger load factor of 80% or higher, and have ample room for future sales growth.
• With T'way Air opening new routes, its sales are expected to grow by 3.9 trillion won to 4.7 trillion won by 2025. Last year, T'way Air's sales were 1.3492 trillion won. Considering this, it is highly likely that its sales will surpass Jeju Air in the future.
• After acquiring Asiana Airlines' cargo division, Incheon Air's sales are also expected to grow significantly. Asiana Airlines' cargo division had sales of 1.6081 trillion won last year.
• During the same period, Incheon Air's sales reached 707 billion won. If the acquisition of Asiana Airlines' cargo division is completed in the future, Incheon Air's sales may threaten Jeju Air.
• Ultimately, due to the creation of integrated low-cost carriers and the competitiveness of T'way Air and Incheon Air, it is expected that Jeju Air will find it difficult to maintain its industry-leading position. If it does not change, we will see Jeju Air drop three levels from the industry leader. We have no choice but to be satisfied with being the fourth in the industry.
• In this situation, Jeju Air is considering mergers or acquisitions. Its purpose is to expand their scale through investment funds after the recovery of the private equity funds that invested in Eastar Jet and Air Premia. However, industry insiders say that Jeju Air's mergers and acquisitions are not easy.

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