EXTRANS GLOBAL - Air Freight News - Week 40 2024

1)  Long-awaited Korean Air-Asiana merger expected to receive final approval next month

• As Korean Air has entered the final stages of its acquisition of Asiana Airlines, there is growing interest in whether the merger will be completed within this year. The airline industry anticipates that, barring any unexpected developments, the final merger approval from competition authorities can be obtained by the end of the year.
• Predictions indicate that the merger between Korean Air and Asiana will be finalized next month.
• Currently, Korean Air is in the final stages of acquiring Asiana. At this point, Korean Air is awaiting final approval from the European Commission (EC) and the U.S. Department of Justice (DOJ).
• Earlier in February, the EU conditionally approved the merger between Korean Air and Asiana. The EU determined that the integration of Korean Air and Asiana could raise competition concerns in the cargo business and on four passenger routes, prompting two conditions: the divestiture of Asiana's cargo business and support for new airlines to enter the four overlapping passenger routes (Paris, Rome, Barcelona, and Frankfurt).
• In response, Korean Air is transferring the four overlapping European routes to T'way Air as part of the final approval process. Additionally, Korean Air completed the sale agreement for Air Incheon and Asiana's cargo business, fulfilling all of the EU's conditions. Consequently, Korean Air is expected to undergo buyer assessment and final merger approval review by the EU.
• The airline industry believes that with Korean Air fulfilling all of the EU's conditions, the merger with Asiana will gain momentum. Notably, the final stage in the U.S. differs from other countries, as the DOJ will automatically conclude the review if no special lawsuit is filed within 2 to 3 months. The U.S. review is expected to end once the EU completes its buyer assessment.
• However, the U.S. DOJ has expressed monopoly concerns over five of the 13 routes (New York, LA, San Francisco, Seattle, and Hawaii) operated by Korean Air and Asiana in the Americas. To address these monopoly concerns, Korean Air plans to transfer overlapping routes to domestic low-cost carriers (LCCs) such as Air Premia.
• The industry anticipates that Korean Air will fulfill the conditions set by the EU and the U.S., and the final approval results could be announced as early as next month. This is because the divestiture of the cargo business and the transfer of overlapping European routes—conditions for EU approval—are expected to be completed next month.
• A Korean Air official stated, “It seems that the EU's buyer approval will be announced next month,” adding, “If the EU gives final approval, the U.S. is also expected to conclude its review without filing a separate lawsuit.”
• Meanwhile, Korean Air has obtained approvals in 13 of the 14 countries from which it needs approval for the merger, excluding the U.S.
• If all competition authority reviews are completed, Korean Air will proceed with the acquisition by participating in Asiana's third-party capital increase to secure equity. The plan is to acquire a 64.22% stake in Asiana Airlines for 1.5 trillion won. Following this, Asiana will be operated as a subsidiary of Korean Air, and the integration process will begin. If Asiana is successfully integrated, Korean Air is expected to rise to become one of the world’s top 10 mega carriers (ultra-large airlines).

2)  Impact of holiday season leads to temporary decrease in air cargo - 33% decrease from Korea, 6% drop in the Asia-Pacific region

• In week 38, the average air cargo rate (spot + contract) was $2.59/kg, a 3% decrease compared to the previous week.
• This decrease is primarily attributed to holidays in China, Korea, and Chile. WorldACD analyzed that "73% of the global cargo volume decrease occurred in the Asia-Pacific region, where the cargo volume decreased by 6% on a weekly basis."
•  The decline in demand is due to overlapping holidays such as the Mid-Autumn Festival (Chuseok) in East Asia, particularly from September 16 to 18. In Korea, the cargo volume decreased by 33%, accounting for half (50%) of the decrease in the Asia-Pacific region, while China also saw a 6% decrease, making up 30% of the overall decline.
• However, it is worth noting that according to statistical figures, the Mid-Autumn Festival holiday in these regions last year fell between September 28 and 30 (week 39), making year-over-year comparisons meaningless. Nevertheless, compared to global air cargo volumes in week 38 of last year, there was a 6% increase on a weekly basis.
• Similarly to the East Asia region, 12% of the global cargo volume decrease occurred in South America. In week 38, South America recorded a 6% decline, with most of this decrease (about 50%) attributed to Chile.
• The issue lies with freight rates; despite the decrease in cargo volume, global air cargo rates have maintained their strength. Based on this, WorldACD pointed out that the current drop in demand is a temporary phenomenon. In particular, rates for cargo departing from the Asia-Pacific and Middle East/South Asia (MESA) regions have continued to rise.
• This is attributed to increased demand for e-commerce and political tensions in the Middle East. The average global rate remained similar to the previous week, but showed increases in Africa (+4%), Asia-Pacific (+1%), and MESA (+4%).
• In conclusion, the current decrease in air cargo volume appears to be a temporary phenomenon due to the holidays, and it is assessed that it does not signify an overall market weakening.

3)  As the peak season for air travel approaches, bottlenecks originating from Asia begin to occur

• Ahead of the peak season for air cargo, most major hubs in Asia are operating smoothly, but bottlenecks have begun to appear in Southeast Asia and the Philippines.
• According to a recent report on Asia-Pacific cargo released by Dimerco, headquartered in Hong Kong, exporters using container ships are facing difficulties due to a surge in blank sailings (temporary cancellations), despite a decrease in volume.
• Although the export volume of e-commerce and electronics has been low following a quieter-than-expected September, there is a prediction that air cargo volume will surge, with this increase expected to start now and continue until mid-October.
• Air cargo capacity heading to Europe from most major Asia-Pacific hubs is very limited, and in particular, Singapore's Changi Airport is currently experiencing a wait time of 1-2 days, highlighting its status as the busiest hub.
• For air cargo heading to the United States, most hubs, excluding Hong Kong and Taiwan, are already at capacity. Major hubs in Singapore and Vietnam are also experiencing congestion, and the situation in the Philippines is serious, with bookings being rejected, indicating a high likelihood of needing alternative routes.
• Additionally, shippers sending cargo from regions with less developed connectivity, such as Vietnam, are experiencing delays due to a surge in volume at transfer hubs.
• There are warnings that the focus on long-haul routes during the peak season will also increase the burden on regional transport within Asia.
• Cargo departing from Thailand and Indonesia is also facing similar issues due to a lack of capacity on flights heading to Europe and the United States.
• In northern China, except for a situation in Tianjin where there are many inquiries about freight rates but actual bookings are lacking, most airports in China are facing capacity shortages, which are expected to worsen further.
• Flights from Korea to Europe and the United States are also experiencing capacity shortages, and exports of semiconductor equipment are steadily increasing, with expectations for further growth in the future.
• Dimerco advises that securing space to ship semiconductor equipment at standard rates is becoming increasingly difficult and that reservations must be made at least two weeks in advance.

4)  Canada – Implementation of Pre-Inspection System for Air Cargo

• Transport Canada has announced that starting this fall, it will fully implement a new safety and security program for imported air cargo called the Pre-load Air Cargo Targeting (PACT).
• This system is conceptually similar to the Air Cargo Advance Screening (ACAS) program already in place in the United States. It requires detailed information about cargo destined for Canada or transiting through Canada to be reported to Canadian authorities before loading, excluding ground shipments.
• The program will officially commence this fall after being pilot-tested since 2012, although no specific international implementation date has been announced.
• In response, All Nippon Airways (NH) will require the following information for flights departing from Japan starting October 1: ① Airway Bill and House Airway Bill numbers ② Shipper's name and address (including country, state, city, and postal code) ③ Consignee's name and address (including country, state, city, and postal code) ④ Detailed item description ⑤ Total number of packages ⑥ Total weight.
• The Canadian government has stated that airlines may face fines of up to $25,000 if they fail to provide the required information. If airlines incur such fines, they are likely to seek recourse against forwarders or shippers depending on the circumstances.
• The Australian government has also announced that it will implement an air security program similar to those in Canada and the United States.
• It is stated that for air cargo departing from the five CIS countries to Australia or transiting through Australia, proof of an Established Business Relationship (EBR) between forwarders and shippers will be mandatory when transported on passenger flights.

5)  GSA and Airline Trends

• In the Korea-Uzbekistan aviation talks, it was agreed to increase the current air transport rights set at 10 flights per week between the two countries to a total of 24 flights per week, with 12 flights between the capitals of both countries and 12 flights on other routes.

• • Korea ↔ Uzbekistan passenger flights: 12 per week
  • Korean regional airports ↔ Uzbekistan capital airport (Tashkent) passenger flights: 4 per week
  • Uzbekistan regional airports ↔ Korean capital airport (Incheon) passenger flights: 4 per week
  • Regional airports in both countries ↔ regional airports passenger flights: 4 per week