EXTRANS GLOBAL - Air Freight News - Week 42 2024

1)  The possibility of 'poverty amid abundance' is high this peak season... even if the handling volume increases, ensuring 'profitability' may be difficult.

• Although we have officially entered the peak season, global air freight rates have shown slight fluctuations of increases and decreases on a weekly basis, maintaining overall stability.
• Various global air cargo data released by the end of September do not show significant differences compared to before entering the peak season. While stability is present, the so-called "hot" peak season where volumes pile up has yet to appear.
• Market participants generally agree that since we are still at the beginning of the peak season, we need to keep an eye on developments, and experts are analyzing trends in rates and cargo indices, showing stable patterns.
• However, some negative sentiments are increasingly emerging, with comments like "the expected demand may not be there."
• One industry insider mentioned, “While demand is not contracting significantly or rates plummeting, it is clear that the volume levels will fall far short of market expectations, and this year's peak season will not truly be a peak season.”
• Conversely, another viewpoint is emerging regarding the peak season market. One expert questioned, “Is it really a peak season just because the volume increases?” pointing out that for market participants, true peak season is when they are guaranteed record profitability, regardless of demand.
• In other words, both the recent global market and the Korean market should be observed focusing on the trend of declining market rates rather than issues of demand weight.
• An industry insider noted, “From the airlines' perspective, a significant portion of the supply space has already been passed on to BSA through block contracts and charters, and they are operating at the highest market and contract rates of the year, claiming that it is already peak season.”
• However, in the Korean export air cargo market, where e-commerce transshipment demand still occupies an absolute share, mixed freight forwarders and BSA companies have effectively become middlemen, forced to engage in a price war over limited demand, resulting in relatively low rates for shippers and regular forwarders.
• The difference in rates is ultimately being passed as losses to specialized BSA or air cargo mixed companies.
• Nonetheless, both the global market and domestic companies still seem to envision a peak season reminiscent of the COVID-19 period, holding onto hopes for a "big boom" and not giving up expectations for the October market.
• However, some experts express deep concerns, stating, “There are too many somewhat reckless charter contract companies. By December, we may see many companies regretting their decisions. Even if demand surges and airports become busy, if true ‘profit’ is not guaranteed, the likelihood of encountering ‘poverty amid abundance’ this peak season is very high.”

2)  T'way and Air Premia in the hands of Daemyung Sono – the silhouette of 'the second Asiana'

• Daemyung Sono has stepped into the restructuring of the domestic aviation industry by consecutively securing stakes in T'way Air and Air Premia. While Daemyung Sono downplays this as a simple acquisition, many view it as a step toward securing management control. Scenarios of merging the two companies or realistically choosing one are also being discussed.
• Daemyung Sono Group's holding company, Sono International, has signed a contract to acquire half of the 26.95% stake in Air Premia held by private equity firm JC Partners for 47.1 billion won.
• They have also secured a call option to acquire the remaining shares after June next year, which would elevate them to the position of the second-largest shareholder in Air Premia. There are discussions about purchasing shares from the largest shareholder, AP Holdings, which has a 30.4% stake.
• Previously, Daemyung Sono acquired a 26.77% stake in T'way Air from JKL Partners, becoming the second-largest shareholder. The gap in shares with the largest shareholder, Yerimdang, is around 3%, so they could aim for the largest shareholder position if they choose to buy more shares.
• Daemyung Sono claims this is part of "business diversification" and distances itself from the acquisition of management control in T'way Air and Air Premia. However, industry insiders believe that given Daemyung Sono's commitment to entering the aviation sector, it is unlikely they will remain merely as the second-largest shareholder. There are also scenarios where they secure management control of both T'way Air and Air Premia and consider a merger in the long term.
• Both companies have been selected as airlines to replace Asiana Airlines in Europe and North America due to the merger between Korean Air and Asiana Airlines, making the possibility of a "second Asiana Airlines" feasible.
• T'way Air operates 3 A330-300s, 4 A330-200s, 27 B737-800s, and 2 B737-8s, while Air Premia has 5 B787-9s. Excluding the A330-200 leased from Korean Air, they have a total of 37 aircraft.
• Although it is difficult to compare with Asiana Airlines, which has 46 large aircraft excluding cargo planes, if both airlines can secure 20 A330s and 20 B787s by 2030 according to their announced medium- to long-term plans, they could reach a similar level.
• T'way Air is currently building routes primarily in Europe, including Paris, while Air Premia has no overlapping routes in North America, such as Los Angeles (LA) and New York.
• Voices in the aviation industry continue to argue for the need for a large airline capable of competing with Korean Air, Asiana Airlines, and their affiliates Jin Air, Air Busan, and Air Seoul due to their merger.
• However, realistically, there are discussions about the possibility of Daemyung Sono acquiring only one of the two airlines, T'way Air or Air Premia, due to the challenges of acquiring both.

3)  Amazon in the U.S. – officially entering the general air cargo market!

• Amazon's air logistics subsidiary, Amazon Air, recently announced through LinkedIn that it has started selling cargo space to various customers, including freight forwarders.
• Amazon Air currently operates over 100 cargo aircraft and runs more than 250 flights daily, including those with partner airlines.
• The air logistics division of Amazon, known as "Amazon Air Cargo," began full operations in 2016.
• Currently, it operates daily cargo flights to 54 airports across the U.S. with over 100 cargo aircraft. The main aircraft types include the B737, B767, and A330 freighters.
• Major services offered include a wide range of cargo transportation services, covering not only general cargo but also pharmaceuticals, perishable goods, hazardous materials, and parcels.
• Until now, there have been rumors that Amazon Air has only informally allocated cargo to some long-term fixed customers, but this announcement formalizes that process.
• Amazon recently joined the Air Forwarders Association, establishing an official partnership with freight forwarders.
• They have also introduced services such as temporary flight operations, cargo charter services, and BSA (Block Space Agreement) services to sell cargo space, providing a level of service comparable to typical cargo airlines.
• Particularly, through this move, Amazon aims to expand its air logistics operations beyond simple e-commerce-based delivery services and to extend its North America-centered air logistics network into the global market, thus competing not only with airlines but also with global logistics companies like FedEx and UPS, as well as other global integrators.

4)  Export air cargo rates soar due to severe infrastructure issues at Dhaka Airport in Bangladesh.

• Freight forwarders in Bangladesh have begun transporting cargo to the western United States via China, instead of using Middle Eastern hubs, due to high air cargo rates, benefiting Chinese airlines.
• Along with the rise in export air cargo rates from Dhaka, congestion at Middle Eastern hubs has increased regional tensions, leading airlines to cancel flights in recent weeks.
• Expo Freight, one of Bangladesh's major forwarders, sent 100 tons of cargo to the U.S. via China last month, and Wax Logistics and APS Logistics have also utilized this route.
• The air cargo market in Bangladesh is highly vulnerable to volatility, with over 70% of cargo being conducted at spot rates.
• As of September 22, the spot rate for shipments from Bangladesh to Europe reached $5.34 per kg, the highest in two and a half years, nearing the pandemic peak of $5.71 in November 2021. The load factor remains very high at 96%.
• Additionally, the spot rate for shipments from Europe to Bangladesh has reached $2.25 per kg, which has increased since the low at the end of July but is still lower than $2.90 in early June.
• The spot rate for shipments from Bangladesh to the U.S. has also reached $7.83 per kg, the highest level in two years.
• Year-to-date, air cargo capacity from the Asia-Pacific region to North America has increased by 16% compared to last year, while capacity to Europe has grown by 19%. Last week, capacity to Europe increased by 21% compared to last year, while capacity to North America rose by 13%.
• A representative from Expo Freight explained, "We decided to route through China because we couldn't secure the necessary cargo space on existing routes. Routing via China is about $1 cheaper per kg than routing through the Middle East, and Chinese airlines provide ample cargo space from Dhaka, making it a viable alternative."
• The poor infrastructure at Dhaka is also a factor in the route changes. Local freight forwarders in Bangladesh are seeking alternative routes due to scanner issues at Dhaka Airport and congestion in the Middle East, with existing routes via Delhi in India or SEA&AIR transport gaining attention. Meanwhile, the average daily export volume from Dhaka Airport is reported to be around 700-800 tons.

5)  GSA and Airline Trends

• Saudi Riyadh Airlines – Plans to commence full operations starting next year. Currently, they have confirmed orders for 39 Boeing B787-9 aircraft, with an additional order option for 33 more, all intended for long-haul routes. They plan to operate over 100 routes within five years, using Riyadh (RUH) as their hub. Currently, there are no intentions to join an airline alliance, but officials stated that they will strengthen cooperation between airlines.

• T'way Air European Route Expansion – Starting November 25, an additional flight will be added to the existing three weekly flights on the FRA/FCO/BCN routes. The additional days will be Monday for FRA, Wednesday for FCO, and Saturday for BCN, resulting in four flights per week for each route.