EXTRANS GLOBAL - Air Freight News - Week 48 2024

Air Cargo General  

1)  Where will Air Premia and Air ROKI take off to next year?

• What will be the route strategies for Air Premia and Air ROKI, the latecomers in the aviation industry now shedding their 'newcomer' label, next year?
• Looking at the routes operated by Air Premia and Air ROKI, the two companies are following completely different paths from their initial plans. Air Premia focuses on medium- and long-haul routes with large aircraft, using the B787-9 with over 300 seats, while Air ROKI targets short-haul routes with flight times of around 4 hours using the A320, a single model with 180 seats.
• Air Premia is clearly expanding its network centered around routes to the United States. While it has previously operated charter flights to European destinations such as Frankfurt, Oslo, and Istanbul, as of November, Air Premia is operating three scheduled long-haul routes to the U.S.: San Francisco, Los Angeles, and New York. The New York route will increase from five to six flights per week starting January 7, with plans to operate twice daily once additional aircraft are introduced next year. In the first half of next year, they are also preparing to launch a route to Hawaii, and in the second half, to Seattle. Air Premia has prior experience operating charter flights to Hawaii during the last winter season, with load factors of 75.1% in January, 87.2% in February, and 62.7% in March.
• However, with the introduction of a sixth and seventh aircraft with 344 seats—more than their existing models—by the end of this year, Air Premia is also moving to gradually expand its share of medium-haul routes. Confirmed medium-haul routes include Bangkok, Da Nang, and Hong Kong, with plans to increase the Incheon-Bangkok route from five to seven flights per week starting January 24, and to gradually add new routes to Incheon-Da Nang (starting January 23) and Incheon-Hong Kong (starting January 24), all of which are approximately 4-hour flights.
• In contrast, Air ROKI plans to focus on frequently operating short-haul routes centered around Japan and China, which are 1-2 hours away. Since becoming free from its obligation as the base airline at Cheongju International Airport in May, Air ROKI has been operating regular flights from Incheon to Tokyo and extending its services to Nha Trang. This winter, they plan to add charter flights to Hanoi, Pakse, and Kaohsiung routes. Although specific schedules have not yet been finalized, they are preparing charter flights to China’s Jinan and Hainan routes as well. Additionally, Air ROKI is testing market viability by deploying various charters targeting small cities with high seasonal demand and low competition from other airlines.

2)  Where is the 'catfish' of the aviation industry, Daemyung Sonoh - Eastar Jet headed?

• With significant changes expected in the domestic low-cost carrier (LCC) industry, there is growing interest in the future of Eastar Jet, which welcomed private equity firm VIG Partners as its new owner last year.
• The Daemyung Sonoh Group, a resort and hotel company rapidly expanding in the aviation sector, has emerged as a potential buyer, raising the possibility of a shift in the landscape.
• It is anticipated that when Eastar Jet appears on the mergers and acquisitions (M&A) market, the entity it is sold to will mark a crucial turning point in the aviation industry.
• Once the merger process between Korean Air and Asiana Airlines is completed, a "mega LCC" will be created by integrating Korean Air's subsidiaries Jin Air and Air Busan with Asiana Airlines' subsidiary Air Seoul.
• Recently, the Daemyung Sonoh Group has become the second-largest shareholder in both T'way Air and Air Premia, expanding its reach. Given the inevitable restructuring of the LCC industry,
• Eastar Jet is seen as a target that could enhance market dominance.
• VIG Partners acquired 100% of Eastar Jet's shares for 145 billion won last January, improving its financial structure and aggressively expanding its operations.
• Following its acquisition by VIG Partners, Eastar Jet, which faced bankruptcy during its corporate rehabilitation process in 2021, has emerged from complete capital erosion. The airline has added five aircraft and significantly expanded its new routes, focusing on growth. With the normalization of operations and achieved expansion, there is a strong consensus in the industry that it is likely to reappear as a sale item.
• Daemyung Sonoh Group is mentioned as a leading acquisition candidate. If Daemyung Sonoh Group acquires Eastar Jet, it could solidify its position in the LCC industry.
• In 2010, Daemyung Sonoh Group invested in AirAsia to acquire domestic operating rights and also considered acquiring Eastar Jet around the same time as T'way Air.
• Currently, Daemyung Sonoh Group has stated that it does not intend to secure management rights for T'way Air and Air Premia, but industry insiders suggest that a scenario where both companies are acquired and merged is plausible. If this occurs, Jeju Air may face threats to its position as the leading domestic LCC.

3)  Trump's Second Term on China Tariffs - A Temporary Boon for Southeast Asia.

• As President-elect Trump indicates plans to impose a minimum 60% tariff on imports from China, this tariff policy is expected to accelerate the trend of manufacturers relocating out of China, providing a short-term boon for Southeast Asia. However, experts analyze that if the incoming administration takes measures against Chinese imports rerouted through Southeast Asian countries like Thailand or Vietnam, it could lead to broader impacts.
• Southeast Asian countries, including Vietnam, have already benefited since the tariff increases during Trump’s first term. With cheap labor and rapid infrastructure expansion, Vietnam has attracted significant interest from investors in other Asian regions, as many manufacturers have relocated their factories to Vietnam to avoid tariffs on China.
• Additionally, Thailand, which has set an ambitious goal of filling 30% of its automobile production with electric vehicles by 2030, has successfully attracted investments from numerous Chinese companies, including prominent electric vehicle brands.
• In fact, more Chinese companies are investing in Southeast Asia, effectively localizing Chinese capital. China’s direct investment in the ASEAN countries, which consist of ten nations, reached approximately $25.12 billion last year, marking a 34.7% increase from the previous year.
• In this context, if tariffs are imposed on more than half of the currently duty-free Chinese children's products and daily necessities with the launch of Trump’s second term in January, it is expected that more Chinese companies will relocate their factories and operations to Southeast Asia, including Malaysia, Singapore, Thailand, Vietnam, and Indonesia.
• However, Trump is likely to oppose the use of third countries as a means to circumvent tariffs. During his campaign, he threatened to impose a 25% tariff on Mexico, another transshipment point for China. In this regard, Trump's efforts to reduce the U.S. trade deficit with China are expected to extend to countries benefiting from Chinese circumvention.

4)  Expected to Face Supply Shortage in the Air Cargo Market Next Year – Growth Slowdown and Sustained Demand.

• At the TIACA Air Cargo Forum held last week, key challenges expected in the air cargo supply sector that the industry may face were discussed.
• (1) Slowing Increase in Passenger Aircraft Belly Capacity and Delays in Conversion to Freighters
  Currently, the growth rate of belly capacity from passenger aircraft in the air cargo market is slowing, and high demand in the passenger aircraft market is limiting the supply of aircraft that can be converted to freighters due to production delays. In particular, the global aircraft utilization rate has reached the highest level in the past five years, making it difficult to secure additional capacity from existing aircraft.
• (2) Increased E-commerce Demand and Capacity Shifts Between Regions
  If e-commerce demand in the Asia region grows by 20% next year, there may be a need to shift capacity from other markets. For example, if demand from China increases by 20% while supply only increases by 4.4%, the increase in supply will ultimately be about shifting capacity to Africa and South America.
• (3) Long-term Freighter Supply Issues
  The new wide-body freighter programs from Airbus and Boeing are delayed, and the average age of current freighters continues to rise, which is also problematic. Although airlines will strive to extend the lifespan of existing aircraft, this is likely to lead to service disruptions and reduced utilization.
• (4) Impact of E-commerce and Global Trade Regulations
  On the demand side, e-commerce demand will remain strong, but there are some risks. Major countries, including the United States, are showing movements to regulate the import of e-commerce products, which could lead to a short-term decrease in demand. Nevertheless, markets like Southeast Asia and South America still show significant growth potential for e-commerce. In Southeast Asia, per capita e-commerce consumption is only 1.4 kg, compared to 3.3 kg in North America and 2.7 kg in Europe. Even a 1 kg increase in consumption in Southeast Asia is expected to result in a massive increase in volume.
• (5) U.S.-China Trade Conflict and Changes in Global Supply Chains
  The U.S.-China trade conflict may impact air cargo demand in the short term next year, but there is a high likelihood that trade will continue to grow in the long term. In particular, it is expected that supply chains will become more active, with increased exports from alternative production bases like Vietnam.
• Ultimately, the air cargo market next year is expected to face significant pressure amid limited supply and strong demand growth. In particular, e-commerce demand and changes in global trade are projected to impact the entire supply chain. Accordingly, airlines and freight carriers will need to respond to market demand through regional capacity reallocations.

5)  Airline/GSA Movement

• Due to a strike warning from Finnair (AY) pilots, hundreds of flights in December have been canceled, affecting flights from North America and Asia to Europe, as well as domestic flights in Finland.
• The EU has approved the merger of Korean Air and Asiana Airlines

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