EXTRANS GLOBAL - Air Freight News - Week 37

Air Freight General 

1)  The air cargo market in the 4th quarter

- Overall, the market is sluggish, but the demand for e-commerce remains strong in the Asian and Chinese markets, as well as routes connecting the United States and Europe.

- Market rates are generally declining due to weak demand, but rates on routes connecting China, some cities in Asia, and the United States, where e-commerce demand is strong, have shown a slight reversal and are increasing.

- However, the slowdown in the Chinese and European markets is leading to weak shipment of key air cargo items, and while other regional freight indices are showing a downward trend, it is expected that rates will rise gradually as the peak season begins.

- In particular, from Thanksgiving to the New Year holidays, a steady upward trend without a decline is expected to continue, although there may not be a rapid demand recovery.

- In summary, due to various uncertainties such as inventory depletion in advanced countries and a slowdown in China's export business, there are limitations to the increase in rates.

2) Jeju Air, T'way Air, and other low-cost carriers (LCCs) are actively pushing for the cargo business expansion.

- Low-cost carriers (LCCs) are focusing on their cargo business, which saw growth during the COVID-19 period, and are making various preparations, from actively recruiting experienced personnel for cargo operations to considering the introduction of dedicated cargo aircraft.

- Jeju Air began recruiting experienced personnel for cargo transportation business on the 1st of this month, with job responsibilities including cargo operations and support for passenger and cargo aircraft, support for cargo transportation-related safety and security tasks, and on-site inspections of cargo terminals and holding areas.

- Jeju Air's initiation of recruiting experienced personnel for cargo is seen as a preliminary step toward operating dedicated cargo aircraft. After introducing the first dedicated cargo aircraft (B737-800) in June of last year, they plan to introduce the second dedicated cargo aircraft as early as October this year.

- T'way Air and Air Premia are also showing increased interest in cargo business. T'way Air plans to introduce up to three long-haul large aircraft A330-300 next year, intending to continue their cargo business through these aircraft. They currently utilize A330-300 for cargo operations and anticipate an increase in cargo volume next year.

- Air Premia is also considering the introduction of dedicated cargo aircraft. Although they have not disclosed specific details such as when and which cargo aircraft they will introduce, they are evaluating the feasibility of the cargo business. They have at least one staff member in the cargo business division for both domestic and international locations.

- The main reason LCCs continue to pursue cargo business is to secure cargo shippers. While it is true that cargo freight rates have decreased compared to the COVID-19 period, they consider securing cargo shippers for the future as crucial, as it leads to an expansion of market share. According to the aviation industry, current freight rates are at about 25-30% compared to the pre-COVID-19 levels.

- Another reason is that a certain level of expertise is required for cargo transportation. For products such as semiconductors, batteries, and pharmaceuticals, which are relatively difficult to handle and have high added value, appropriate certifications are required, and accumulated transportation know-how is necessary to enhance competitiveness. The fact that Korean Air and Jeju Air obtained the International Air Transport Association (IATA) lithium battery transportation certification in May this year is also relevant, as explained by the aviation industry.

- The issue lies in profitability. While Jeju Air and some other LCCs are entering the cargo business, most of the aircraft they possess are smaller-sized, raising doubts about profitability. It is explained that larger aircraft are necessary to carry more cargo.

- A Jeju Air official stated, "In the long term, securing cargo shippers is a priority, so we will not give up just because the current profitability is somewhat weak."

3) Eastar Airlines: Introducing four new aircraft within two months despite an aircraft shortage, planning to expand international routes.

- Amidst the aircraft shortage caused by airlines rushing to place orders this year, Eastar Airlines has successfully introduced four new aircraft in the past two months.

- Eastar Airlines, which faced financial difficulties due to the COVID-19 pandemic and mismanagement by its founder involving embezzlement and misappropriation, made a remarkable recovery and successfully resumed international flights with the recent introduction of new aircraft.

- Eastar Airlines introduced its fourth next-generation aircraft, the 8th aircraft registered as HL8544, a B737-8. Since July, they have increased their fleet by four aircraft, with the fuel-efficient B737-8 being the latest addition.

- The B737-8 features advanced engines and AT Winglets (Advanced Technology Winglet) attached to the wingtips. The AT Winglets, in a V-shaped structure, reduce the turbulence and wind-induced resistance during flight. The B737-8 aircraft introduced by Eastar Airlines are all newly manufactured and state-of-the-art.

- In order to reduce costs during the COVID-19 period, the aviation industry reduced the number of aircraft. The domestic civil aviation fleet, which was 773 aircraft in 2019, decreased to 732 aircraft last year.

- As the COVID-19 situation improved, companies signed contracts for new aircraft, but a shortage of manpower led to delays in aircraft production, resulting in an aircraft shortage crisis. Some airlines had to postpone the launch of new routes due to disruptions in the planned aircraft delivery schedule. Air Korea, for example, experienced a delay in the introduction of the 2nd and 3rd aircraft, originally scheduled for April, which caused a delay in the launch of international routes.

Jeju Air initially planned to bring in four B737-8 aircraft by the end of the year but recently reduced the number to two.

- After being acquired by private equity fund VIG Partners, Eastar Airlines regained its Air Operator Certificate (AOC) in March this year and resumed operations with three aircraft. They started international flights to Taiwan from the 2nd of this month and will resume flights to Osaka, Narita, Bangkok, and Da Nang on the 20th.

4)  Escalating 'Air Battle' in the Middle East - Establishment of Saudi's Riyadh Air    

- Riyadh Air, an airline established by Saudi Arabia in March, is scheduled to commence official operations in 2025, but it has already attracted significant attention with its aggressive moves.

- Shortly after its establishment, Riyadh Air placed an order for 39 Boeing B787 aircraft, and it is expected to continue large-scale additional aircraft purchases in the future.

- Tony Douglas, the CEO of Riyadh Air, who previously served as the CEO of Etihad Airways, the national airline of the United Arab Emirates (UAE) based in Abu Dhabi, stated in an interview, "Riyadh Air has very aggressive plans and will focus on passengers whose purpose is to visit Saudi Arabia, not just for transit."

- Riyadh Air plans to establish direct routes connecting the Saudi capital, Riyadh, with over 100 cities worldwide.

- With Emirates, Etihad, Qatar Airways, and Turkish Airlines leading the competition among Middle Eastern airlines, Saudi Arabia's entry into the market in a significant way through Riyadh Air is expected to bring considerable changes not only to the Middle East but also to the global aviation market.

- Riyadh Air is a separate entity from Saudi Arabian Airlines (Saudia), the state-owned airline established in 1945.

- It is analyzed that the Saudi sovereign wealth fund, the Public Investment Fund (PIF), which is directly involved in major decision-making processes by Crown Prince Mohammed bin Salman, is likely to have a deep involvement as the owner of Riyadh Air, potentially influencing its management.

- Why did Saudi Arabia establish a new airline and actively promote its development? Firstly, it aligns with the non-oil diversification and reform policies that have been implemented since Crown Prince Mohammed bin Salman assumed power in 2017. Saudi Arabia is currently undergoing extensive structural improvements to move away from its previous image as a "conservative Islamic country" overly dependent on oil sales, through its Vision 2030 strategy.

- Once Riyadh Air enters full operation, it is highly likely to intensify competition with neighboring countries such as the UAE and Qatar, leading to an even more fierce "Middle East airline battle." It can be seen as another strong competitor entering the scene.

5)  Airline/GSA Event Update

(1)  KOREAN AIR (KE) Mandatory Implementation of General Cargo E-AWB

- The use of electronic air waybills (E-AWB) becomes mandatory for air cargo transportation.

- Starting with general cargo shipments from Korea to destinations such as North America, Europe, and Japan, the electronic air waybill will be primarily applied.

- Utilizing electronic air waybills simplifies the entire process from cargo acceptance to delivery at the destination, ensuring accurate information transmission and facilitating cargo tracking. This is expected to enhance transparency throughout the transportation process.

- A transition period will be provided until December, and the obligation of using E-AWB for cargo transportation from Korea will be effective from January next year.

(2)  LUFTHANSA CARGO (LH) Expands Supply to Asia and Mexico, Operating B777F 83 Times per Week

- B777F long-haul flights are scheduled 83 times per week in the winter schedule. Major additional flight destinations include TLV, CAI (3W), BOM via HKG 7W, MEX 7W, and a new route via RUH to TPE 2W.

- LH is pursuing a strategy to find opportunities by providing additional cargo supply to the economically robust Asian and Mexican markets.

- Regarding the Mexican market, LH has been operating to Felipe Angeles Airport (NLU) since July to increase cargo capacity. The focus on the Mexican market, which is a highly beneficial route for near-shoring, reflects various infrastructure measures being finalized.

(3)  EASTAR JET (ZE) Adds International Routes

- Resuming the route between Gimpo and Taipei on September 2 after a 3-year and 6-month hiatus.

- From October 29, plans are underway to increase the frequency to 14W for the Fukuoka route and 7W for the Nha Trang route starting from November 20, adding a total of 7 international routes.

(4)  THAI AIRWAYS (TG) Resumes Istanbul Flights: BKKIST 7W TG900 2345/0605+1 A359 from December 1. 

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