Cookie Consent

This site uses cookies for functionality. To see our cookie policy click here.

If you continue to use this site we will assume that you are happy with this.

Cargo airlines and the Chapter 3 dilemma December 1997 Download PDF

Cloud Image

Airlines will have to reconsider their freighter fleet strategies as the world airfreight market continues to grow at a faster rate than world passenger traffic. So can the imposition of Chapter 3 noise regulations in the US in the year 2000 and Europe/Asia in 2003 be turned to the advantage of cargo airlines?

In 1995–2004 world passenger traffic is forecast to grow at 5.5% p.a., according to Boeing, but airfreight traffic will grow at 6.7% p.a. IATA is even more bullish, and has just predicted that airfreight traffic will grow at 7.5% p.a. during 1997–2001, compared with its scheduled passenger forecast of 6.6% growth p.a. in 1997–2001.

According to the latest forecast by USbased cargo consultants MergeGlobal, world airfreight growth is expected to average 7.1% p.a. over 1997–2002. MergeGlobal has the best handle on actual airfreight traffic, having compiled a database from various sources on an "originated weight" basis. This eliminates the double counting — such as between a shipper and a forwarder — which bedevils analysis of this sector. A detailed analysis by route region is shown in the table opposite and in the graph on the right.

Freighter fleet effects

So how will the forecast growth in world airfreight affect demand for freighter aircraft? The world’s freighter fleet is undoubtedly the poor relation of the passenger fleet. Once they have been utilised to their maximum, many former passenger aircraft end their useful life as freighters. As a result the global freighter fleet is older, more polluting and noisier than the global passenger fleet.

Worldwide, about 57% of the freighter narrowbody fleet and 22% of the freighter widebody fleet was still Chapter 2 as of the end of 1996 (see table below). European airlines generally have a higher compliance rate than the US carriers.

Chapter 3 noise legislation (2000 in the US, 2003 in Europe and most of Asia) therefore poses a major problem for the freight airlines. But it could also be seen as an opportunity to upgrade fleets, for example, by trading up from non–compliant narrowbodies to widebodies, in the expectation of achieving lower unit costs.

This strategy could be encouraged by the fleet policies of the world’s passenger airlines. Traditionally, many passenger airlines have viewed belly lift as having little or no marginal cost — it is just space below passengers, and consequently any revenue derived from the belly is incremental profit. Freighter airlines, on the other hand, must cover all their costs per flight in order to remain viable.

But belly lift is not forecast to rise as rapidly as the overall airfreight market, not just because of the slower passenger growth rate but also because most passenger airlines now focus much more on their core competency — carrying passengers. Belly lift is seen increasingly as a distraction, despite the incremental revenues it produces, as carriers build up hubbing systems or point to- point operations that rely on swift turnarounds.

Various other trends are curtailing the supply of belly capacity:

  • Downsizing, notably the shift from 747s to smaller twin–jets on the Atlantic.
  • "Right–sizing", for example, switching to 767–300s which offer 25% less seating capacity than an MD–11 but almost 50% less belly space.
  • Pioneering ultra–long–haul operations using 747–400s, which have minimal cargo capability despite the size of the aircraft.

As incrementally–costed belly lift diminishes as a percentage of world airfreight, so the industry cost structure must inevitably rise as carriers add all–cargo capacity. Even the most efficient freighter operator using the cheapest converted aircraft has higher allocated costs than a belly carrier.

Yield improvements

These higher average unit costs should slow or even reverse the long term decline in cargo yield (2.5% p.a. in real terms over the past 25 years). Further improvements in industry yield may result from marginal players being forced out by the noise legislation, as the cheapest solution — the hush–kit — still costs several times the market value of first–generation jets.

For both the belly and freighter operators these trends promise increased profitability. They will also lead to a strengthening in the position of the market leaders who have the financial resources to cover capital expenditure.

As usual, the integrators are well positioned. FedEx’s fleet is now about 67% Chapter 3, and the hush–kitting of the remaining 727s plus deliveries of new A300/310s and MD11Fs will mean that it will meet the noise deadlines without problems.

UPS is now 100% Chapter 3 and has 757PFs and 767–300ERFs on order. The third largest cargo carrier, Atlas Air, is planning to increase its 747–400F order book from 10 to 11. The extra aircraft would join the four 747–400Fs which are currently scheduled to be delivered in 1998.

In October 1997 Cargolux Airlines ordered five 747–400Fs at a cost of $825m, to be delivered during October 1998- October 2001. Three of these will replace 747–200s and two will be used to increase capacity. In addition, the airline has also just taken delivery of another previously unannounced 747–400F.

For the next tier of cargo carriers the problems will be finding suitable conversion candidates among the 747–200s, TriStars and DC–10s on today’s strong second–hand market.

AIRFREIGHT MARKET (000s metric tonnes)
AIRFREIGHT MARKET (000s metric tonnes)
  1990 1991 1992 1993 1994 1995 1996 1997F 1998F 1999F 2000F 2001F 2002F
US domestic 4,352 4,621 4,921 5,232 5,802 6,090 6,386 6,692 7,003 7,732 7,804 8,307 8,891
US-Africa 22 25 27 28 31 34 35 38 41 45 49 53 57
Africa-US 13 11 13 16 20 22 21 22 24 25 26 28 29
US-Middle East 57 73 71 79 74 77 93 102 111 122 132 140 149
Middle East-US 32 28 39 45 53 54 57 61 65 70 74 79 84
US-CIS 4 5 11 21 23 21 24 25 27 29 31 33 36
CIS-US 1 1 1 2 3 4 4 4 5 6 6 7 7
US-East Europe 12 14 15 19 20 23 24 26 29 32 35 38 42
East Europe-US 11 8 7 11 13 15 17 18 19 20 22 23 25
US-Cnt. Am./Cbn 86 92 94 95 94 105 101 105 108 113 117 123 128
Cbn/Cent. Am.-US 125 125 129 133 146 145 153 158 164 169 174 179 185
US-NAFTA 264 203 216 213 267 313 341 373 413 457 504 554 607
NAFTA-US 78 57 58 58 70 87 106 114 122 132 145 156 169
US-North Asia 361 372 391 435 507 642 674 717 774 874 982 1,094 1,224
North Asia-USA 455 498 482 547 613 644 702 742 787 828 873 916 960
US-South America 167 194 228 234 267 296 292 312 334 362 391 422 456
South America-US 263 263 277 301 325 345 375 391 409 428 449 469 489
US-Southeast Asia 86 94 105 122 142 172 206 222 249 278 310 344 380
Southeast Asia-US 114 114 126 148 183 202 222 245 269 294 321 348 377
US-South Asia 13 11 14 15 16 24 26 30 34 39 44 50 57
South Asia-US 60 59 77 86 91 83 91 99 108 116 126 135 145
US-SW Pacific 55 55 61 64 77 85 87 87 91 95 99 104 108
SW Pacific-US 24 22 23 25 30 32 34 36 38 40 42 44 46
US-West Europe 712 746 776 746 813 913 969 1,033 1,123 1,209 1,297 1,387 1,479
West Europe-USA 617 549 573 653 809 863 899 941 984 1,042 1,108 1,168 1,229
Europe-Africa 340 336 355 344 357 382 407 431 458 486 517 549 583
Africa-Europe 155 141 178 164 174 185 198 213 225 240 256 272 288
Europe-Cent. Am. 51 62 76 83 83 88 94 101 107 117 126 136 147
Cent. Am.-Europe 56 67 85 93 98 103 110 116 123 133 143 153 163
Europe-South Am. 65 68 86 106 129 157 174 195 224 258 296 340 388
South Am.-Europe 48 52 57 50 60 68 73 80 88 97 106 115 124
Europe-Far East 445 462 509 591 713 781 859 945 1,025 1,116 1,212 1,310 1,413
Far East-Europe 603 711 749 775 810 893 961 1,038 1,109 1,189 1,270 1,353 1,439
Europe/Middle East 223 253 294 298 303 327 355 384 416 451 489 530 574
Middle East-Europe 203 205 170 178 180 183 189 198 205 214 223 234 245
Europe-South Asia 72 53 63 72 88 89 96 104 112 121 130 141 152
South Asia-Europe 106 109 132 131 150 157 165 181 194 209 225 241 258
Europe-Canada 125 121 116 119 126 131 135 144 151 159 167 175 183
Canada-Europe 89 87 93 83 78 83 85 89 92 95 98 101 104
Europe-SW Pacific 78 67 70 74 89 100 107 114 122 131 139 148 157
SW Pacific-Europe 73 80 80 68 72 78 82 86 92 96 101 106 111
Intra-Asia 1,100 1,190 1,329 1,475 1,800 2,097 2,374 2,624 2,846 3,099 3,387 3,719 4,100
Intra Europe 832 827 848 892 954 982 1,013 1,045 1,082 1,121 1,165 1,214 1,267
Other regions 1,517 1,420 1,427 1,591 1,839 2,025 2,198 2,375 2,571 2,799 3,051 3,339 3,657
TOTAL14.2m 14.5m 15.5m 16.5m 18.6m 20.2m 21.6m 23.0m 24.6m 26.3m 28.2m 30.3m 32.7m
2-6-chart-1
2-6-chart-1

Download PDF
×