Issue No. 805
Air Cargo Emerges From Shadows as Pandemic Lifeline
One of the Least Glamorous Parts of the Industry Proves its Worth
Pushing Back: Inside This Issue
Cargo gets its place in the sun. One of the more interesting storylines of the Covid-19 pandemic's effect on aviation has been the emergence of freight as a lifeline for industry. Some carriers are tipping into profits on the strength of cargo, and seemingly every carrier is expanding its cargo operation (and in fact, Mesa is adding more freighters — see Weekly Skies). But while it's a lifeline, cargo isn't a savior. We take a look in this week's Feature Story.
Elsewhere in this issue, lessors are confident that more airlines will lease their fleets, rather than own them, as the pandemic recedes. Lufthansa bids so long, farewell, auf wiedersehen, goodbye to its Airbus A380s (and several other aircraft), and Azul reported an 11 percent fourth-quarter margin. Yup, a positive operating margin. Imagine that.
The Airline Weekly Lounge Podcast
New episodes drop every Thursday and are available wherever you get your podcasts and on AirlineWeekly.com. In the latest podcast, Edward "Ned" Russell and Madhu Unnikrishnan talk about all things cargo, why United is buying Maxes and taking the bus, and what's going on in Australia. Listen to the episode.
"No airline ever went out of business for having too few airplanes, but plenty of them go out of business for having too many"AerCap CEO Aengus Kelly
Lufthansa Group has joined the growing list of airlines retiring the superjumbo jets in favor of smaller, more efficient models as the industry shifts to recovering from the coronavirus pandemic.
Speaking during the group’s fourth-quarter earnings call last week, CEO Carsten Spohr confirmed that Lufthansa has “permanently decommissioned” its 14 A380s, as well as its 10 Airbus A340-600s and Boeing 747-400s — many of which were already in temporary storage — as part of its Covid-19 fleet restructuring. Further group changes will include phasing out Airbus A330-200s and A340-300s, and Boeing 767-300ERs and 777-200s as part of a push to slash 100 jets from its 757 aircraft-strong fleet by mid-decade.
The fleet changes will affect every group airline, including Austrian Airlines, Brussels Airlines, Eurowings, Lufthansa and Swiss. Austrian will lose about a quarter of its fleet, including its 767s, and Brussels as much as a third.
But in a vote of confidence in Boeing, Lufthansa listed the 20 777-9s that it has on order as part of the “new normal” for its long-haul fleet. The 777X program has faced repeated delays with the planemaker pushing entry-into-service to 2023 in February — almost four years later than originally planned.
Lufthansa is far from alone taking a scalpel to its long-haul fleet. Air France-KLM has retired its A380s with chief financial officer Frederick Gagey saying in February that the group had removed nearly all of its four-engine aircraft. British Airways and Qantas Airways their 747s, and Delta Air Lines its Boeing 777s to name a few. The retirements were among the largest models at each of these airlines, a segment that is uniformly forecast to remain soft for some time to come.
Lufthansa Group reported a €6.7 billion ($8.1 billion) net loss in 2020. Revenues fell 63 percent to €13.6 billion during the year. Cargo was the one bright spot with Lufthansa logistics revenues rising 11 percent to €2.8 billion. Passenger traffic fell 75 percent on a 69 percent drop in capacity.
“2020 was dominated by the crisis,” said Spohr. “2021 will be marked by modernization, transformation and redimensioning of the Lufthansa Group.”
In addition to the major fleet changes, that “redimensioning” of will mean operating differently. Renegotiated labor agreements allow all of the group’s airlines to serve the once off-limits inner sanctum of Lufthansa: Its Frankfurt and Munich hubs. This means higher-cost Lufthansa can cede, for example, leisure-heavy Mediterranean routes to budget arm Eurowings. This is already on display with lower-cost Brussels’ plan to take over select Brussels-Frankfurt flights from Lufthansa this summer.
However, the planned changes will take a toll. The group aims to shrink its workforce to around 100,000 staff by mid-decade, said Spohr. Employee numbers stood at 110,000 at the end of 2020 after staffing was cut by about 20 percent last year.
This year, Lufthansa plans to recover to about 40-50 percent of 2019 capacity. While 2021 is starting out slow — capacity will be at roughly 20 percent levels in the first quarter — the ramp up is forecast to accelerate in the second quarter, said group chief financial officer Remco Steenbergen on Thursday. The aim is to fly about half of 2019 capacity this summer.
Azul’s Fourth-Quarter 2020 Capacity Beats 2019
Brazil’s Azul pulled off a feat in the fourth quarter that few other airlines in the world could claim: It posted a positive operating margin, in its case of almost 11 percent. And just as startling, the carrier reported fourth-quarter domestic capacity exceeded fourth-quarter 2019 capacity.
These feats occurred despite Brazil experiencing one of the most challenging periods in the pandemic, with resurgent cases of the disease and new variants of the virus spreading throughout the country. Management, though, was optimistic that domestic demand in Brazil would continue to grow in spite of Covid’s progression through the country.
During the quarter and the year last year, Azul’s international demand collapsed, but this helped fuel domestic demand. With fewer Brazilians traveling to Florida or Europe, more took vacations in the country, CEO John Rodgerson told investors during the company’s earnings call last week. “The international [network] being closed hasn’t impacted us as much as we thought,” he said. International capacity for the quarter was down 79 percent compared with 2019.
As with many carriers around the world, cargo was a bright spot for Azul. The airline is focusing on door-to-door package delivery throughout its far-flung domestic network to take advantage of growing e-commerce in Brazil, Rodgerson said. Cargo revenues were up 64 percent in the quarter. Cargo capacity was up as the carrier operated its Airbus A330s on domestic routes and deployed two Boeing 737 freighters. Azul also can convert its older Embraer regional jets and ATR turboprops to package delivery if demand grows.
Still, Azul wasn’t immune from the industry’s travails. Even though traffic and revenues snapped back in the fourth quarter, for the full year, the carrier reported losses of 10 billion reais ($1.8 billion). The carrier ended the year with 162 aircraft and said it was not planning to expand until it had maximized utilization of its existing fleet.
In Other News
- Turkish Airlines reported passenger revenues fell by more than 60 percent year-over-year in the fourth quarter, but cargo revenue grew by about the same amount, although not enough to offset passenger losses. For the full year, passenger revenues plunged by two-thirds to $3.8 billion, while freight rose by 60 percent to $2.7 billion. Turkish reported a full year loss of $836 million.
- U.S. regional Mesa Air Group is looking across the Atlantic for growth. The company struck a deal with UK-based Gramercy Associates to apply for an air operators certificate. Mesa said it is considering whether to similar regional services to European airlines as it offers in the U.S. The company recently added a third Boeing 737-400F freighter in the U.S. to carry cargo for DHL and said it is exploring cargo opportunities in Europe.
Delta Air Lines is cutting its number of destinations it considers “focus cities,” amid coronavirus pandemic changes to its network.
Speaking at a Raymond James conference last week, Delta President Glen Hauenstein told investors that the carrier planned to reinstate just two of its five focus cities as it recovers from the Covid-19 crisis. Austin and Raleigh-Durham will return, while the label will drop from Cincinnati — a former Delta hub — Nashville and San Jose, Calif.
The move comes as a surprise to few. Covid has forced airlines to rethink their route maps, particularly what is core and what is not, as they face the prospect of being smaller than they were before the crisis for some years to come. While few have made dramatic changes, airlines have thrown out their old network rulebooks and embraced once unheard of changes — from JetBlue Airways‘ decision to make a big play for Newark a United Airlines stronghold, to Southwest Airlines‘ addition of 14 new destinations and counting during the pandemic.
Delta’s recovery has focused on its core. Hubs in Atlanta, Detroit, Minneapolis-St. Paul and Salt Lake City have recovered the fastest, buoyed by the return of some domestic travelers. Schedules at its Los Angeles and New York hubs are beginning to come back, with the same planned for its Boston and Seattle hubs in the second half of the year, Hauenstein said. Its Austin and Raleigh-Durham focus cities will come back as business travel recovers.
The airline’s capacity remains down nearly 36 percent in the first quarter compared with a year ago, Cirium schedules show. Austin capacity is down 38 percent and Raleigh-Durham down 50 percent.
“Raleigh and Austin are both important because they’re not dominated by another network carrier, and they’re fast, fast growing metro areas with vibrant economies,” said Brad DiFiore, a managing director at air service development advisers Ailevon Pacific Aviation Consulting.
This is not to say Delta sees no future in Cincinnati, Nashville, and San Jose. The airline is likely to maintain some elevated presence in Cincinnati on the back of its existing strong corporate customer base there. However, the writing has been on the wall since it closed its Cincinnati pilot base and downgraded its flight attendant base to satellite status last year. Nashville and San Jose are both strong, growing markets but dominated by Southwest and, in the latter case, Alaska Airlines.
Removing the “focus city” moniker may not actually mean much on-the-ground change. The concept is a nebulous marketing term at best that combines some level of extra service with an elevated sales presence to match strong local growth. For example in 2019, Cincinnati had 24 routes to non-Delta hubs — a vestige of its being a former hub — while Nashville had three and San Jose one, according to Cirium schedules. The former city aside, cutting some or all of these routes at the two latter airports would have little impact on Delta’s overall operations there.
“As demand continues to recover, we are confident Delta will continue to restore service levels to pre-pandemic levels that serve both business and leisure passengers in our region,” said Cincinnati/Northern Kentucky International Airport CEO Candace McGraw, seemingly unfazed by Hauenstein’s comments. “[Cincinnati] remains a top 20 airport on the Delta network,” she said.
Delta will face new competition at its remaining focus cities where it returns. In December, JetBlue unveiled seven new routes from Raleigh-Durham, a city that the airline’s Head of Revenue and Planning Scott Laurence has described as a “standout in a successful region.” He did not go as far as to say the carrier would open its own base in Raleigh-Durham, though the addition would fit well geographically between JetBlue’s concentrations in the Northeast and Florida.
- Air India will begin carrying Red Square-bound travelers with a new weekly flight between Delhi and Moscow Sheremetyevo. Flights began March 6, and mark the Indian flag carrier’s first service to the Russian capital since it suspended flights to Moscow Domodedovo in 2017.
- It’s more outdoor fun at Alaska Airlines. The carrier will add seasonal flights between Bozeman, Mont., and San Diego and San Francisco, and Kalispell, Mont., and Los Angeles and San Diego this summer. The flights begin May 20, except for San Francisco that begins on June 17, and operate through September 7.
- It’s the Windy City’s turn for new summer flights from American Airlines. The Oneworld alliance carrier plans seasonal nonstops between Chicago O’Hare and Billings, Fresno, Nantucket, Santa Barbara and Spokane this summer. Santa Barbara flights operate weekends from May 8; Billings, Fresno and Spokane daily from June 3; and Nantucket Saturdays from June 26. All of the routes end by September 7.
Washington Reagan National will also receive a summer addition. American will offer a daily nonstop to popular North Carolina mountain locale Asheville from June 3-September 7. Flown with a Bombardier CRJ900, the route suggests the airline will waste no time putting its new regional jet concourse at National to good use.
- Travelers have another option to take in the mesas and vistas of the southwestern U.S. Delta returns to Moab, Utah, on May 5 and Durango, Colo., on May 12 with daily flights from Salt Lake City. The airline last served Durango in 2008 and Moab in 2015.
- Southwest Airlines is expanding connections at its Chicago Midway base, or hub at any other airline. New flights to Richmond begin on April 12, complementing the carrier’s existing service to Atlanta and Orlando from the Virginia capital.
- Italians will have more options to get to the beach this summer. Wizz Air will base two Airbus A321s in Palermo, its fourth base in Italy, from June 1. Initial routes are Bologna, Basel, Verona, London Luton, Pisa, Torino and Venica-Treviso. The budget carrier will go up against the likes of Ryanair on most of the routes. Wizz also plans new service on the Brindisi-Pisa and Cagliari-Milan Malpensa routes on June 1, and on the Bologna-Brindisi and Catania-Pisa routes a day later to round out its Italian expansion.
That’s not all the Mediterranean growth on the books for Wizz. The carrier will also add new service between Tel Aviv and three Greek isles — Heraklion, Rhodes and Santorini — beginning June 10. Mamma mia!
— Edward Russell
United Airlines committed another 25 Boeing 737 Max jets in an order unveiled last week. The additional aircraft will arrive in 2023 and bring the Chicago-based carrier’s firm commitments for the Max to 210 aircraft, including the 22 it flew at the end of December.
United has also rejigged its existing orderbook to take delivery of 21 737 Maxes — all -9s — this year, 40 in 2022, and 54 in 2023 with the latter number including both new and existing commitments. United did not disclose the variant for its latest order, though its current commitments include only the 737-9 and -10.
“[We’re] confident in our ability to navigate the recovery, regardless of the inevitable bumps and dips in the months ahead,” United commercial chief Andrew Nocella told staff in an internal staff communiqué. “With a number of our aircraft nearing the end of their lifecycle and the growth opportunities that we know will exist in the Covid-19 recovery period, this agreement will help us to grow as demand returns and renew our fleet with more environmentally friendly, customer-pleasing aircraft.”
The deal is also a much-needed boost to Boeing. After the Chicago-based planemaker’s bread-and-butter 737 line was idled during the 20-plus-month global grounding of the Max, Boeing ramped up deliveries in December as it moved to clear its backlog and sell white tails to eager buyers. Alaska Airlines and Ryanair have both signed deals for more Maxes showing support for the program among existing operators.
However, even as the Max outlook improves, other troubles are brewing for Boeing. Renewed quality issues on its 787 line has paused deliveries since the fall and prompted some to warn that the cost of necessary modification work could run into the billions of dollars. And the airframer has come under renewed — though some misplaced — scrutiny following a February 20 Pratt & Whitney PW4000 engine failure and subsequent cowling separation on a 777-200 flown by United.
United, for its part, appears poised to use its expanded Max orderbook to both replace older aircraft and grow. As Nocella indicated, the airline has a number of aircraft “nearing the end of their lifecycle.” For United, this could mean finally retiring its remaining Boeing 757s — though the Max lacks the range to replace all of these — but also older Airbus A320s and 737-800s, the oldest of which date to 1993 and 1998 respectively. Replacing these smaller jets with the Max would allow for efficient growth by adding seats to existing flights at a lower overall trip cost.
The 737 Max’s superior economics, including 15 percent better fuel efficiency than “current-generation aircraft,” will also help meet the airline’s emissions goals, said Nocella. United aims to go carbon neutral by 2050 and, in addition to ordering more fuel efficient aircraft, is investing in new partnerships to achieve this goal, including new electric vertical takeoff and landing — eVTOL — helicopter-like aircraft and bus connections on the ground that could help take cars off the road.
AerCap Predicts More Airlines Will Lease Fleets After the Pandemic
When airlines emerge from the Covid crisis, their balance sheets battered, they will be more likely to lean on lessors for new aircraft, rather than owning their fleets, predicts lessor AerCap.
Justifying the expense and debt of owning aircraft will be a harder argument for airline management to make to their boards. Instead, airlines will be focused on paying down debt and any obligations they have to governments that offered loans as part of state aid “and not to send money to the OEMs,” AerCap CEO Aengus Kelly told investors last week. Leasing will be a better use of their capital, he said.
“No airline ever went out of business for having too few airplanes, but plenty of them go out of business for having too many,” Kelly said.
Airlines will be less inclined to buy or lease larger widebodies, like the Boeing 777X and the Airbus A380, Kelly said. AerCap itself has a very small portfolio of those aircraft, with only 3 percent of its fleet comprised of A330s and 4 percent of all 777 variants. Instead, narrowbodies like the A320, 737, and advanced widebodies like the A350 and 787 will dominate airline fleets for years go come.
Comac, the Chinese airframer that has developed the C919, will be a formidable player decades from now, Kelly said. The narrowbody is a “first significant step,” he said. He noted that Airbus took about 40 years to emerge as a true competitor to Boeing, and he predicts the same timeline for Comac and other Chinese airframers.
AerCap made news early in the pandemic when it predicted airlines could cover costs with 60 percent of their 2019 traffic, thanks to lower fuel prices and aggressive cost cutting. Kelly reiterated this is still possible, despite rising oil prices, and said airlines could cover costs with “mid-sixty-ish” percent of 2019 traffic.
The worst of the pandemic is behind airlines, he added. Now, all eyes are on the recovery. AerCap reported lease deferrals fell in the fourth quarter of last year, a sign that airlines are turning the corner. The company reported $28 million in net income on $1 billlion in revenue in the fourth quarter, down 18 percent from 2019. For the full year, AerCap reported revenues of $4.5 billion, down 9 percent.
U.S., EU Stand Down on Aircraft Tariffs
The U.S., European Union, and the UK have agreed to suspend mutual tariffs on commercial aircraft for four months. This ends, for now, a long-running saga that has played out in the World Trade Organization (WTO) for decades.
Starting in the early 2000s, the two governments have engaged in a trade spat alleging each had provided illegal state aid to their respective airframers. In November, the WTO ruled that the EU could impose tariffs on $4 billion in U.S. goods. (The UK is, of course, now out of the EU and struck a separate deal with the U.S.) Earlier in 2020, the trade organization ruled the U.S. could levy tariffs on $7.5 billion in EU goods. Both Airbus and Boeing objected to the decisions and urged the two sides to come to a negotiated settlement.
That seems to have occurred, at least temporarily. “We both committed to focus on resolving our aircraft disputes, based on the work our respective trade representatives,” said European Commission President Ursula von der Leyden after speaking to U.S. President Joseph Biden. “This is excellent news for businesses and industries on both sides of the Atlantic, and a very positive signal for our economic cooperation in the years to come.”
The pause on tariffs will apply to all goods, not just commercial aircraft, after both governments complete their internal reviews. Talks will continue on a more permanent negotiated settlement, the two governments said in a statement.
“The EU and the U.S. are committed to reach a comprehensive and durable negotiated settlement to the aircraft disputes,” the governments’ statement said. “Key elements of a negotiated solution will include disciplines on futures support in this sector, outstanding support measures, monitoring and enforcement, and addressing the trade distortive practices and challenges posed by new entrants to the sector from non-market economies, such as China.”
This will come as welcome news to not just the airframers but to airlines and lessors. In recent earnings calls, the heads of both AerCap and Air Lease Corp. urged governments to end the tariffs, which were driving up the costs of both Airbus and Boeing aircraft in each market.
In Other Fleet News
- Regional changes are afoot at Air Canada. Fresh off steep losses in 2020, the Canadian carrier is moving the 25 Embraer E175s flying under the Air Canada Express brand to Jazz Aviation from Sky Regional. The shift will consolidate Air Canada’s regional flying in the hands of Jazz until at least 2025.
At the same time, Air Canada will say goodbye to the 19 Dash 8-300s at Jazz. Prop lovers need not fret, no further changes are planned for the airline’s Dash 8-400s (formerly the Q400) fleet that will stand at 39 aircraft by year-end.
- Australia has signed off on Boeing’s modifications to the 737 Max modifications. This allows the aircraft to return-to-service in the country, not a huge deal considering no domestic airline yet flies the jet — Virgin Australia has orders for 25 — but a sign of the increasingly global acceptance that the plane is safe to return to revenue service.
- The Wall Street Journal reports that General Electric is in talks with AerCap to merge their aircraft leasing businesses. The deal could be worth $30 billion and would create the world’s largest lessor. GE’s aircraft leasing arm has 1,600 aircraft in its fleet, and AerCap’s fleet is about 1,400 aicraft.
— Edward Russell & Madhu Unnikrishnan
WestJet and its flight attendants union have reached a tentative deal, ending almost two years of negotiations.
CUPE, which represents WestJet’s 3,100 cabin crew employees, called the deal “remarkable,” and said a ratification vote will occur this month. “Though both sides bargained with tenacity, we believe WestJet has demonstrated a clear commitment to building harmonious labor relations moving forward,” union President Chris Rauenbusch said in a statement.
This is the first collective bargaining agreement for the airline and CUPE, which has represented WestJet’s cabin crew since 2018.
Now, CUPE is turning its attention to lobbying the Canadian government for airline aid. “The only mystery that remains is whether this government will ensure our industry survives,” Rauenbusch said.
- U.S. cargo and charter operator Kalitta Air and its pilots union have ratified a new contract, ending a year of negotiations. The former contract became amendable in December of last year, but management and the union started talks in January 2020, the Air Line Pilots Association (ALPA) said. The new agreement reflects Kalitta’s remarkable growth. When ALPA began representing the carrier’s pilots in 2018, Kalitta had 350 pilots. It now on track to have more than 800. Kalitta’s freighter fleet consists of 24 Boeing 747-400, nine 767-300s, and three 777s.
One of the least glamorous parts of the airline industry gets its day in the sun.
It’s cargo’s moment to shine. A part of the airline industry most people overlook has shown just how critical it is to the industry’s bottom line when passenger traffic collapses.
When a global pandemic forced vast numbers of people to shelter at home, those people shopped for their necessities online — one only has to look at Amazon’s earnings as a gauge for just how much. But this scrambled supply chains and logistics, forcing goods onto aircraft that normally would have gone by surface transportation. Airlines, after all, had capacity to spare with would-be passengers stuck at home and not traveling.
This much we knew and became apparent last year, early in the pandemic. But just how much of a lifeline cargo proved to be to the airlines has become only more apparent this quarter, as the industry began reporting its full-year 2020 results.
And the results are startling. A rare handful of airlines, like Korean Air, tipped into profits on the back of cargo. Historically, Asia-Pacific airlines have done better with freight than airlines in other parts of the world, but now, carriers the world over are getting in on the game. Others, like Azul and Turkish Air, saw cargo revenues increase by more than 60 percent. And more airlines expanded into cargo, with Mesa Air Group branching out from its regional-airline business to operate three Boeing 737-400Fs for DHL, and Sun Country (which presciently got into cargo mere months before the Covid crisis began) expanding its fleet of 737s for Amazon. And all-cargo airlines, like Atlas, FedEx and UPS reported record years in 2020.
Airlines around the world also have converted passenger aircraft to carry cargo on the main decks, something that would have been unthinkable pre-pandemic. United Airlines, for example, has operated 10,000 cargo-only flights since last March to all corners of its network, a spokesperson said. Similarly, American Airlines has flown more than 7,000 flights, a spokesperson confirmed. Both airlines say they will continue operating these flights in the near future. This trend is global, with airlines like Singapore Airlines and Turkish, among others, carrying cargo on the passenger decks. Part of this is demand, but an added benefit is keeping international networks operating and staff employed and current.
The nature of the cargo carried also has changed since the pandemic began. Airlines always carried perishables and high-value lightweight goods, like electronics, as cargo. Now, airlines are critical in transporting perhaps the world’s most valuable commodity — the coronavirus vaccines — and several, like Ethiopian Airlines, have invested in cold-chain logistics to do so. Carriers also are transporting more packages, as Azul is, as shipments have exploded. Finnnair reported that it is transporting industrial goods that ordinarily would have gone by sea but are not because of constrained maritime cargo capacity.
So it sounds like boom times, right? Not so fast, says IATA. Cargo is the rare good-news story for the historically battered industry, but it won’t be the industry’s savior. Only a handful of airlines worldwide, after all, have reported profits thanks to cargo. The rest, as we know, bled red ink. IATA reports that global freight revenues in 2019 were $102 billion, versus $612 billion in passenger revenues. Last year, by contrast, IATA estimates cargo revenues worldwide were $118 billion and passenger revenues plummeted to $191 billion. So even though freight revenues rose by about $16 billion, it wasn’t enough to offset the more than $400 billion drop in passenger revenues.
As more passenger demand comes back, so will more widebody aircraft, possibly diluting the cargo yields airlines now are enjoying. Some analysts believe there could be a terrible limbo period, during which passenger traffic hasn’t recovered sufficiently to generate profits, but increased widebody capacity will drive freight yields down.
IATA data suggest this scenario is possible but not a cause — yet — of too much concern (and, to be fair, when this passenger recovery will occur is anyone’s guess, given the resurgent virus, fresh outbreaks all over the world, and the pace of vaccination). Indeed, according to the organization, the world is facing a shortage in air cargo capacity. With international passenger traffic not expected to recover until 2024, the risk of a near-term collapse in cargo yields seems unlikely.
A few trends are in favor of cargo’s continued prominence. First, consumer spending habits likely have shifted structurally toward e-commerce. This trend, of course, had begun before the pandemic but appears to have accelerated and to be permanent. “We think people won’t immediately go back to malls and shops and will continue to order online,” said Cowen & Co. analyst Helane Becker. Amazon, FedEx, UPS, Atlas and other cargo operators do not have the capacity to keep up with a permanent increase in e-commerce demand and are likely to be only supplemental to the airlines. This makes Azul’s and Sun Country’s shift toward logistics and package delivery seem far-sighted.
Second, only a fraction of the world’s population has had the Covid vaccine. Air transport is the only feasible way to get the doses around the world quickly. Now, only a handful of airlines have all the pieces of the cold chain in place, but more are investing in retrofitting cargo containers and ground facilities to handle the vaccine. This vital logistics function will continue to be prominent till the disease is vanquished and some sort of herd immunity is achieved everywhere.
Third, as economies start to recover, manufacturing will step up. Signs of this abound already. The Purchasing Managers Index — a widely used metric that gauges trends in the manufacturing and service industries — has steadily risen since its nadir last April. Inventories run down during the pandemic need to be rebuilt. As this happens over the next several months, the strength in air freight will continue, said Raymond James analyst Savanthi Syth.
With these trends in its favor, cargo will be a very important revenue stream for airlines at least until passenger traffic recovers to 2019 levels. Yields may fall, and supply chains, logistics, and maritime shipping may settle back into their previous patterns. And, as we’ve seen, cargo is no silver bullet. It’s a lifeline, one that can help airlines cope with the staggering collapse in traditional sources of revenue. But in the midst of a once-in-a-century pandemic and the ensuing global airline crisis, it’s a lifeline the industry has gladly grasped.