Pacific Rim Supply Chain May Soon Become More Air-Centric

If the moribund air cargo industry is to finally stage a turnaround, the Pacific Rim will play a major role.

Preliminary financial performance figures released in June by the Association of Asia Pacific Airlines (AAPA) showed that Asia Pacific airlines achieved $5.2 billion in combined net profits in 2012, 6.7% above the $4.8 billion reported for the year 2011.

Nonetheless, carriers face a challenging operating environment marked by prolonged weakness in air cargo markets and persistently high jet fuel prices.

Operating expenses totaled $166.5 billion, 7.0% more than the $155.7 billion recorded in the previous year. The main cause of the increase was a 12.2% jump in fuel expenditure to $58.8 billion, with jet fuel prices averaging $128 per barrel in 2012. The share of fuel expenditure as a percentage of total operating costs rose to 35.3% in 2012, from 33.7% the previous year. Non-fuel expenditures grew by 4.3% to $107.7 billion.

“Prudent capacity management maintained relatively high load factors, helping to offset the impact of persistently high fuel prices and an extended period of weak demand in the global air cargo market,” says Andrew Herdman, AAPA Director General.

“Asian airlines are expected to remain at the forefront in promoting further development of the global airline industry, with continued investments in fleet expansion and customer service innovation,” he adds.

Analysts at the International Association of Air Transport (IATA), concur, noting that Asia-Pacific airlines are expected to post a combined profit of $4.6 billion in 2013 (up from the previous projection of $4.2 billion).

It will lead all regions both in terms of absolute profits and earnings before interest and taxes (EBIT) margin (5.0%).

The main driver is strong growth in China and long haul markets, supported by buoyant trade flows and other business activities. Stronger growth is also expected from Japan as market-stimulating measures take effect in the region’s second largest economy. This is helping to overcome weakness in cargo markets in which Asia-Pacific airlines are the major players with a 38% market share.

The chances that U.S. shippers will put their cargo – even high-end perishables and pharma – on Asia Pacific aircraft rather than container vessels seems ever more remote in the coming months, say other industry insiders.

But Brandon Fried, executive director of the Airforwarders Association (AfA), provides a longer-term perspective on the issue.

“Most heavy shipments of any significant weight and volume use ocean carriers despite slower transit times and varying environmental factors,” he says. “However, for those consignments with time constraints, higher value and a need for tight inventory or temperature control, airfreight brings more value.”

Indeed, as global economic challenges persist, AfA has seen some additional cargo move from the maritime leg of the transit to air carrier to cut transit time and reduce cost.

Finally, there’s this.

Boeing projects a demand for more than 35,000 new airplanes over the next 20 years, valued at $4.8 trillion. The company released its annual Current Market Outlook last month at the Paris Air Show, forecasting the world fleet to double over the next two decades – with the Asia Pacific leading the way.

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