Transportation & Logistics Analysis

The new dynamics of European air freight

April 26 2022

The Covid-19 pandemic is reshuffling the cards in the European air cargo industry. The sector is characterised by the arrival of new companies and significant orders for cargo aircraft.

Undermined by sluggish unit revenues, the European air cargo industry adopted rather conservative positions during the decade 2010-2020. Cargolux, Europe's leading all-cargo airline, fought for its survival. Lufthansa Cargo and Air France-KLM also took drastic austerity measures to reduce costs.

Paradoxically, the Covid-19 pandemic has brightened the outlook for this disaster-stricken sector. The sharp reduction in passenger flights at the time of the outbreak of the crisis has led to a drop in cargo supply, as around 60% of global cargo was transported in passenger aircraft holds. Demand remained strong, which mechanically pushed up air freight prices. A similar phenomenon has been observed in container shipping, which has also seen a dramatic recovery in freight rates after a number of lean years.

Two years on, the supply of air cargo remains below the pre-Covid period. Furthermore, on 11 April, the European Aviation Safety Agency revealed that the derogations granted for the carriage of cargo in the cabins of passenger aircraft will not be renewed and will therefore end on 31 July 2022. In other words, tensions concerning capacity have not yet been resolved.

Maritime shipping companies are taking off

This new situation arouses interest. For the first time in a long time, we are witnessing the birth of new general all-cargo companies in Europe.

This dynamic is supported by two major names in container shipping: CMA CGM and Maersk. Both have recorded record profits in the last two years, also benefiting from an unprecedented increase in freight rates, particularly on the Asia-Europe corridor. This windfall is now serving an integration strategy that began with diversification in the freight forwarding sector and has now been extended to air freight transport.

  • CMA CGM Air Cargo

CMA CGM launched CMA CGM Air Cargo in February 2021. This company has a fleet of four A330-200F, which should be joined by two Boeing 777 Freighters from spring 2022. In addition, an order for four A350Fs, Airbus' new all-cargo aircraft of which CMA CGM Air Cargo will be one of the pioneer companies, was formalised in November 2021.

For the moment, CMA CGM Air Cargo offers regular flights from Liège airport to Atlanta and Chicago in the United States, and to Hong Kong in Asia. But it will also launch flights from Paris-CDG airport starting in June, announced Édouard Mathieu, Head of Development at Aéroports de Paris, at a conference organised on 5 April as part of the SITL trade fair.

  • Maersk Air Cargo

For its part, the Danish group Maersk formalised on April 8 the birth of the company Maersk Air Cargo, which will operate from the hub of Billund, the country's second biggest airport. The activities of Star Air, a company of the group which operates notably European flights on behalf of UPS, have been transferred to Maersk Air Cargo. But their ambitions are decidedly international. Maersk Air Cargo plans to gradually deploy 5 aircraft: two new B777Fs and three leased B767-300s. Then three new B767-300 freighters will be added on the US/China route, initially to be operated by a third-party operator. The new aircraft will join the fleet between the second half of 2022 and 2024.

The Maersk Group aims to transport a third of the air cargo tonnage it processes via its own network, confirming its strategy as an integrator. The Maersk Company, Air Cargo, should be operational as of the 2nd semester 2022. 

The new strategic options of incumbent operators

The situation of traditional mixed companies remains delicate. Two years after the outbreak of the Covid-19 pandemic, passenger transport activity has still not returned to full normal operations, which is seriously affecting operating accounts. On the other hand, the new situation on the air cargo side makes it possible to reconnect in this area with a winning strategy.

  • Air France Cargo renews orders for all-cargo aircraft

After years of turmoil and downturns, this is a piece of news that should lift the spirits of Air France Cargo's teams. On 12 April, the Air France-KLM Group publicly announced a firm order for the acquisition of four A350 Cargo aircraft under an agreement with Airbus, which also provides acquisition rights for four additional aircraft of the same type. A first in 17 years! The last order for all-cargo aircraft for Air France was in 2005. At the time, the French company entered into a deal with Boeing to acquire 5 B777Fs to replace its ageing B747F fleet. But between this order and the delivery of the first three aircraft in 2009, the economic landscape changed dramatically as a result of the 2008 crisis. Air France would ultimately take delivery of only 3 aircraft and sell the other two to FedEx. At the same time, having accumulated €941 million in losses over five years at the end of the 2015 financial year, the Air France-KLM group drastically reduced its fleet of all-cargo aircraft. This is particularly the case for Air France, whose fleet fell to 2 aircraft in 2015, the new cargo strategy consisting primarily in the marketing of passenger aircraft hold space.

The A350F order is therefore a strong sign of renewal for the French airline in the air cargo sector.

  • Lufthansa Cargo positions itself on intra-European e-commerce

Lufthansa Cargo has not escaped major restructuring efforts, as have its counterparts. A strategy that has paid off as the group maintained its position of leader in air cargo among European mixed companies in terms of turnover.

As a major global player with 15 B777Fs owned, Lufthansa Cargo is now tackling a new market segment. The company is setting up an intra-European and medium-haul network, using Airbus A321s converted into an all-cargo version with a carrying capacity of 28 tonnes. The first A321F took off from Frankfurt on 15 March stopping first in Dublin and then Manchester, loaded with express freight and general cargo. A second aircraft of the same type is scheduled to join the fleet at the end of the summer. Lufthansa Cargo is planning to gradually extend services to Istanbul, Tel Aviv, Malta and Tunis by deploying the A321F. "The addition of the medium-haul network is an important step in further opening our company to attract business segments such as the fast-growing e-commerce sector," said Dorothea von Boxberg, CEO of Lufthansa Cargo. Flights are operated by the subsidiary Lufthansa CityLine.

A coveted European cake

The rapid development of trade between Asia and Europe has quickly aroused the interest of operators located in close geographical areas and strategically placed to act as hubs. In the early 2000s, traditional European airlines saw the emergence of fierce competition from Middle Eastern airlines. Firstly Emirates and then Qatar Airways rose to IATA's World Top 5 in terms of tonne-kilometres transported.

For the past five years, a new player has been experiencing a meteoric progression on the fringes of Europe: Turkish Cargo. Between 2016 and 2020, the Turkish company rose from 20th to 8th place in the IATA ranking. It will undoubtedly be an operator to be reckoned with in the years to come. Turkey aspires to become "a logistical superpower". It presented in mid-April a master plan for the development of transport and logistics by 2053 which provides for significant investments in infrastructure, for all modes of transport. It intends to take advantage of its privileged geographical position, at the heart of a high potential Europe-Asia-Africa trade triangle.

Finally, in the European ecosystem, the Russian airline AirBridge Cargo has undergone significant development in recent years, which placed it at around the 15th mark in the IATA world ranking. It had close links with important Western European markets such as Germany and Benelux. But the sanctions imposed in response to the invasion of Ukraine are now paralysing operations between Russia and the European Union.

Definitely, the Covid-19 pandemic is causing some excitement in the European air cargo market. The rise in freight rates opens up opportunities, encourages the arrival of new competitors and revitalises traditional players. Accelerating the development of e-commerce also works in favour of the sector.

Caution is, however, still the order of the day. Air freight remains an extremely cyclical industry, which has already experienced abrupt reversals of trend in the past. Current inflationary trends, if prolonged or intensified, could eventually weigh on consumption. If a slowdown occurs as new capacity enters the market, the shock will be severe for a still financially fragile sector.

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Graduated from the Superior School of Journalism in Lille, Anne spent most of her career in the international trade and logistics press, before joining Upply.
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