News / Transatlantic capacity surge by US carriers drives air rates down further

© Philippilosian

Airfreight capacity on the north Atlantic is soaring as US mega-carriers aggressively increase international flying – but this is pushing down rates.

And investors are betting against lasting strength in the airline sector.

American Airlines is adding over 400 widebody flights a month to its network this summer, much on the transatlantic, for example, between its Charlotte gateway and Frankfurt/Paris and a new route between Seattle and London, all with B777s.

The carrier is also boosting frequencies on routes from Rome to New York and Dallas and from London to Charlotte and Los Angeles, with the English capital seeing the biggest jump in AA services to 26 flights a day.

In the peak month of July, American will run more than 4,100 widebody flights between the US and Europe.

And United Airlines is adding more than 20 routes to its international network, boosting them by 25%. Across the Atlantic, it is adding Malaga, Stockholm and Dubai to its schedules and increasing frequency to six European destinations. Its presence in London will rise to almost two dozen daily flights.

Meanwhile, Delta’s transatlantic service is back to pre-pandemic levels, according to cargo VP Rob Walpole. The airline is stepping up transatlantic flying out of its New York JFK and Atlanta gateways, and has added Geneva and Nice to its European destinations. In addition, it has re-started flights between JFK and London Gatwick. Overall, the airline is running 1,750 flights a week to 85 global destinations this summer.

This huge influx of belly capacity is hitting a market that has already seen retreating demand and pricing, driving rates down further as carriers scramble for cargo to fill their aircraft.

“The price fight is in full swing. It’s as though the industry had engaged the handbrake,” said Quick Cargo Service director of sales and development Nico Haltmayer.

And the trend should accelerate the shift of forwarders from contracts to ad hoc pricing.

“All those who want to make a quick euro will certainly jump into the ad hoc market, but many have to fill their allocations,” said Mr Haltmayer. “The jittery ones jump from one ad hoc to the next until there’s a big bang and the goods don’t reach customers fast enough… the old game.”

And CEO Stephan Haltmayer does not expect the downward pressure on rates to ease until the fourth quarter at the earliest.

On the other hand, some investors are betting against the airlines. Due to sky-high passenger pricing and the ongoing drumbeat of inflation, they expect travel demand to drop, pointing to indications that booking rates slowed in March.

This has put the spotlight on Delta, the first of the large US carriers to present its Q1 results. With operating revenues of $12.8bn and an operating loss of $277m, the numbers were behind analysts’ expectations, but Delta CEO Ed Bastian was upbeat on the months ahead.

“For the June quarter, we expect to deliver record revenue and an adjusted operating margin of 14% to 16%, with earnings per share of $2.00 to $2.25,” he said. “We are confident in our full-year guidance for revenue growth of 15% to 20%, year on year, earnings of $5 to $6 per share and free cash flow of over $2bn.”

Delta’s cargo revenue was $209m for the period, down 28% from Q1 22’s $289m. In large part, this is due to the end of dedicated cargo flights as passenger operations rebounded – but the weaker market conditions have also taken their toll.