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Disquieting digi-questions to digest…
The truth about the cargo ambitions of four major North American passenger airlines can be seen in first-half results that place two carriers well ahead, in terms of focus.
There are several ways of looking at it: in second-quarter earnings calls, Air Canada had 21 mentions of cargo; United made 17; Delta, three; and American Airlines did not mention it once – despite decent half-year cargo revenue of $641m, more than twice that of a year earlier, when AA was very slow to get out of the blocks, cargo-wise.
Or, you can look at it in terms of proportion of revenue: the results are, in fact, similar to mentions in earnings calls. Air Canada Cargo accounted for a staggering 40% of the carrier’s first-half revenue (although that is likely related to the fact that total operating revenue fell year on year by 63%); the first half of 2020 saw cargo account for 10% of total revenue.
United saw its cargo division account for 12% of total revenue, up from 7% a year earlier, while Delta, which this year pledged a new focus on cargo, and AA came in last, at 4.1% (up from 2.6%) and 5.5% (up from 2.7%), respectively.
Cargo revenue (in $m) H1 21 H1 20 change
United 1,103 666 65.6%
American Airlines 641 277 131%
Air Canada 508 332 52.8%
Delta Airlines 466 261 78.5%
Source: second-quarter earnings results
The results reflect, in the case of Air Canada, real cargo ambitions, which will see it move into the world of freighters with two 767Fs entering the fleet in the third quarter. Lucie Guillemette, CCO, told investors: “The pandemic has accelerated the extent of our cargo business with the movement of critical goods as well as the growth of e-commerce.
“Given the low cost of ownership of the Boeing 767s recently retired from our passenger fleet, as well as the low cost to convert the aircraft to freighter and cargo infrastructure, we look forward to expanding this programme to eight aircraft in the next couple of years.”
President and CEO Mike Rousseau said cargo would be an “important part of our recovery, revenue diversification and long-term growth”.
He added: “There is no doubt. It’s a big part of our future. From a whole bunch of different perspectives, certainly diversification, strong margins and we’re good at it; and we’re going to get better at it, frankly.”
And he said dedicated freighters were just one aspect of Air Canada’s freight ambitions.
“The other aspect that [is] equally, if not more exciting, is our entry into the e-commerce business under a brand name called Rivo, where we’ve partnered with last-mile and first-mile providers to provide the point-to-point delivery. We’re not expecting to replace major players in this area, but this market is growing and we have the skills and the technology now to take advantage of that marketplace.”
The carrier sees more growth in cargo than passengers, he explained.
“Certainly we see the growth rate in cargo exceeding what our passenger rate might be. But we’re still going to be a passenger airline and opening up new markets, which, from a cargo perspective, is going to be very, very important.”
The temporarily converted all-cargo aircraft will be reconverted to passenger aircraft, “because we’ve got demand in from the passenger side”, he added.
At United, the other North American carrier which takes cargo seriously, it appears passengers are also eating into its cargo capacity. It saw its highest-ever cargo revenue in the second quarter, $606m, but warned investors that figure would fall.
Andrew Nocellla, chief commercial officer, said: “Our ability to adjust our global network to transport record amounts of cargo is one of our proudest accomplishments and a clear differentiator.
“With long-haul passenger demand now increasing, we will see most of these cargo-only flights for the remainder of 2021, although we continue to [expect] a strong cargo yield for the remainder of this year.”
He added: “We are not going to be able to do more cargo-only flights and we’re obviously disappointed by that, given where yields currently stand. The reason for that is the aircraft can be better deployed in passenger markets.
“However, while many of those passenger markets are also not exactly optimal cargo markets, they do have cargo. The 52 777s that are grounded means we just have less flexibility on this front than we would otherwise have had. If those aircraft were flying, we clearly would continue our programme missions, because we’d have the ability to do both.
“So when we look at capacity available to fly, it’s still really significant as we put all these passenger planes back in the air. We think we’ve got this properly accounted for in our forecasts, and we think we’re going to have another great cargo quarter in Q3, and it’s already gotten off to a really good start.
“That being said, it’s going to be different in the number of cargo flights.
“Hopefully we can do a little better on cargo than we are currently planning. But there is a marked change in our cargo footprint, starting today – really starting a few weeks ago obviously, and we’ll see where it goes. But we feel very bullish on cargo for the remaining half of this year.”
Delta and American failed to offer any insight into cargo in their second-quarter results, but given United and Air Canada’s words, it seems likely that their late, and light, focus on cargo during the pandemic will not endure as capacity reverts to the passenger business and cargo once again falls to be a tiny fraction of their business.