Navigating Challenges and Embracing Optimism Amid Economic Fluctuations
July 7, 2023
The current climate of the air freight industry may appear frail at first glance, yet optimism prevails among airlines, freight forwarders, and experts. While the situation seems bleak, they believe that it is unlikely to deteriorate any further. Indeed, in spite of recent downward trends and challenges, the industry’s outlook suggests an upcoming rise in demand, adjustments in inflation rates, and positive labor market trends, all leading towards a promising future for air freight.
Downward Trends
Statistics from the 22nd week leading up to June 4 reveal a downward trend in both pricing and tonnage, with volumes showing a 4% week-on-week decrease and rates experiencing a 1% reduction. The average pricing, on a two-week comparison basis, recorded a marginal dip across all regions of origin. This drop was most pronounced in the outbound rates from Europe to the Asia Pacific region, which observed a 4% decrease. Such a pronounced dip in pricing could inevitably lead to narrower profit margins for airline companies, particularly on specific routes where the decrease is most marked.
A look at the chargeable weight over a bi-weekly period reveals an 8% drop. This suggests a downswing in the overall volume of cargo ferried by airlines during this timeframe, a factor that could potentially influence their operational efficacy and revenue streams.
Industry Outlook
The industry outlook for the coming years carries a more positive note. Experts predict an escalation in demand by 2024 and a return to a more normalized state. Despite carrier capacity currently sitting at a mere 20% of pre-Covid levels, it is expected to rebound to 85% by the year’s end.
Economists have also identified several encouraging factors that airlines can harness. While headline inflation may have reached its zenith, core inflation, especially in Europe, is anticipated to retract to 7%.
Concurrently, there is good news from the oil markets where the price of crude oil, a significant cost component for airlines, has been trending downwards since June 2022. This trend offers a silver lining to the industry. Lower oil prices can help alleviate some of the financial strains on airlines by reducing fuel-related operating expenses. This reduction could free up resources so that carriers refine their cargo services or channel investment into other business areas. Such adjustments can invigorate demand for air cargo services and in turn, contribute to an uplift in the volumes of transported goods.
Additionally, positive trends in the labor market present promising prospects for air freight in Europe. As of February 2023, the EU unemployment rate registered a slight drop to 6.0%, down from 6.1% in January 2023 and 6.2% in February 2022. As the unemployment rate continues to fall and the economy gathers strength, the demand for air freight is expected to rise, culminating in an increase in airlines’ revenue streams. Moreover, as more individuals rejoin the workforce, this can lead to a ripple effect of increased production, storage and distribution and further bolster the demand for air freight services.
