Airfreight Growth Stalled

The air cargo segment of the global airline industry generally did not feel the severe turbulence experienced in the passenger market during the past year, when the war in Iraq and the severe acute respiratory syndrome (SARS) epidemic led to steep declines in air travel. On the other hand, the situation could hardly be described as rosy. The demand for airfreight services is directly related to the health of the global economy, which has shown uneven growth in the new millennium.

Airfreight traffic levels historically have risen at an average rate of 7% per year going back as far as the early 1970s. At this rate, traffic nearly doubled every 10 years. Of course, growth varied from year to year. Annual cargo traffic increases of 12-15% have been expected in boom times; on the other hand, traffic rarely has declined even during periods of recession. This situation changed beginning late in 2000 when the high-tech bubble burst. Since then, the global economy, other than in China, has struggled to sustain any real growth.

More to the point, air cargo traffic experienced an unprecedented decline of 7-10% in 2001 and has yet to see a major rebound. On a global basis, it was up about 6% for 2002, regaining most of the ground lost in 2001, but there was only modest growth (well under 5%) through mid-2003. When full-year results are tallied, it's likely that 2003 will show about a 3% increase in freight traffic over the mediocre results for 2002. As a result, traffic levels today are still 15-20% below where they would be if 2001 through 2003 had been a period of normal growth (that is, 6-7% per year).

STAGNANT FLEET TOTALS

Under these circumstances, it's easy to understand why the total number of freighter aircraft worldwide has remained nearly constant in recent years. The accompanying table shows the global freighter fleet now stands at 1,649 units, a figure that is little changed from 1,632 at the end of 2002, 1,620 at the end of 2001 and 1,623 at the end of 2000. This period of no growth contrasts sharply with the experience during the 1990s, a decade during which the freighter fleet doubled and an average of 80 units were added each year.

While the freighter fleet size has remained nearly constant since 2000, its composition has changed substantially. Overall, 159 aging freighter aircraft have been retired since 2000, while 184 others have joined the fleet. First-generation jet freighters such as DC-8s, Boeing 707s and 727-100s are being retired in increasing quantities, and newer types--including large numbers of more modern models such as MD-11s, Boeing 747-400s, 757s and 767s, and Airbus A300s/A310s--are being added to the fleet. Thus the freighter fleet is at a transition point as older models are being replaced by newer types. That trend will continue going forward.

FREIGHT TRAFFIC AND ECONOMIC GROWTH

There's an oversupply situation when it comes to freighter aircraft capacity today, but the size of the fleet will once again expand as the global economy improves. Economists predict long-term growth approaching 3% in the world's aggregate gross domestic product (GDP). Past experience suggests that airfreight traffic will increase at about twice the rate of GDP growth, which means airfreight traffic can be expected to grow at an average rate of about 6% per year going forward.

If air cargo demand grows 6% per year, traffic levels will more than triple over the next 20 years. Even if demand increases at a more modest rate of just 3.5% per year, traffic levels will double through 2022. This simple analysis suggests the number of freighter aircraft must increase substantially over the long term despite the stagnant fleet total in the 2000-03 period.