Cathay Pacific lowers cargo expectations for holiday shipping season

Cathay Pacific is reportedly in discussions with Boeing and Airbus about a potential order for up to six next-generation freighters to expand and replenish its fleet of 20 747 cargo jets while telegraphing it expects the peak holiday shipping season to be much quieter than in 2021, or some other years.

Cathay Pacific is considering the new Boeing 777-8 freighter and the Airbus A350, sources told the Bloomberg News last week. Conversion of existing Boeing 777 passenger jets is also on the table, but Cathay has traditionally favored new builds.

The Hong Kong-based airline currently operates six Boeing 747-400 freighters, with an average age of 13.8 years, and 14 Boeing 747-8s that average 9.7 years of age, according to airline data provider ch-aviation. Both planes are still in development and won’t reach production stage for several years.

Cathay Pacific’s large passenger fleet includes 44 A350 aircraft, upon which the new freighter variant is based. 

Despite the punishing effects of Hong Kong’s and China’s restrictive policies toward the COVID-19 crisis, which has grounded most of its passenger fleet for more than two years and forced freighters to the sidelines for stretches of time, Cathay Pacific remains one of the premier cargo airlines in the world. Still, the pandemic has taken its toll. Cathay slipped from the fifth largest carrier by volume in 2020 to ninth last year, according to the International Air Transport Association.

Cargo has been a lifeline for Cathay, accounting for nearly 80% of the Cathay Group’s total revenues in 2021.

Softer peak season

Nonetheless, weak summer demand continued in August, with cargo volumes down 23.3% versus last year and minus 35% compared to 2019, according to the airline’s most recent traffic figures. Mass quarantines and heat waves in major Chinese cities that interrupted the flow of raw materials and components to factories, long with related labor shortages, hindered manufacturing in China and the amount of exports transported by Cathay Pacific.

The prognosis for cargo is improving on one hand as Hong Kong finally opens up to travel and China lifts more municipal COVID lockdowns. But China’s ongoing production challenges and darkening economic clouds related to inflation have curbed freight demand worldwide.

There will be no repeat of last year’s record peak season, but “we are hopeful that the local restrictions on the Chinese mainland will start to lift, resulting in an increase in industrial output to meet traditional year-end demand, and therefore a shorter but solid peak season,” George Edmunds, general manager for cargo commercial sales, said Friday in the forward of the carrier’s monthly newsletter.

Demand is likely to pick up after China’s national holiday, which runs from Oct. 1-7, Edmunds added. During “Golden Week” most factories in China are closed, while ocean and air carriers reduce service levels. 

FedEx Express sent shock waves through markets two weeks ago when it said the global economic slowdown was reflected in dramatic volume declines, forcing it to scale back trans-Pacific and other flights. 

Cathay Pacific began to warn a month ago that the traditional busy season for air shipping will be muted this year because of the high cost of living forcing people to focus spending on necessities and ongoing supply chain disruptions.

Cathay Pacific Cargo has seesawed this year between restoring its full freighter network and cutting back. It grounded most freighter aircraft at the start of the year to comply with Hong Kong’s rules for returning pilots to stay in seven-day quarantine. After service was gradually restored over several months, typhoons temporarily upset Cathay’s carefully synchronized crew rotations for China flights.

More belly capacity

Freighter operations are back at full levels and will soon be complemented by more passenger capacity. The company is beginning to ramp up passenger flights after Hong Kong last month lifted three-day hotel quarantine requirements for returning passenger crews and removed the quarantine for inbound passengers. 

In response to the relaxation of travel restrictions, which is expected to spark interest in travel, Cathay Pacific said it intends to add more than 200 pairs of passenger flights in October for regional and long-haul routes. It will also increase flights to Tokyo, Sapporo and Osaka later this year after the Japanese government removed COVID requirements for inbound visitors. 

Management projects it will be able to operate about one-third of its pre-pandemic passenger flight capacity by the end of the year, up from about 10% in August. Adding back flights will take time because many pilots must be retrained and parked aircraft need extensive maintenance checks and tune-ups before they can be reactivated. 

“This will firm up the consistency of our operations and enable us to be more flexible for our customers,” Edmunds wrote. “We have also looked at the lessons from elsewhere about opening up too quickly without the resources in place, and we expect to be able to deliver more capacity and network choice without affecting consistency.”

The extra passenger flights will put Cathay Pacific at about two-thirds of its total 2019 cargo capacity by the end of December, up from about 59% during the summer.

Cargo capacity in August was 11% below last year because the airline is no longer operating as many long-haul, cargo-only passenger flights, said Ronald Lam, chief customer and commercial officer, in a statement released along with the traffic figures.

“Looking further ahead to next year, we expect capacity to remain constrained out of Asia, possibly until Q2 or beyond, due to ongoing passenger movement restrictions in the Chinese Mainland,” Lam said. “But as production and demand normalize, we anticipate that the market will be relatively well balanced. This will be at levels below those we’ve seen in the past 18 months, but it’s worth stating that this will still be well above historical averages.”

Edmunds said the sea-freight feeder service from the mainland logistics park in Dongguan to Hong Kong International Airport will kick in full time in late October, with pre-cleared pallets bypassing customs and going directly to aircraft for loading. The system, which previously was expected to fully launch in September, was implemented to bypass COVID-related trucking restrictions on traffic between mainland China and Hong Kong. 

The current slowdown in trade hasn’t diminished projections for sustained air cargo growth for years to come, which is why Cathay Pacific and other carriers continue to invest in fleet upgrades.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

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