At the virtual World Cargo Summit 2021, 26-27JAN21, hosted by Euroavia International, the panel “World Trade and Air Cargo Market Outlook” moderated by Joachim von Winning, Executive Director, Air Cargo Community Frankfurt, and hosting speakers Dr. Ludwig Hausmann, Partner, McKinsey & Company, Niall van de Wouw, Managing Director, CLIVE, and Dr. Charles E. Schlumberger, Lead Air Transport Specialist, The World Bank, examined predictions and opinions on the year ahead for the aviation industry.
Dr. Ludwig Hausmann took a look back at the turbulent year, pointing out though figures showed that transported volumes had dropped on average by 15% globally across all trade lanes, belly
capacities had generally dropped by 30%, and yields increased on average by 30%, they included trade lanes that had seen volume growth, and some yields increasing by even as much as 50% or
“Some freighter airlines are going to announce EBIT margins that are in the territory of software providers!” he predicted, adding that freight forwarders had also done well in “almost keeping their gross margin.”
5 takeaways on air cargo in 2020 and beyond
Hausmann summarized his outlook for the year ahead based on 5 aspects: 1) The “extraordinary year for air cargo in 2020” was “likely to continue in 2021 and beyond,” 2) undercapacity would continue to be a problem “at least until the end of 2021,” 3) air cargo’s importance for supply chains would remain – with shippers and forwarders still looking to ensure secure their own capacity access, 4) cross-border e-commerce would remain a “key market opportunity,” still requiring an air cargo industry solution (if it is to keep up with e-tailers and integrators), and 5) digitization in air cargo which had been catapulted forward in 2020, would continue to accelerate.
2 recovery scenarios
He outlined two recovery scenarios, with the first being one “we are likely in right now,” showing a strong second wave of the pandemic, but with the outlook of vaccinations and health measures taking positive effect and thus leading to a “significant return of the belly capacities by the end of this year,” and possibly heading towards a “breakeven” in early 2022. The second scenario was based on macroeconomic indicators going up again, but with passengers reluctant to return to air travel, thus causing a lag in the return of belly capacities right the way up to 2024. With regard to the transport of the Covid-19 vaccines, Hausmann expected only a marginal impact on capacities, given the restrictions in loading with dry ice – thus vaccines would generally be co-loaded with other cargo.
“A less sexy but gradual path to recovery”
Niall van de Wouw presented CLIVE data on dynamic loadfactors for 2020 which reached a record 73%, and “clearly show that the reduction in capacity outpaced the reduction in demand growth,” yet recent weeks were indicating positive growth again, and overall, as opposed to the possible V, U or bathtub-shaped scenarios that had all been under discussion last year, the figures showed “a less sexy, but gradual path to recovery.” On the subject of belly capacity, he pointed out that “there is hardly a passenger on board” at the moment, thus cargo has full access to the entire belly capacities. Under more normal circumstances, the passenger-cargo belly access would usually be more a 50-50 split, so once more passengers start travelling again, belly capacities will again become more restricted for cargo, leading to an initial dip in available cargo capacities.
“What might 2021 bring?”
Van de Wouw also brought 5 predictions, though pointed out that 2020 taught “us that there are no certainties!”: 1) He agreed with Hausmann that “the movement of Covid-19 vaccines will unlikely disrupt the air cargo industry on a global scale,” 2) passenger business would recover slowly with belly capacity remaining below 2019 levels, 3) airlines would continue to closely match their networks and capacities to actual cargo demand (“unusually, the cargo department is now calling the shots”), 4) high load factors and elevated rates would remain the norm, and 5) given the high rates and high volatility (“a toxic mix”), he wondered if “new risk management solutions [would] become an antidote” (referring to the need for long-term capacity solutions in an environment that can currently only focus on short-term.)
“Can we print our problems away?”
Dr. Charles E. Schlumberger took the audience on a whirlwind trip through scenarios that included passenger aviation recovering to 2019 levels in mid-2022, and cargo already mid this year, but pointed out that two factors were key to this happening: the end of the Covid-19 pandemic, and the return of the markets. The variables here included the speed of vaccinations, the effectiveness of the vaccinations, and the willingness of people to be vaccinated – illustrated by considerable differences around the globe. In addition to this, the question if “will we have a change in customer behavior?” Would people be wanting to return to air travel? Would business class travel return, given studies showing that people working from home actually put in more hours (a 10% increase in productivity)?
With regard to the economy, he stated “The contraction of the economies around the world is brutal. Since the Great Depression, we have never seen such a contraction. Many countries at minus 10% GDP. The question is, how we get out of it?”
He continued, “the answer is: money supply!” and showed a graph illustrating the steep increase in money supply over the past decades, with a projected further increase.
“Can we print our problems away?” (by printing more money), “are we living in a bubble?”, he asked, and warned of a repeat of Germany in the Roaring 1920s, when inflation eventually exploded after an initial period of no inflation despite more money having printed in 1918. “Are we heading for hyperinflation or are we in a new paradigm that we can print our problems away?” he left the audience to decide.
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