CARGO E-CHARTBOOK Q1 2010

KEY POINTS
 The turn of the year saw a strong upturn in cargo volumes and yields. Confidence over further gains is
high. The challenge will be to turn growth into profit, given low aircraft utilization, new deliveries, rising fuel
costs. Also vast and perhaps enduring differences in demand conditions from one trade lane to another.

HEADLINES BY SECTION
Economic Outlook (page 2)
 In Asia interest rates have already started to rise
as economies recover. However, a bigger threat
to the outlook is posed by future tax increases.
Economic growth will continue to be very uneven,
with Asia strongest.
Traffic Growth (page 3)
 Air freight volumes rose strongly at the end of
2009 and into 2010 to a level 28% up from late
2008 lows. Asian markets are strongest, reflecting
economic growth. Both freighters and belly holds
are now benefiting.

Demand Environment (page 4) Demand Drivers (page 5)

 The usual indicators of freight demand are broadly
positive. Business stopped cutting inventory in
2009Q4 and semi-conductor shipments are up
strongly, but purchasing managers’ optimism has
stabilised.
 Indicators of final demand – on which air freight
will depend once the inventory cycle is over – are
mixed. Consumer spending is strong in China,
weak in the West. Business investment plans
have, at best, stopped shrinking.

Revenue and Yields (page 6) Costs (page 7)

 Volume growth does not necessarily improve
profitability, but there are now signs of significant
yield increases – albeit very concentrated by trade
lane and direction. By end-2009 revenues had
begun to rise.
 Fuel prices have been trending higher as the world
economy gathers strength, with jet averaging $85
a barrel so far this year and expected to rise to $90
in 2010. Recession brought other costs down but
there are signs that is ending.

Capacity (page 8) Competition (page 9)

 Capacity has started to return but is still some 10%
lower than in early 2008. The freighter fleet is 160
down. Back to pre-911 load factors. But belly
capacity is up and aircraft utilisation is -7% - not
good for profitability.
 There are some signs of the world trade upturn in
the bulk commodities and containerized shipping
industries, but these sectors are lagging air freight
at present. However, ocean rates are now rising in
line with air.

Profitability (page 10)

 Financial results for most of 2009 reflect the severest downturn the industry has ever experienced. Even so
losses seemed to be levelling out in Q3 and some profits were evident in Q4 in Asia. Confidence has risen.

IATA Economics www.iata.org/economics 1

 Cargo eChartbook – Q1 2010

Economic Outlook
Key Issue:
 In Asia interest rates have already started to rise as economies recover. However, a bigger threat to the
outlook is posed by future tax increases. Economic growth will continue to be very uneven, with Asia
strongest.

Interest rates remaining low in Western economies but already rising in Asia-Pacific
Central Bank Interest Rates  Low interest rates, together with direct
Source: ECB, FT, Haver
injections of liquidity into the banks and
US Fed Funds Rate
7.5 European CB Repo Rate private sectors, have played a key role
7.0
6.5 Australia interest Rate in turning economies around from deep
6.0
5.5 recession to economic upturn. In the
5.0
4.5 US and Europe, where economic
4.0
3.5 recoveries remain fragile, central banks
3.0 are keeping interest rates low.
2.5
2.0
1.5  However, in the Asia-Pacific region
1.0
0.5 economies have experienced strong
0.0
rebounds and some central banks e.g.
Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10
Australia have already started to ‘take
the punch bowl away from the party’.

Massive fiscal stimulus has helped economic recovery but there will be a price to pay
Federal Budget Surplus (or Deficit)
 Governments in many economies
Source: US Congressional Budget Office implemented massive fiscal stimulus
500 packages, boosting government
spending and cutting taxes, in order to
0 stop economies slipping into recession.
They have succeeded, but at a cost of
US $ Billion

-500
huge borrowing requirements,
-1000 approaching $2 trillion a year in the
case of the US.
-1500
 This is not sustainable and the price to
-2000
pay will be large tax increases or
spending cuts in the future, which will
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

be a drag on economic growth in these

countries.

Upturn in economic growth through 2010 forecast to be geographically uneven

Forecasts for GDP growth
 The result of central bank and
8 source: EIU government stimulus measures is
6
apparent in forecasts for GDP growth
2009 2010 in 2010. Across the world forecasts
4
are positive, as economies emerge
% change over year

2
from the deep recessions of 2009.
0
 However, that growth is forecast to be
-2 very uneven geographically. Burdened
-4 by debt and fiscal problems the large
-6 developed economies are expected to
-8
have only sluggish growth. By contrast
US Japan Europe ASPAC ex Middle East Latin World emerging markets should see a strong
Japan America
economic expansion.

IATA Economics: www.iata.org/economics 2

 Cargo eChartbook – Q1 2010

Traffic Growth
Key Changes in the data this quarter:
 Air freight volumes rose strongly at the end of 2009 and into 2010 to a level 28% up from late 2008 lows.
Asian markets are strongest, reflecting economic growth. Both freighters and belly holds are now benefiting.

Air freight volumes rising strongly into 2010

Freight Traffic Growth  The year-on-year growth rates in the
Source: IATA, ACI
32 chart opposite are being exaggerated
26 Domestic Freight Volumes (ACI) by the comparison with last year, when
20 International Freight Volumes (ACI) air freight was collapsing, but
14 International FTKs (IATA) nevertheless there was a strong rise in
% Change

8 cargo volumes at the end of 2009

2 which continued into January 2010.
-4
 The level of air freight on international
-10
markets is up around 28% from its low
-16

-22
point at the end of 2008. However, the
-28
size of the market is still 3-4% lower
May-05

May-06

May-07

May-08

May-09
Sep-05

Jan-06

Sep-06

Jan-07

Sep-07

Jan-08

Sep-08

Jan-09

Sep-09

Jan-10
than in early 2008. Domestic air freight
has also picked up strongly.

Regional data on air freight flows reflects the uneven pattern of the economic upturn
Freight Traffic Growth by O-D Region - December 2009  The uneven pattern of the economic
52 49.8 Source: ACI upturn is reflected in regional flows of
46 International air freight, though growth is starting to
37.8 Domestic
40 spread to most regions.
34
27.9  Unsurprisingly Asia-Pacific is the
% change over year

28 24.8
23.6
22 20.3 19.2
strongest international market. Also,
18.3
16 13.1
15.3 notably, European airports have seen a
12.0
10 6.3
20.3% rise in freight volumes by
4 December, yet European airlines have
-2 carried only an additional 5.2%. Trade
-8 -6.4 flows have been largely Asia to Europe
Africa Asia Pacific Europe Latin Middle East North Total
America America and local airlines seem to have been
the major beneficiary.

Biggest cycle seen for freight carried in passenger aircraft bellies

Air freight carried by freighter or belly hold
 The residual nature of passenger
1.6 9 aircraft belly capacity in the air freight
1.5 8.5
market can be seen in this chart. The
sample on freighters underestimates
1.4 8
the true picture but even so this shows
1.3 7.5
that air freight carried by freighters has
FTK billion

FTK billion

1.2 7 grown by twice the pace in the medium

1.1 6.5
term as freight carried in the bellies of
Belly hold
(right scale) passenger aircraft.
1 6
Freighters  Moreover, the cycle has been more
0.9 (left scale) 5.5
muted for freighters with a 19% decline
0.8 5 in 2008 versus a 26% fall for belly
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
freight. Both freight transport modes
are now around 7% below their early
Source: IATA
2008 highs.

IATA Economics: www.iata.org/economics 3

 Cargo eChartbook – Q1 2010

Demand Environment
Key Changes in the data this quarter:
 The usual indicators of freight demand are broadly positive. Business stopped cutting inventory in 2009Q4
and semi-conductor shipments are up strongly, but purchasing managers’ optimism has stabilised.

Purchasing managers’ confidence suggest temporary spike in freight growth

Purchasing Managers confidence survey and Air Freight Demand  The confidence of purchasing
Source: IATA, JP Morgan
30 managers at manufacturing companies
65 26
22
around the world has proved a good
PMI Value (50 = No-Change)

% Growth, International FTKs

60 18 leading indicator for growth in air freight
14
10
volumes. Whenever the PMI index is
55
6 above 50 this indicates expansion of
2
50 orders, when below contraction.
-2

45
-6  The PMI led the air freight recovery
International FTKs -10
JP Morgan Output PMI (+ 2 months) -14 very closely up to November. But the
40 -18 spike in freight growth rates in the past
-22
35 -26
two months is much higher than
Nov-05

May-06

Nov-06

May-07

Nov-07

May-08

Nov-08

May-09

Nov-09
Jul-05
Sep-05

Jan-06
Mar-06

Jul-06
Sep-06

Jan-07
Mar-07

Jul-07
Sep-07

Jan-08
Mar-08

Jul-08
Sep-08

Jan-09
Mar-09

Jul-09
Sep-09

Jan-10

indicated by the PMI, which points to

2010 growth coming back down to the
5-10% range in future months – but
that slowdown might not be until Q4.

Manufacturers’ inventory overhang almost eliminated, boosting demand for air freight
US Manufacturing Inventories to Sales Ratio
 The level of air freight is almost a
1.48
Source: Haver perfect mirror image of the inventory-
1.44 sales ratio in manufacturing. The rise
1.40 to a massive inventory overhang was
1.36 mirrored in the end-2008 collapse of
1.32 freight volumes. Rising sales and de-
1.28 stocking has almost eliminated that
1.24 overhang, boosting air freight.
1.20
 Business stopped cutting their
1.16
inventories in 2009Q4, having slowed
1.12
destocking in Q2 & Q3. That caused
Jan-2000

Jul-2000

Jan-2001

Jul-2001

Jan-2002

Jul-2002

Jan-2003

Jul-2003

Jan-2004

Jul-2004

Jan-2005

Jul-2005

Jan-2006

Jul-2006

Jan-2007

Jul-2007

Jan-2008

Jul-2008

Jan-2009

Jul-2009

the year-end surge in demand for air

freight to ship components and goods.

Semi-conductors now helping to drive the rise in air freight

Semi-Conductor Shipments and Air Freight
 In the initial stages of the air freight
44 Source: IATA, SIA
26
upturn last year, semi-conductor
38
International FTKs 22 shipments were lagging. More recently
32
18
this key shipper segment for air freight
% growth - International FTKs

Semi-Conductor Shipments
% Growth, Semi-Conductor

26
14
20
10 – high value/low volume - has shown
14
Shipments

8
6 strong growth.
2
2 -2  Wireless handsets have replaced other
-4 -6
-10
consumer electronics as the recent
-10
-16 -14 driver in demand, with the industry,
-22 -18 according to the Semi Conductors
-28 -22
-34 -26
Industry Association, expecting growth
Jun-09

Dec-09
Sep-07
Dec-07

Jun-08
Mar-08

Sep-08
Dec-08
Mar-09

Sep-09
Jun-03
Sep-03
Dec-03

Jun-04
Mar-04

Sep-04
Dec-04

Jun-05

Dec-05

Jun-06
Mar-05

Sep-05

Mar-06

Sep-06
Dec-06

Jun-07
Mar-07

in excess of 10% this year.

IATA Economics: www.iata.org/economics 4

 Cargo eChartbook – Q1 2010

Demand Drivers
Key Changes in the data this quarter:
 Indicators of final demand – on which air freight will depend once the inventory cycle is over – are mixed.
Consumer spending is strong in China, weak in the West. Capex plans have, at best, stopped shrinking.

Consumer confidence remains fragile in developed economies but robust in China

Consumer confidence
 Once the freight boost from the
120 0 inventory cycle is over, further gains will
China
depend on a durable recovery of

Balance expecteting improvement, net %

Balance expecting improvement, index

-5
100 consumer spending. There have been
-10 signs of improved confidence world-
80
wide, but in the big developed
-15
US
60 economies confidence and consumer
-20 spending remain slow growing and
40 fragile – burdened by debt and
-25
unemployment.
20 Europe -30
(right scale)  By contrast in emerging economies like
0 -35 China consumers slowed rather than
Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010
reduced spending, and the outlook here
is for more growth at a rate of 9% or so.

Business investment plans have stopped shrinking but no CAPEX boom ahead
Capital spending intentions
 Business investment is another key
70 15 driver of final demand, along with
50
consumer spending. Many of the
Japan business 10
Net balance intending to increase

Net balance intending to increase

(right scale) capital goods invested in are shipped

30 by air freight. The ‘Great Recession’
5
has produced a lot of spare capacity,
investment

investment

10
0 so it was not surprising to see business
-10
investment collapse early last year.
-5
-30 UK business  By the end of last year tentative signs
(left scale)
-10 were emerging that business had
-50
stopped slashing capex plans. This
-70 -15 means capex will no longer be a drag
Q1-2004 Q1-2005 Q1-2006 Q1-2007 Q1-2008 Q1-2009 Q1-2010
on air freight but it will take some time
before it becomes a stimulus again.

World trade is the immediate driver of air freight and air remains favoured mode
World trade in goods and air FTKs
 Air freight has risen three times as far
14.0
Source: Netherlands CPB and IATA
135 as world trade from its end-2008 low,
130
as shippers switched transport modes
International FTKs
index of world trade, 2000=100

13.0
(left scale) to air from ocean and surface transport
125
to reduce time and working capital as
12.0 120
the economic recovery gathered pace.
Billion FTKs

115
11.0  This rapid post-recession upturn phase
110
is usually associated with the business
10.0 105
inventory cycle and normally lasts 6-12
100
9.0 World goods trade volumes months. It is likely we are within 6
(right scale) 95
months of the end of this phase, after
8.0 90 which growth will be more in line with
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
world trade increases of 5-6% a year.
IATA Economics: www.iata.org/economics 5
 Cargo eChartbook – Q1 2010

Revenues and Yields

Key Changes in the data this quarter:
 Volumes growth does not necessarily improve profitability, but there are now signs of significant yield
increases – albeit very concentrated by trade lane and direction. By end-2009 revenues had begun to rise.

Cargo yields turn up in 2009H2 – in some markets – as load factor rise impacts market
Air Freight Yields US$ per Kilo  Cargo yields rose sharply in 2009Q4,
Global Total Source: IATA CASS
following the beginnings of an upturn in
Europe (RHS) to North America
1.60 3.40 Q3. However, the rise is concentrated
SE Asia to Europe (RHS)
1.50 geographically and directionally.
2.90
1.40
2.40
 Trade lanes from Asia have seen a
1.30
strong rebound in exports and a
1.20 1.90
relative shortage of capacity. Cargo
1.10
1.40 rates from Asia are up 50% from Q2
1.00
lows. By contrast rates into Asia are
0.90
0.90
up only 20% and on other trade lanes
0.80 0.40
e.g. transatlantic there has been only a
2005 Q1
2005 Q2
2005 Q3
2005 Q4
2006 Q1
2006 Q2
2006 Q3
2006 Q4
2007 Q1
2007 Q2
2007 Q3
2007 Q4
2008 Q1
2008 Q2
2008 Q3
2008 Q4
2009 Q1
2009 Q2
2009 Q3
2009 Q4
slight increase or further decline.
However, Asian trade is so important
for air freight that it is driving the total.

Cargo revenues in 2009 will reflect the disasterous first half of the year
Global Airline Industry Cargo Revenues
 We estimate that cargo revenues were
Source: ICAO, IATA down by just over 25% in 2009 – the
60.7 20%
60
Cargo Revenues 58.6 worst decline faced by the industry in
% Growth 53.2 15%
46.6 47.9 the past 50 years. Volumes fell by an
44.9 10%
45 40.2 40.2 average of around 10% and yields
Revenues (US$ billion)

38.6 37.9 5%

0%
were down by 15%.
% Growth

30
-5%  However, the worst of this decline was
15
-10% in the first half when revenues were
-15% down over 40% at one point. By the
0 -20% fourth quarter revenues were up an
-25% estimated 12% on the previous year.
-15 -30% That pace of improvement is
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E
threatened by sluggish Western
economies and now rising capacity.

Air freight regains lost market share at the start of an upturn in economic activity
Value of Import and Export by Air as % of Total
 Data on US exports and imports by
Source: US Census bureau mode of transport has shown air cargo
36%
recovering its market share by value in
32%
the past 12 months. Part of this earlier
loss and more recent gain is due to the
Export
28% price of oil, which increased the value
of ocean trade up to mid 2008 and
24% reduced it to end 2008.
Import  Oil prices rose throughout 2009 –
20%
raising the value of ocean trade - but
16% air cargo nonetheless boosted its share
Nov-06

Nov-07

Nov-08

Nov-09
May-06

May-07

May-08

May-09
Jan-06
Mar-06

Jul-06
Sep-06

Jan-07
Mar-07

Jul-07
Sep-07

Jan-08
Mar-08

Jul-08
Sep-08

Jan-09
Mar-09

Jul-09
Sep-09

of imports over ocean transport, driven

by the US business inventory cycle.

IATA Economics: www.iata.org/economics 6

 Cargo eChartbook – Q1 2010

Costs
Key Changes in the data this quarter:
 Fuel prices have been trending higher as the world economy gathers strength, with jet averaging $85 a
barrel and expected to trend to $90. Recession brought other costs down but there are signs that is ending.

Jet fuel price, pushed higher by oil prices, fluctuating around $85 a barrel
Jet Fuel and Crude Oil Price ($/barrel)
 Average jet kerosene prices have
200 Source: Platts, RBS fluctuated around $85 a barrel this
180
year; a significant rise from the lows of
160
end-2008 but one-third lower than the
140 2008 average and not far from average
120 2006-2007 prices. Higher oil prices
Jet fuel price
100 have been partially offset by a lower
80 (13% vs normal 25%) crack spread.
60
 Looking ahead futures markets are
40
Crude oil price (Brent) pricing in a slowly rising oil price to
20
around $80 a barrel later this year,
Se 3

Se 4

Se 5

Se 6

Se 7

Se 8

Se 9
Ja 3

Ja 4

Ja 5

Ja 6

Ja 7

Ja 8

Ja 9
M 3

M 4

M 5

M 6

M 7

M 8

M 9

0
0
p0

0
p0

0
p0

0
p0

0
p0

0
p0

0
p0
n0

n0

n0

n0

n0

n0

n0

n1 implying jet around $90 a barrel.

ay

ay

ay

ay

ay

ay

ay
Ja

US dollar weakness in 2009 provided a moderate offset to jet fuel price rises for some
Jet Fuel Price Currency Comparison
 During the 2007-08 and 2009 rising oil
200 Source: Platts, RBS price periods the US dollar weakened
180
against many currencies. This helped
160
moderate the impact of higher $ oil
140
prices on non-US$ airlines. During
120
$ per barrel 2009 this led to a 38% rise in the Euro
100
price of oil versus a 42% rise in the
80
US$ price. But that’s not much.
60
€ per barrel Moreover, US$ weakness increases
40
the incentives of the OPEC cartel to
20
push US$ prices up to preserve the
Se 3

Se 4

Se 8

Se 9
Se 5

Se 6

Se 7
Ja 3

Ja 4

Ja 5

Ja 8

Ja 9
Ja 6

Ja 7
M 3

M 4

M 9
M 5

0
M 6

M 8
M 7
0

0
0

0
p0

p0

p0

p0

p0

p0

p0
n0

n0
n0

n0

n1
n0

n0
n0

local currency value of their revenues.

ay

ay

ay
ay

ay

ay

ay
Ja

High unemployment has brought wage growth down but unions are resisting change
Nominal Wage Growth
 Unemployment rates have risen
Source: Haver Analytics sharply following the ‘Great Recession’
7 21
leading to a slowdown in wage
% Growth in nominal wages (China)

6 18 increases. However, there are signs

% Growth in nominal wages

5 15 that labour markets have stopped

4 12 loosening with some levelling off
3 9
apparent in wages. Union resistence
has also started to intensify where
2 USA 6
European Union
airlines are seeking to push through
1 3
China (RHS) changes in working practices, to
0 0 improve productivity. The ease of
Q1-2001

Q3-2001

Q1-2002

Q3-2002

Q1-2003

Q3-2003

Q1-2004

Q3-2004

Q1-2005

Q3-2005

Q1-2006

Q3-2006

Q1-2007

Q3-2007

Q1-2008

Q3-2008

Q1-2009

Q3-2009

implementing such change will become

increasingly difficult as economic
recovery gathers strength.

IATA Economics: www.iata.org/economics 7

 Cargo eChartbook – Q1 2010

Capacity
Key Changes in the data this quarter:
 Capacity has started to return but is still some 10% lower than in early 2008. The freighter fleet is 160 down.
Back to pre-911 load factors. But belly capacity is up and aircraft utilization is -7% - not good for profitability.

Load factors now back to pre-9/11 levels but in-service aircraft numbers rising again
Cargo fleet composition  The industry has managed to pull
Source: Ascend
freight load factors, on international
Freighter fleet in service Widebody pax fleet in service Seasonally adjusted load factor
markets, steadily upwards since they
3200 60%
58%
collapsed at the end of 2008. At 54%
3100
56% of weight capacity in January this is

Freight load factor

Number of aircraft

3000 54%
back to load factor levels last seen in
52%
2900
50%
2000.
2800
48%
 During this period of rising load factors
2700 46%
44% there was a reduction in the freighter
2600
42% fleet by 200 aircraft at one point,
2500 40%
though 40 have returned. However,
May/09
Mar/09

Nov/09
Dec/00
Dec/01
Dec/02
Dec/03
Dec/04
Dec/05
Dec/06
Dec/07
Dec/08
Jan/09
Feb/09

Apr/09

Jun/09
Jul/09
Aug/09
Sep/09
Oct/09

Dec/09
Jan/10

the wide-bodied passenger fleet

End of year totals End of month totals
continued to grow, albeit modestly.

Rising profile for delivery of new freight capacity in the next few years
Twin Aisle Aircraft Deliveries by Airline Region
 Despite 2009 being the worst ever for
Source: Ascend the air cargo industry, and almost the
350
Other
worst for the passenger business, there
Middle East
300 were over 200 new wide-bodied aircraft
North America
Europe delivered – not all for replacement.
250
Asia Pacific
Number of Aircraft

200
 Moreover, there are a further 240 on
the books to be delivered this year,
150
including over 50 freighters. There
100 were a lot of freighters taken out of
service last year. But with no further
50
retirements the deliveries of new
0 aircraft would add 4-5% to the wide-
2004 2005 2006 2007 2008 2009 2010 2011 2012
body/freighter fleet.

Twin and single aisle fleet expanding as deliveries continue to exceed parking
Aircraft Retirements and Deliveries
 The storage of freighters appeared to
Source: Ascend
turn up in the records during December
Deliveries Retirements Storage
220 2008 and January 2009. Since then
the change in the number of aircraft in
160
storage has fluctuated from positive to
Aircraft per month

100
negative, while retirements have
averaged just over 20 aircraft a month.
40 With new deliveries averaging 100 a
month the fleet of passenger and
-20 freighter aircraft has been expanding
Monthly
Average by a net 80 aircraft or 0.4% a month.
-80
 This has been squared with AFTK
Se 8

M 9

Ju 9

Se 9
A 8

08

N 8

D 8
8

A 9

09

N 9

D 9
0
06

07

08

Fe 9
09

09

10
-0

-0

-0

-0
-0
l-0

-0

-0

-0

l -0

-0

-0

-1
p-

n-

b-

n-

p-

n-
20

20

20

ug

ug
pr

ay
ar
ct

ct
ov

ec

ov

ec
Ju

Ju
Ja

Ja

capacity cuts by reducing aircraft

O

O
M

utilisation by around 7% since early

2008, hampering efforts to cut costs.
IATA Economics: www.iata.org/economics 8
 Cargo eChartbook – Q1 2010

Competition
Key Changes in the data this quarter:
 There are some signs of the world trade upturn in the bulk commodities and containerized shipping
industries, but these sectors are lagging air freight at present. But ocean rates are now rising in line with air.

Cost of shipping bulk commodities trending higher but volatility from new capacity
Baltic Dry Index
 The Baltic Dry Index, measuring the
12000
Source: Bloomberg cost of shipping bulk commodities, has
been rising since dramatically
10000
collapsing at the end of 2008. This
rising trend through 2009 and into 2010
Index Jan 1985 = 1000

8000
reflects the economic recovery in Asia
6000 together with some degree of strategic
stockpiling by China.
4000
 The volatility is caused by the
2000 shipbuilding cycle which is now
delivering a lot of capacity to a market
0
1998 1998 1999 2000 2000 2001 2002 2003 2003 2004 2005 2006 2006 2007 2008 2009 2010 at a time when it does not need it.

Ocean container freight rates show more volatility than air freight but both now rising
Ocean container and air freight rate growth
 Ocean freight had been gaining market
20% Source: Drewry, IATA CASS share over air freight during the
10% expansion years of 2004-2008. Ocean
freight rates were also rising faster, so
0%
it would seem this market share gain
% change over year

Air freight rates

-10% was due to improvements in
technology and supply chain changes.
-20%
 When recession hit, ocean freight rates
-30% Ocean container rates fell first and much further than air
freight. Despite the post-recession
-40%
switch towards air freight by shippers,
-50% ocean freight rates are now rising more
2007 2008 2009
or less in line with air freight rates.

Container demand rise lagging air freight and showing very large regional differences
Container Shipping Volume Growth by Region
 The very large regional differences in
Source: Drewry recovery from the ‘Great Recession’ is
Sep-09
10 very apparent in the demand for
Oct-09
container shipping. By November
5 Nov-09
there was some modest single figure
% Growth, Year-on-Year

0 growth in the Far and Middle East.

However, although ocean freight to and
-5
from North America and Europe had
-10 improved since September, levels were
still well down on the previous year.
-15
 This pattern of relatively strong air
-20 freight/weak ocean freight suggests
North America North Europe Far East Middle East Latin America demand is still driven by the inventory
cycle and has not yet spread to a more
sustainable expansion in final demand.

IATA Economics: www.iata.org/economics 9

 Cargo eChartbook – Q1 2010

Profitability
Key Changes in the data this quarter:
 Financial results for most of 2009 reflect the severest downturn the industry has ever experienced. Even so
losses seemed to be levelling out in Q3 and some profits were evident in Q4. Confidence has risen sharply.

Cargo losses may have bottomed out during the second half of 2009
Profitability of US Cargo Only Airlines
 US cargo airlines in aggregate – the
Source: US BTS results dominated by the integrators –
12%
Operating Profit Margin saw profits in 2009Q3, suggesting that
10% Net Profit Margin the downward trend may be bottoming
8%
out. Available information suggested
% of Revenues

6%
European air cargo businesses
4% continued to generate losses in Q3.
2%
 However, the sharp revival in air freight
0%
volumes and rates from Asia was
-2%
apparent in Asia-Pacific airlines cargo
-4%
revenues in Q4 with at least one
1999 Q1

2000 Q1

2001 Q1

2002 Q1

2003 Q1

2004 Q1

2005 Q1

2006 Q1

2007 Q1

2008 Q1

2009Q1

example of a move from loss into profit

in that region.

Operating profits beginning to emerge in 2009Q2 and Q3

Airline Operating Profit Margin - Q3 2009  The sample of airlines in this chart
(Passenger and Cargo)
Source: Ascend includes passenger as well as cargo,
30%
Returns below the
27.03%
Returns above the
showing the distribution of operating
% of Airline Industry Revenues

Cost of Capital Cost of Capital

margins across the airlines reporting in
20% 2009Q3 (Jul-Sep).
16.51%
 In Q3, as in Q2, the median airline was
12.23%
just making a positive operating profit
10%
5.90% 6.05% (2-4%) but less than 10% were making
4.50% 4.47% 3.53%
0.91% 1.33%
1.69% 2.65% enough to meet their cost of capital.
1.03% 0.35% 0.42%
0% 30% were making losses. This is a
More than
Less than -

-10% to -8%
-12% to -14%

-12% to -10%

-8% to -6%

-6% to -4%

-4% to -2%

-2% to 0%

0% to 2%

2% to 4%

4% to 6%

6% to 8%

8% to 10%

10% to 12%

modest improvement over Q2 when

14%
14%

50% were making losses and less than

8% were meeting their cost of capital.

Business confidence over future cargo revenues improves further in January survey
 Heads of cargo surveyed by IATA
IATA survey of heads of cargo
100
reported improved confidence in the
90 Volumes - next 12
months growth of both cargo volumes and
80
yields over the next 12 months.
Weighted Score

70
60  The indices opposite weight those
50 expecting an increase with those
40 Yields - next 12 months expecting no change and a fall. Behind
30
these numbers 72% expect an
20
10 expansion of both volumes and yields
0 over the coming year, with less than
Jun 2006

Jul 2007

Jul 2008

Jul 2009
Jan 2007

Jan 2008

Jan 2009

Jan 2010
Mar 2006

Sep 2006

Apr 2007

Oct 2007

Apr 2008

Oct 2008

Apr 2009

Oct 2009

10% expecting a decline. For yields

this is the most positive result since the
survey was started in early 2006.

IATA Economics: www.iata.org/economics 10

 Cargo eChartbook – Q1 2010

Air Freight Routes and Direction

International Freight Volume Growth by Route Area (Source: IATA ODS statistics)
Route Area % Growth in Freight Tonnes, year-on-year
Jul 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009
Africa - Middle East -3.6% -0.1% -7.5% 15.2% 14.7% 20.9%
Europe - Far East -17.5% -16.5% -12.3% -9.0% 0.9% 15.2%
Europe - Middle East -4.1% -1.0% -5.2% 4.6% 12.2% 23.5%
Within Far East -5.5% -3.5% 3.1% 10.2% 24.1% 50.4%
Within Middle East 3.4% 11.7% -13.1% 6.5% 4.8% 10.4%
Within South America -14.8% -4.9% -4.0% -6.9% 14.0% 21.5%
Mid Atlantic -10.1% -7.8% -0.2% 4.9% 10.4% 19.0%
Middle East - Far East 4.0% 6.1% 1.0% 13.6% 20.7% 25.2%
North Atlantic -16.1% -13.4% -9.7% -6.1% -1.0% 12.3%
North America-Central
America -1.9% -4.5% -2.4% -14.5% -2.7% -2.0%
Europe - Africa -1.6% -6.9% -7.5% -4.7% -2.9% -1.8%
North America - South
America 6.1% 10.1% 14.4% 12.1% 28.3% 49.6%
Far East - Southwest
Pacific -3.6% -2.0% 3.0% 0.4% 7.8% 20.4%
North and Mid Pacific -11.7% -13.1% -3.1% -0.9% 20.0% 42.6%
South Atlantic -12.0% -3.9% -2.6% 4.3% 13.4% 22.9%
Within Europe -10.6% -18.8% -17.6% -7.3% -3.5% 9.7%

Outbound CASS Market Revenues

Origin Region US$m % Growth in Air Freight Revenues, year-on-year

Q4 2009 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009
Africa 41.9 5.9 2.2 -8.0 -18.2 -18.4 -1.5
Caribbean 4.2 7.3 -6.8 -7.3 -4.2 -11.3 1.6
Central America 49.3 9.2 -19.9 -15.8 -17.5 -8.5 28.3
Europe 1223.1 -1.1 -23.9 -37.0 -39.9 -30.4 0.8
Japan & Korea 912.4 -23.5 -41.6 -55.6 -39.5 -12.9 45.0
Middle East 72.5 26.7 23.2 49.4 19.4 -1.5 26.7
North America 615.1 7.3 -15.1 -23.7 -32.2 -25.2 6.2
South America 219.9 11.0 -6.1 -20.8 -30.0 -20.1 -2.8
South East Asia 1184.1 27.2 -2.3 -27.2 -30.3 -22.3 29.0
South West Pacific 139.9 -0.3 -27.2 -30.0 -29.9 -13.1 26.8

Inbound CASS Market Revenues

Destination Region US$m % Growth in Air Freight Revenues, year-on-year

Q4 2009 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009
Africa 307.2 10.8 -5.9 -12.5 -19.5 -13.5 6.4
Caribbean 31.0 6.3 -10.2 -27.9 -22.1 -22.9 -8.3
Central America 83.8 -6.2 -25.4 -37.1 -42.3 -34.0 4.7
Europe 1342.5 2.3 -17.3 -33.6 -35.8 -25.6 16.5
Japan & Korea 244.7 -13.2 -31.8 -41.2 -35.3 -23.9 11.5
Middle East 287.3 18.7 -2.4 -12.3 -16.3 -13.3 7.1
North America 922.4 -7.9 -31.0 -45.6 -43.9 -28.7 25.4
South America 326.7 24.7 -14.1 -33.9 -38.7 -29.8 14.1
South Asia 140.3 18.4 -3.9 -16.0 -23.6 -11.5 19.6
South East Asia 551.5 -5.5 -26.7 -42.4 -33.5 -15.0 25.7
South West Pacific 228.2 4.9 -25.1 -34.9 -39.4 -24.7 13.6

IATA Economics
March 2010

IATA Economics: www.iata.org/economics 11