Airlines’ modest 2nd half outlook
Airlines had a difficult time making a profit during the first half of the year, but industry executives feel more confident about being in the black going forward as concerns about soaring fuel prices have abated in recent weeks, according to a survey on airline business confidence.
The survey, conducted each quarter by the International Air Transport Association, showed a marked improvement in confidence from April, when the index sharply declined. Second quarter profit margins were hard hit by spikes in jet fuel prices, as well as unrest in the Middle East and the Japan earthquake disaster that inhibited people from traveling. More than half of the respondents now believe their companies will improve profits in the next 12 months. In April, officials predicted they would end up with losses for the year, but now expect modest profits as expectations of sharp increases in fuel prices have dissipated while traffic demand remains strong and could improve in the second half.
Sixty-nine percent of respondents reported increases in cargo demand during the second quarter, up from 59 percent in April’s survey. After a volatile start, air freight volumes (measured by freight ton kilometers) were 2 percent higher than at the start of the year, and appear to be growing at an annualized rate of almost 4 percent, IATA said. With world trade growing at about 6 percent there remains room for air cargo traffic to pick up in the second half.
There is reason to believe air freight will continue to grow. More international shippers have indicated they plan to utilize air freight to a greater extent as part of a strategy to keep inventories lean. Some — Nike, Columbia Sportswear, Electrolux, Coach, Lululemon and Victoria’s Secret — have been specific about their intent to ship by air. Air shipments, although more expensive on the front end than ocean containers, allow them to gauge consumer demand and not be stuck with too much inventory that needs to be heavily discounted if the economy turns sour. And the rising popularity of online shopping continues to push the growth of home delivery and air freight.
The survey is now roughly in line with IATA’s June downgraded forecast of $4 billion in net industry-wide post-tax profit this year. Asian airlines’ profits in particular took a hit in the second quarter due to the Japanese earthquake and tsunami.
Nonetheless, there’s much less optimism about growth this year than in 2010. Cargo volumes have noticeably slipped since peaking in spring 2010, after a bull-rush of shipments by companies replenishing inventories as the global economy came out of recession.
Passenger and cargo airlines experienced improved yield performance during the second quarter, but the trend is flattening, according to IATA. Much of the yield improvement is attributed to surcharges to help cover the cost of fuel. Meanwhile, more capacity is seeping into the market. Freight capacity utilization in May was 4 percent lower than the peak a year ago. With supply/demand conditions weakening and concerns that markets may not bear further fare/rate rises, prospects for yields over the year ahead look flat. Jet fuel prices are in the $133-per-barrel range compared to about $140 per barrel earlier this year, but the price is still 50 percent higher than the average level during the second quarter 2010.
Network expansion or new aircraft additions have led to an uptick in industry hiring, with 47 percent of respondents hiring new employees and only 16 percent cutting back.
Airline executives said they still see opportunity to expand into more passenger and cargo markets.
UPS to upgrade oxygen masks for pilots
UPS Airlines will retrofit cockpits in its freighter aircraft with easy pull-on, oxygen masks with integrated smoke goggles.
Installation of the enhanced pilot safety equipment was recommended by the Independent Pilots Association, which represents UPS pilots, and follows several incidents of smoking cargo or fires on board the company’s planes.
The airlines’ Airbus A-300 fleet already is equipped with the integrated masks. Installation on Boeing freighters will take place over the course of two years, UPS said.
The one-piece facemasks, manufactured by France’s Zodiac Aerospace, can be put on with one hand in three seconds, five times faster than the separate oxygen mask and smoke goggle units found on most aircraft. The new masks meet performance standards for protective breathing equipment established by the Federal Aviation Administration and offer a better fit for crewmembers who wear eyeglasses.
Since last November, a joint UPS-IPA Safety Task Force has studied ways to improve flight safety, especially fire mitigation in the hold, unit load devices and packages. In April, UPS became the first international carrier to announce it would equip its fleet with an Emergency Vision Assurance System, a transparent inflatable device designed to allow pilots to see in dense smoke situations.
The safety committee is also evaluating comprehensive fire mitigation and suppression systems, checklist procedures for smoke and fire, and the carriage of lithium batteries and other hazardous materials.
The two sides also established a Security Task Force to discuss cargo, aircraft and personnel security.
K + N delivers in-flight wine for BA
British Airways transports freight as well as passengers, but when it comes to managing freight logistics it looks to outsource.
The airline recently signed Swiss freight forwarder Kuehne + Nagel to a three-year contract extension to deliver wines from around the world to London for sale during flights. It also tasked the freight management specialist with exporting some cabin service supplies via ocean container line to a British Airways distribution center near Chicago, and to handle some domestic trucking duties.
Budapest attracts Turkish Air freighter
Turkish Airlines has launched an all-cargo service between Istanbul and Budapest, Hungary.
The airline’s cargo division will fly a widebody Airbus A310 with a capacity of 40 tons between the two cities.
The freighter will complement cargo capacity on Turkish Airlines’ passenger flights, which recently increased from once to 10 times a week. An official said the airline is ready to increase flight frequency if the trial run proves adequate customer response.
Budapest Airport is growing as a cargo hub for central Europe. There are now 13 scheduled freighter operators serving Budapest. The airport is drawing up plans to upgrade its cargo and logistics facilities.
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