European Airlines Increase Capacity, Cargo Sales As US Reopens To Travel

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Major transatlantic airlines report full planes on Monday as the United States reopens its borders to fully vaccinated travelers for the first time since March 2020. The new demand prompts airlines to add flights, bringing much-needed cargo space to a tight market for importers and exporters in the weeks leading up to Black Friday and other Christmas sales events.

The additional capacity introduced in recent weeks, along with shipment diversions to avoid ocean freight bottlenecks, helped European carriers post solid freight revenue gains in the third quarter.

Lufthansa Group (DXE: LHA) last week, reported a record operating profit of 301 million euros ($ 354.3 million), on an adjusted basis, for its freight division, with freight demand continuing an 18-month streak of high growth, in the context of a market-wide air transport shortage triggered by the pandemic. Lufthansa Cargo, one of the largest freight operators by volume, carries cargo with 11 Boeing 777 freighter and in the holds of its passenger fleet.

Overall, the German national carrier reported its first adjusted operating profit ($ 320.1 million) since the crisis, while facing high restructuring costs. The Group’s results cover the subsidiaries Austrian Airlines and Swiss International Airlines, as well as the regional carrier Eurowings.

“We have gone back to black,” said Carsten Spohr, CEO of Deutsche Lufthansa AG.

The airlines of the group were able to increase their passenger capacity to 50% compared to 2019 levels, and almost double their capacity compared to the previous quarter, thanks to the increase in load factors. The announced removal of travel restrictions in the United States at the end of September immediately increased weekly bookings by 51% from previous weeks, with bookings falling back to around 80% of 2019 levels. Big cities – and freight gateways – New York, Miami, San Francisco and Los Angeles are experiencing particularly strong customer demand, Lufthansa said.

The airline said it expects passenger capacity in the first quarter of 2022 to reach 65% of 2019’s level, rising to 80% in the summer and second half of the year.

Lufthansa has reduced its payroll by more than 4,000 employees in the past year through voluntary departure programs, with agreements reached with an additional 3,000 workers for an upcoming departure. The group has 107,000 employees with a target of 100,000 to align with the smaller size of the company.

Industry-wide, air cargo capacity is still around 13% below 2019 levels due to the shortage of international passenger services. The International Air Transport Association said last week that international passenger demand remained 69% below pre-crisis levels. Passenger planes normally represent half of the world’s cargo capacity.

Soaring e-commerce orders, extremely low retail inventories, growth in manufacturing and supply chain disruptions are putting pressure on companies to push more shipments to air travel. The imbalance between supply and demand has resulted in a 2.5-fold increase in global freight rates compared to two years ago and rates four to six times higher on major trade routes from Asia . Analysts and logistics providers report that all-cargo planes departing from cities in China and other parts of Southeast Asia are fully full.

More IAG cargo capacity

The favorable freight dynamics also propelled the IAG Group (CXE: AGI), parent company of British Airways and Iberia, to improved third quarter results.

The company achieved $ 476 million in freight revenue, a 50.5% increase from 2019, with freight yield doubling to 48 cents per shipment unit. The financial improvement came despite a 26.7% drop in freight throughput from 2019, highlighting how pricing power has been the dominant factor in the growth of airlines’ freight revenue.

The amount of cargo carried, however, was 37% higher than in 2020 despite a reduction in cargo-only flights due to increased passenger capacity. The airline only operated 657 passenger cargo ships in the quarter, up from 1,371 in the quarter, as more planes were reduced to their traditional passenger roles.

Cargo capacity increased 24% as passenger capacity more than doubled from the second quarter, IAG said. During the first half of the year, the group was only able to operate a limited passenger program due to travel restrictions in the UK and Europe.

Officials said bookings for long-haul traffic were recovering faster than for short-haul traffic as winter approached and there were early signs of a recovery in business travel .

On Monday, IAG Cargo announced an increase in the schedule to the United States. Additional passenger flights are now available to New York; Austin, Texas; Miami; Philadelphia Cream; and Los-Angeles. The company is also restarting direct service to Newark, New Jersey. It also plans to restart service to Baltimore; Orlando and Tampa, Florida; and Las Vegas on November 15.

In addition, IAG said it is deploying extra-large aircraft on short-haul European routes to supply its main hubs at London Heathrow, Madrid and Dublin, which will provide faster delivery to customers. Of note, British Airways now operates an Airbus A380 super-jumbo aircraft between London and Frankfurt, Germany, a major manufacturing hub for the automotive industry.

“We are delighted to see the United States reopen to passengers, and the impact that will have on cargo capacity. The full reopening of the transatlantic travel corridor is a pivotal moment, ”said John Cheetham, commercial director of IAG Cargo, in a statement. “As peak season is in full swing… this additional capacity will be of great benefit to many of our customers” on the busy trade route between the US, Europe and the UK

In mid-October, United Airlines (NASDAQ: UAL) announcement the biggest transatlantic expansion in its history. This was followed by the addition of five new flights to London Heathrow Airport, including two additional flights from New York / Newark, additional trips from Denver and San Francisco, and a new direct flight to departure from Boston, starting in March.

Delta Air Lines (NYSE: DAL) said Thursday that in the six weeks since the announcement of the US reopening, it had seen a 450% increase in bookings at international outlets compared to the six weeks before the announcement. Many international flights are expected to operate at 100% on November 8, with high passenger volume in the following weeks. Over the next few months, Delta will add flights to major cities across the Atlantic with more frequencies and return routes. At New York-JFK, Delta will operate up to 29 daily flights to 23 transatlantic destinations in the summer of 2022.

For the first nine months of the year, IAG achieved freight revenue of $ 1.4 billion, up 30.6% from two years ago. During the period, IAG operated 3,334 cargo flights only.

Overall, the carrier cut its operating loss ($ 3.1 billion) by more than half from previous quarters, with positive operating cash flow for the first time since the start of the pandemic.

IAG’s holdings include Aer Lingus, as well as low cost intra-European carriers Level and Vueling.

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

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