In today's Finshots, we talk about what's happening with air freighters.

The Story

Everybody knows airlines are bleeding money right now. The only thing keeping them alive right now is cargo.

But here’s the funny bit. Although it seems like cargo operations are thriving, it’s really not. According to most estimates, air freight volume plunged by almost 28% in April when compared to the same month last year. And while the numbers have improved since then, it’s still considerably lower than the numbers we saw in 2019. So why does it seem like cargo operators are thriving even when there is less stuff being moved around on aeroplanes?

Well, that’s because passenger planes usually haul roughly 50% of the global air cargo. Normally, these planes just plonk cargo on their bellies and transport them from point A to point B. But once the pandemic made landfall, passenger flights were grounded. And since they couldn’t haul stuff anymore, specialist cargo operators had to scramble to figure out a way to still keep things moving. In fact, during the first few days of the lockdown, air freight rates shot up by 30–60% on some global routes and by 7–15% in India. And at one point, freighter aircraft (or cargo-only planes) were moving 90% of the volumes. And passenger planes? Well, they were just sitting around. Until that is, airline operators were finally forced to confront the damning reality.

Air travel is never going to be the same. People aren’t going to travel like they used to. At least not until the vaccines are here. And till that day comes, air freighters are going to dominate the industry. So you can either adapt or perish.

And since perishing wasn’t really an option, most airlines adapted. Almost immediately, airliners started repurposing their aircraft to transport cargo. Also, since there was a shortage of capacity, coupled with inelastic demand, most routes were, in fact, profitable, even without the people. Think of it this way. When companies and governments are trying to move essential medical equipment and foodstuff across the globe, money is not exactly a concern. They’ll pay a premium. And since the premium has persisted since March, many airliners had to bank on their cargo operations to help them tide the crisis.

As a report from Lufthansa notes — 

Cargo has emerged as a lifeline for many airlines. It was the most profitable business segment for Lufthansa Group in Q2 2020, and helped Korean Air and Asiana avoid operating losses for the same period... Clearly, cargo is no longer only a byproduct or afterthought of airline operations. It has become a significant factor in airlines’ strategic planning, necessitating a robust view of its development as the industry recovers from the effects of COVID-19.

And we are not just talking about global airlines. We saw the same phenomenon back home. SpiceJet, a company that already has a dedicated fleet of freighter aircraft has handled around 10,000 cargo flights since March. And India’s largest domestic airline IndiGo repurposed 10 passenger planes into freight carriers and is now contemplating launching a dedicated freighter service soon.

In fact, even the Indian government walked in to help domestic carriers ride the bandwagon.

Until recently, ~90% of total cargo moving in and out of India were being handled by foreign carriers. And in a bid to slightly tilt the odds, the government has now restricted foreign carriers from operating non-scheduled cargo flights in and out of just six Indian cities — Delhi, Mumbai, Kolkata, Chennai, Bengaluru and Hyderabad. All the other cities are reserved exclusively for Indian operators.

So yeah, despite all the gloom and doom surrounding airlines, air freighters are still keeping the show running. And hopefully, they can help some of these companies turn the tide.

Until then…

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Correction: In yesterday's issue we wrote John Deere tractors sell for as much as $800,000. The correct figure is $80,000. We regret the error.