As we head into the final stretch of the year, domestic air cargo results from the major players are mixed.
While the International Air Transport Association finds that cargo activity is on the rise—the total amount of global air freight carried is up through September, year-over-year, 2.4 percent—it also reported that domestic airlines saw a 3.3 percent decline in activity during September, when compared to the same month a year ago. The 2015 figure, however, reflected 0.8 percent growth since the previous month. According to IATA’s analysis, this modest increase could signal “that anticipated improvement in economic performance for the second half of the year may drive stronger air freight demand.” Airports Council International recently reported that, through August, domestic cargo activity was up 1.5 percent when compared to the same period a year ago.
The big cargo news from the third quarter may have come from Delta Air Lines. The airline tallied a 20 percent drop in air cargo revenue during the third quarter. The Wall Street Journal reported that revenue had fallen by 10 percent, year-over-year, during the second quarter. In a call with investors, Ed Bastian, Delta’s president, reportedly said the domestic air cargo side is performing swimmingly, while the international business is hurting. Delta’s domestic cargo business did receive a boost earlier in the year from the West Coast port crisis, but that activity has since dissipated.
But Delta isn’t the only domestic carrier experiencing cargo challenges. For the quarter, American Airlines posted a 5.6 percent increase in cargo ton miles, but a 16.7 percent decline in cargo yield per ton mile. On the year, cargo ton miles are down 0.3 percent when compared to the same period in 2014, and yield is down 11.3 percent. Officials said cargo revenue for the quarter was down $35 million (16.3 percent) on weakness in international and domestic cargo markets; for the first three quarters of 2015, cargo revenue was down 11.6 percent.
Along with its quarterly report, American reiterated its stance on foreign-owned cargo carriers and government-owned subsidies, a fight that boiled over earlier in the year. American gets 33 percent of its operating revenues from international markets.
“In providing international air transportation, we compete with U.S. airlines to provide scheduled passenger and cargo service between the U.S. and various overseas locations, foreign investor-owned airlines and foreign state-owned or state-affiliated airlines, including carriers based in the Middle East, the three largest of which we believe benefit from significant government subsidies,” American said. “In addition, open skies agreements with an increasing number of countries around the world provide international airlines with open access to U.S. markets.”
American also noted that it, and all other domestic airlines, face burdensome governmental regulations and are not engaging with international carriers on a level playing field.
For the third quarter, United Airlines reported a 0.8 percent, year-over-year, decrease in cargo operating revenue, but had seen a 4.1 percent revenue increase across the first three quarters of the year, when compared to the same period in 2014.
During the first quarter of fiscal year 2016, which ran through Aug. 31, FedEx reported $12.3 billion in overall revenue, up from $11.7 billion during the first quarter of fiscal year 2015. For the express segment, revenue during the first quarter was down 4 percent from the same period during fiscal year 2015. FedEx officials said lower fuel surcharges were partly to blame for the decrease in revenue. Package volume, it said, was up 1 percent during the same period, though revenue per package declined 3 percent. Continuing a trend of trading down to slower shipment speeds, revenue for the integrator’s international economy product grew 4 percent, as the international express offering declined 5 percent.
For the quarter ending Sept. 30, UPS saw a 0.4 percent loss in total revenue when compared to the same period in 2014; this loss was mainly attributable to a 7 percent decrease in international package revenue. UPS saw healthy domestic air numbers, recording a 1.6 percent revenue increase in the third quarter and a 6.8 percent increase in deferred revenue. For domestic next-day air, average daily package count was up 4 percent to 1.285 million shipments, and deferred shipments rose 13.2 percent. Domestically, revenue per piece was down for next-day air (-3.9 percent) and deferred (-7.1 percent).
All things considered, these numbers are not all that surprising. The top domestic airlines are still struggling with cargo revenue, but the domestic arms of their businesses are doing better than the international side. As global cargo health slowly improves, that will likely be the story for some time, though the holidays will add a much-needed bump to the system. FedEx and UPS continue to struggle with shippers downshifting on international air freight, but seem to be doing well enough on the domestic side—despite the declining revenue-per-package numbers—to make up, somewhat, for this change in behavior.
Ross, a former American Shipper editor, writes about air transport and freight issues. He can be reached by email at [email protected].
This column was published in the December 2015 issue of American Shipper.