Major trans-Atlantic airlines are reporting full planes Monday as the U.S. reopens its borders to fully vaccinated travelers for the first time since March 2020. The new demand is stimulating 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.
Extra capacity introduced in recent weeks, along with shipment diversions to avoid ocean freight bottlenecks, helped European carriers post strong gains in cargo revenue during the third quarter.
Lufthansa Group (DXE: LHA) last week reported record operating profit of 301 million euros ($354.3 million), on an adjusted basis, for its cargo division as freight demand continued an 18-month streak of elevated growth, amid a marketwide shortfall in airlift, triggered by the pandemic. Lufthansa Cargo, one of the largest cargo operators by volume, moves shipments with 11 Boeing 777 freighters and in the bellyholds of its passenger fleet.
Overall, the German flag carrier reported its first adjusted operating profit ($320.1 million) since the crisis, while still coping with high restructuring costs. Group results cover subsidiaries Austrian Airlines and Swiss International Airlines, as well as regional carrier Eurowings.
“We are back to black,” said Deutsche Lufthansa AG CEO Carsten Spohr.
Group airlines were able to increase passenger capacity to 50% of 2019 levels, and nearly double capacity compared to the previous quarter, as load factors increased. The announced removal of U.S. travel restrictions at the end of September immediately boosted weekly bookings by 51% compared to previous weeks, with bookings having returned to about 80% of 2019 levels. Major cities — and cargo gateways — New York, Miami, San Francisco and Los Angeles are experiencing especially strong customer demand, Lufthansa said.
The airline said it expects passenger capacity in the first quarter of 2022 to reach 65% of the 2019 level, increasing 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 separation programs, with agreements reached with an additional 3,000 workers to depart soon. The group has 107,000 employees with a goal of 100,000 to align with the company’s smaller size.
Industrywide, air cargo capacity is still about 13% below 2019 levels because of the dearth of international passenger services. The International Air Transport Association last week said international passenger demand remains 69% below pre-crisis levels. Passenger aircraft normally represent half of global cargo capacity.
Surging e-commerce orders, extremely low retail inventories, manufacturing growth and supply chain disruptions are pressuring companies to push more shipments toward air transport. The supply-demand imbalance has caused global freight rates to increase 2.5 times from two years ago and rates are four-to-six times higher on major trade routes out of Asia. Analysts and logistics providers report all-cargo aircraft departing cities in China and other parts of Southeast Asia are completely full.
More IAG cargo capacity
The favorable cargo dynamics also propelled IAG Group (CXE: IAG), parent company of British Airways and Iberia, to improved results in the third quarter.
The company achieved $476 million in cargo revenue, a 50.5% increase over 2019, with cargo yield doubling to 48 cents per shipping unit. The financial improvement came despite a 26.7% decline in cargo throughput from 2019, underscoring how pricing power has been the dominant factor behind airlines’ cargo revenue growth.
The amount of cargo carried, however, was 37% better than in 2020 despite a reduction in cargo-only flights as passenger capacity increased. The airline only operated 657 passenger freighters in the quarter compared with 1,371 in the quarter as more aircraft were returned to their traditional passenger role.
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 schedule because of travel restrictions in the U.K. and Europe.
Officials said bookings for long-haul traffic are recovering faster than short-haul heading into the winter and that there are early signs of a recovery in business travel.
On Monday, IAG Cargo announced an increased schedule into the U.S. Extra passenger flights are now available to New York; Austin, Texas; Miami; Philadelphia; and Los Angeles. The company is also restarting direct service into Newark, New Jersey. It also plans to restart service to Baltimore; Orlando and Tampa, Florida; and Las Vegas on Nov. 15.
In addition, IAG said that it is deploying extra widebody aircraft on short-haul European routes to feed its main hubs in London Heathrow, Madrid and Dublin, which will offer faster delivery for customers. Of note, British Airways is now operating an Airbus A380 super-jumbo jet between London and Frankfurt, Germany — an important manufacturing hub for the automotive industry.
“We are delighted to see the United States open up once again to passengers, and the impact this will have on cargo capacity. The full reopening of the transatlantic travel corridor is a pivotal moment,” said John Cheetham, chief commercial officer at IAG Cargo, in a statement. “With peak season in full swing … this additional capacity will be of great benefit to so many of our customers” on the busy trade lane linking the U.S., Europe and the U.K.
In mid-October, United Airlines (NASDAQ: UAL) announced the largest trans-Atlantic expansion in its history. That was followed by the addition of five new flights to London Heathrow Airport, including two more flights from New York/Newark, additional trips from both Denver and San Francisco, and a new direct flight from Boston, beginning in March.
Delta Air Lines (NYSE: DAL) on Thursday said that in the six weeks since the U.S reopening was announced, it has seen a 450% increase in international point-of-sale bookings versus the six weeks prior to the announcement. Many international flights are expected to operate 100% full on Nov. 8, with high passenger volume throughout the following weeks. Over the next several months, Delta is adding flights to major cities across the Atlantic with more frequencies and returning routes. At New York-JFK, Delta will operate up to 29 daily flights to 23 trans-Atlantic destinations in the of summer 2022.
For the first nine months of the year, IAG had cargo revenue of $1.4 billion, 30.6% more than two years ago. During the period, IAG operated 3,334 cargo-only flights.
Overall, the carrier more than halved its operating loss ($3.1 billion) compared to previous quarters, with operating cash flow positive 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.