While passenger airlines struggled during the COVID-19 pandemic, cargo airlines experienced unprecedented growth.
With shifting global supply chains and rising e-commerce demands, the air cargo sector has flourished, revealing unexpected industry leaders driving this booming market.
According to simpleflying.com, Cargo operations were more profitable than ever during the period between April 2020 and April 2022, during which cargo yields rose to over 200% of fuel costs, a common metric used to analyze the profitability of air freight operations.
With such profits to be made, it is not surprising that airlines like FedEx and UPS Airlines were operating at maximum capacity, and these airlines were doing better than ever before. FedEx and UPS, the two largest cargo airlines globally by most metrics, operate end-to-end logistics networks, in which they can deliver freight from its origin to its final destinations. This contrasts sharply with airlines that transport cargo in the holds of commercial flights, which only transport goods between airports on regularly scheduled flights.
While most companies saw their stock prices crater and earnings fall during the first few months of the COVID-19 pandemic, these two carriers were some of the most profitable during the period between April 2020 and September 2020. FedEx shares rose over 150% throughout that first summer, while UPS saw similar returns of 125%, both impressive numbers.
UPS, FedEx, and other cargo-only operators looked poised for sustained financial success
With extreme confidence from the market and rapidly growing demand for air cargo behind them, these carriers looked like they were ready for a period of extended impressive financial performance.
Furthermore, consumer tendencies regarding online shopping have also shifted, leading to even more demand for air cargo transport. Nonetheless, it appears that the confidence in these legacy cargo operators’ growth may have been significantly overblown.
READ: Aviacargo: Global Air Cargo Revenue Projected to Reach $157 Billion by 2025: IATA
Over the past five years, the air cargo industry has undergone an extensive transformation, with cargo demand increasing significantly and many new airlines entering the space. Let’s take a deeper look at what exactly has happened in the air cargo industry over the past year and evaluate who truly capitalized on these shifting industry dynamics.
Legacy carriers have vastly expanded their cargo capabilities
Demand for air cargo traffic has increased significantly. For starters, the overall demand for air cargo has increased by around 10% since 2019, according to data from consulting firm Accenture. There are two important things to understand about this number, the first being that it demonstrates the structural shift in how companies and individuals demand air cargo transportation. There are many reasons why exposure to online shopping and remote shipment options could have led to an overall shift in people’s tendency to order things and ship goods.
Furthermore, this number demonstrates that after accounting for the cyclical fluctuations in air travel demand created by the pandemic, people still need to ship about 10% more cargo than they did before. Considering that this demand increase is significant, there must have been some players within the industry that were capable of capturing this additional business and growing as a result.
Airlines like UPS and FedEx haven’t really been the biggest winners
Common intuition would suggest that the most established airlines in the space (dedicated freight-carrying airlines like FedEx and UPS) would be in the best position to capitalize on this market restructuring, and the markets back in 2020 agreed. This, however, turned out not to really be the case.
In the immediate wake of the pandemic, FedEx, UPS, and other dedicated cargo operators saw available capacity increase marginally, and today they transport only around 2% more freight than they did before the pandemic, as per data from the IATA. Makeshift freighters (airlines that put boxes in passenger cabins) accounted for a significant portion of the capacity increase in the immediate months of the pandemic.
FedEx and UPS have also not seen the extended financial success that many markets were projecting. FedEx’s stock peaked in May 2021 and has changed little since then, returning a mild loss of around 10% to investors. UPS has fared significantly worse, with shares consistently declining since their 2021 peak, dropping around 42% to date.
Legacy passenger airlines have been the immediate winners
The carriers that have succeeded in capturing this increase in passenger demand have overwhelmingly been scheduled passenger airlines, which operate two different kinds of cargo models. Some carriers operate dedicated cargo subsidiary airlines, examples of which can be observed in the table below:
Legacy airline: Cargo subsidiary:
Emirates Emirates SkyCargo
Lufthansa Lufthansa Cargo
Malaysia Airlines MASkargo
Air Canada Air Canada Cargo
Airlines that operate dedicated cargo-only subsidiaries have seen the largest amount of growth during this period. Airline-operated freighter aircraft have seen a growth in total cargo carried by 25%. The other kind of commercial airline cargo subsidiary, which transports cargo in the belly of commercial aircraft, has seen mild growth mostly in line with overall trends, as per the IATA.
During the initial months of the pandemic, legacy airline cargo subdivisions had all the attention placed on them, with many optimizing business practices and expanding services to better serve customers. The industry, however, could be bound for a significant challenge in the coming months.
Many have commented that trade wars and increases in protectionist economic policies could likely lead to a decrease in air travel demand. According to FreightWaves, tariffs could have a significant impact on the rising demand for air travel, with some projections suggesting that demand could fall by as much as 50%.
