Q1 2015
OVERVIEW
Financial performance in the cargo business remains poor and does not deliver adequate returns for investors.
Overcapacity has resulted in lower load factors and has placed downward pressure on yields. Lower jet fuel
prices may provide temporary relief to some carriers but are not expected to have a lasting impact on cargo
business profitability as jet fuel price reductions will be passed on to consumers. If lower jet fuel prices persist it
will help boost demand for air cargo services but favorable impact on financial performance on the cargo
business will only be achieved if coupled with capacity discipline. Underlying economic demand drivers remain
positive and business confidence continues to signal expansion in manufacturing activity but with dampened
expectations. Risks remain high as deepening of the Russian-Ukraine crisis, uncertainty in oil price, turmoil in
the Middle East and continued concerns around sovereign debt of EU member states weigh on confidence.
However, continued positive demand for air-freighted commodities, as indicated by expansion in semi-conductor
shipments, are a potential source of optimism for the year ahead.
Economic Situation The global economy is expected to grow faster in 2015 than at any point since 2010.
However, the forecast growth rate of 2.8% is lower than was expected in mid-2014 (page 2).
Traffic Growth Air freight traffic in 2014 expanded by 4.5% compared to 2013, expansion in freight
volumes continued in January 2015 compared to a year ago albeit at a more subdued pace of 3.2% (page 2).
Demand Environment Growth in global trade volumes has continued to expand, with mirrored increase in
FTKs. Business confidence continues to signal expansion in manufacturing activity but with dampened
expectations (page 3).
Demand Drivers Demand drivers for consumer confidence remain positive across key markets, although in
Europe pessimism still prevails but there are signs of significant improvement in expectations (page 3).
Capacity Freight capacity addition in 2015 will be driven by delivery of wide body passenger aircraft, for
every one tonne of hull capacity added by a wide body freighter three tonnes will be added by wide body
passenger aircraft (page 4).
Competition The difference between sea and air freight rates has largely remained unchanged over the
past year. A key development to watch in 2015 is how the new Silk Road rail link from China to Europe will
impact modal choice and trade dynamics on this important trade lane (page 4).
Revenue and Yields the recent decline in yields are consistent with the continued weakness in load factors
but may also partially be explained by a decreasing cost base with the drop in jet fuel prices (page 5).
Costs jet fuel prices experiencing a decline of 46% since their 2011 highs and 39% since their 2014 highs
in USD terms (page 5).
Profitability outlook if lower fuel prices persist it will boost demand for air cargo services but favorable
impact on financial performance of the cargo business will only be achieved if coupled with capacity discipline
(page 5).
6%
32
5%
22
4%
12
3%
2%
-8
-18
1%
2013
2014
Jan-15
Sep-14
Jan-14
May-14
Sep-13
Jan-13
May-13
Sep-12
Jan-12
May-12
Sep-11
Jan-11
May-11
Sep-10
Jan-10
May-10
Sep-09
World
Jan-09
May-09
Middle
SubLatin
America East North Saharan
Africa
Africa
Japan
Sep-08
Jan-08
US
May-08
-28
0%
Tightening
1%
0%
40%
20%
2012
2013
2014
North Atlantic
Jul-14
Nov-14
Mar-14
Nov-13
Jul-13
Mar-13
Nov-12
Jul-12
Mar-12
Brazil
Nov-11
Russia
Jul-11
India
Mar-11
China
Jul-10
Japan
Nov-10
Euro Area
Mar-10
United
States
Jul-09
-40%
-2%
Nov-09
-1%
Mar-09
Loosening
0%
-20%
Source: IMF
% banks
1.2
1.1
1
30
30
10
10
-10
-10
0.8
-30
0.7
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0.5
1996
Jul-14
Jan-15
Jul-13
Jan-14
Jul-12
0.6
1995
US Banks
Jan-13
Jul-11
-50
Jan-12
Jul-10
Jan-11
Jul-09
Jul-08
Jan-09
Jul-07
Jan-08
Jul-06
Jan-07
Jul-05
Jan-06
Jan-05
European Banks
Jan-10
Looser Credit
Standards
-50
1991
-30
0.9
1994
50
1993
70
Tighter Credit
Standards
50
1992
70
Billion FTKs
(seasonally adjusted)
140
15
14
130
13
120
12
110
11
100
10
56
34
46
36
24
26
14
16
6
-4
-6
-14
-16
-24
International FTKs
Jan-15
Sep-14
Jan-14
May-14
Sep-13
Jan-13
May-13
Sep-12
Jan-12
May-12
Sep-11
Jan-11
May-11
Sep-10
Jan-10
May-10
Sep-09
Jan-09
May-09
Sep-08
Jan-08
Jul-14
Nov-14
Mar-14
Jul-13
Nov-13
Mar-13
Jul-12
Nov-12
Mar-12
Jul-11
Nov-11
Mar-11
Jul-10
Nov-10
Mar-10
Jul-09
Nov-09
Mar-09
Jul-08
Nov-08
Mar-08
Jul-07
Nov-07
International FTKs
May-08
-26
90
Sep-07
May-07
-34
Semi-Conductor Shipments
120
60
100
-5
40
80
20
60
40
-20
20
-30
-40
-35
% growth YoY
-10
-15
International FTKs
US (left scale)
Feb-15
Sep-14
Apr-14
Nov-13
Jun-13
Jan-13
Aug-12
Oct-11
Mar-12
Dec-10
May-11
Jul-10
Feb-10
Sep-09
Apr-09
Nov-08
Jun-08
-25
Jan-08
Mar-15
Jul-14
Nov-14
Mar-14
Jul-13
Nov-13
Mar-13
Jul-12
Nov-12
Mar-12
Nov-11
Jul-11
Mar-11
Nov-10
Jul-10
Mar-10
Nov-09
Jul-09
Mar-09
Nov-08
Jul-08
Mar-08
Nov-07
Jul-07
Mar-07
-20
EU (right scale)
Source: DatasStream
FTKs (billion)
1.60
70
18
1.40
16
50
10
30
10
Source: DatasStream
Q1-2015
Q3-2014
Q1-2014
Q3-2013
Q1-2013
Q3-2012
Q1-2012
Q3-2011
Q1-2011
Q3-2010
Q1-2010
-15
Q3-2009
-10
-70
Q1-2009
Dec-14
Aug-14
Apr-14
Dec-13
Aug-13
Apr-13
Dec-12
Apr-12
Aug-12
Dec-11
Apr-11
Aug-11
Dec-10
Aug-10
Apr-10
Dec-09
Aug-09
Apr-09
Dec-08
Aug-08
Apr-08
Dec-07
Aug-07
Apr-07
0.80
-50
Q3-2008
10
-5
-30
Q1-2008
1.00
-10
Q3-2007
12
Q1-2007
1.20
Q3-2006
14
Number of aircraft
3900
3700
40%
3500
20%
3300
3100
0%
2900
-20%
2700
Asia to EU by sea
Asia to EU by air
Jul-14
Nov-14
Mar-14
Jul-13
Nov-13
Mar-13
Jul-12
Nov-12
Mar-12
Jul-11
Nov-11
Mar-11
Jul-10
Nov-10
Mar-10
Jul-09
Nov-09
Nov-08
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-09
-40%
2500
EU to Asia by sea
EU to Asia by air
12
11
49%
10
45%
40%
20%
0%
-20%
41%
-40%
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
-60%
Dec-14
Apr-14
Aug-14
Dec-13
Apr-13
Aug-13
Dec-12
Apr-12
Aug-12
Dec-11
Apr-11
Aug-11
Dec-10
Apr-10
Aug-10
Dec-09
Apr-09
Aug-09
Dec-08
37%
Aug-08
Ocean container
Air Freight
Number of aircraft
10
400
8
350
300
250
200
2
150
100
50
-2
North America
2007
2008
2009
Other
Middle East
2010
2011
2012
2013
2014
Europe
Dec 2013
North America
Europe
Asia Pacific
Middle East
Latin America
2015
Nov 2014
Dec 2014
Source: Drewry
Source: Ascend
SE Asia-Europe
Global total - LHS
2014Q3
2014Q1
2013Q3
2013Q1
2012Q3
2012Q1
2011Q3
2011Q1
2010Q3
2010Q1
2009Q3
2009Q1
2008Q3
2008 Q1
2007 Q3
2007 Q1
2006 Q3
2006 Q1
Apr-14
Dec-13
Apr-13
Aug-13
Dec-12
Apr-12
Aug-12
Dec-11
Apr-11
Aug-11
Dec-10
Apr-10
Aug-10
Dec-09
Apr-09
Aug-09
Dec-08
Apr-08
Aug-08
Dec-07
Apr-07
Aug-07
0.6
2005 Q3
0.9
2005 Q1
1.2
2004 Q3
1.5
2004 Q1
1.8
% of revenues
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
2003 Q1
2.1
Dec-14
2.4
Aug-14
2003 Q3
Source: US BTS
US$
% growth
200
75
40%
60
30%
180
160
140
20%
45
10%
120
30
100
0%
15
80
60
-10%
-20%
-15
-30%
Source: DataStream
2015F
2014E
2013
2012
2011
2010
2009
2008
2007
2006
2005
Weighted score
Jan 2015
Apr 2014
Apr 2013
Jul 2012
Oct 2011
Jan 2011
Apr 2010
Jul 2009
Oct 2008
Decrease
Increase
100
90
80
70
60
50
40
30
20
10
0
Jan 2008
Q3 2014
Q3-2013
Q3-2012
Q3-2011
12
Q3-2010
15
Q3-2009
18
Q3-2008
Q3-2007
21
Q3-2006
Q3-2005
% Growth
Q3-2004
2004
Cargo Revenues
Source: ICAO, IATA
Q3-2003
2003
2002
2000
Oct14
Jan15
Jul14
Apr14
Jan14
Oct13
Jul13
Apr13
Jan13
Oct12
Jul12
Apr12
Jan12
Jul11
Oct11
Apr11
Oct10
Jan11
Jul10
Apr10
Oct09
Jan10
Jul09
Apr09
Jan09
Jul08
Oct08
20
2001
40
Jul-14
0.5%
2.8%
-4.0%
7.2%
0.0%
Aug-14
11.3%
2.9%
5.5%
8.2%
0.0%
Sep-14
18.2%
0.5%
8.8%
4.7%
0.0%
Oct-14
13.0%
0.8%
8.3%
6.7%
0.0%
Nov-14
14.4%
0.3%
11.0%
6.8%
0.0%
Dec-14
15.8%
-0.2%
13.7%
7.0%
0.0%
2.5%
7.9%
3.9%
9.7%
-3.0%
2.0%
4.3%
-2.7%
19.8%
24.3%
-4.4%
3.7%
-4.0%
19.5%
5.9%
3.8%
4.6%
1.2%
-8.1%
12.6%
12.7%
-0.4%
-5.0%
-5.7%
15.8%
4.0%
-5.2%
0.9%
-0.5%
-0.9%
13.8%
14.9%
-0.5%
2.3%
-2.1%
17.8%
4.8%
-5.5%
0.5%
1.6%
-2.5%
15.2%
14.9%
-0.6%
3.8%
-1.9%
20.2%
4.5%
-6.8%
-0.6%
1.7%
-2.0%
15.6%
13.9%
-0.2%
5.4%
-1.7%
22.7%
4.2%
-8.0%
-1.7%
1.9%
-1.5%
16.0%
12.8%
0.3%
Table 2. Outbound CASS Market Revenues (incl. fuel and other surcharges)
Origin Region
Africa
Asia Pacific
Europe
Latin America & The Carribean
Middle East & North Africa
North Asia
North Atlantic & North America
US$m
Q4 2014
2013 Q3
2013 Q4
2014 Q1
2014 Q2
2014 Q3
2014 Q4
107
1619
14%
-14%
-1%
-8%
6%
-4%
-5%
7%
2898
534
154
4%
6%
6%
11%
3%
-6%
-6%
17%
13%
-8%
-2%
14%
21%
-4%
0%
8%
21%
-2%
7%
1%
9%
-4%
14%
3%
6%
16%
17%
4%
5%
6%
6%
1%
1969
1269
23%
2%
Table 3. Inbound CASS Market Revenues (incl. fuel and other surcharges)
US$m
Q4 2014
2013 Q3
2013 Q4
2014 Q1
2014 Q2
2014 Q3
2014 Q4
Asia Pacific
498
1849
-4%
-3%
-3%
2%
-1%
4%
7%
5%
11%
6%
Europe
137
0%
8%
7%
9%
0%
8%
0%
-15%
1847
772
629
809
-1%
-2%
-3%
2%
-5%
2%
4%
2%
6%
6%
3%
10%
12%
-7%
15%
5%
9%
-8%
9%
6%
Destination Region
Africa
-2%
-1%
1%
-9%
Glossary
ACI: Airports Council International
AFTK: Available Freight Tonne Kilometers
ECB: European Central Bank
EIU: Economist Intelligence Unit
CASS: Cargo Accounts Settlement System
FT: Financial Times
FTK: Freight Tonne Kilometers
PMI: Purchasing Managers Index
Netherlands CPB: Netherlands Bureau for Economic Policy Analysis
ODS: Origin-Destination Statistics
SIA: Semiconductors Industry Association
US BTS: US Bureau of Transportation Statistics
M-o-m: Month over month percentage change
Y-o-y: Year over year percentage change
th
9 March 2015
George Anjaparidze & Andrea Navares
IATA Economics
economics@iata.org