Korean Air, the fifth-largest cargo shipping airline, on Wednesday said cargo revenue in the second quarter plunged 56% to $748.8 million, further illustrating how a weak freight market has impacted Asian carriers more than others.

Korean Air has a fleet of 155 aircraft, including 23 widebody freighters (Boeing 747s and 777s).

A strong recovery in travel demand helped boost total revenue to $2.7 billion, but the company said cargo business was negatively impacted by the decline in shipping demand combined with increased capacity from the post-COVID return to service of passenger aircraft that has depressed cargo rates. 

Cargo volume at Korean Air fell 18.8% in the quarter year over year but was 15.6% better than the same period in 2019. Load factors decreased 12.5 points to 70%.

Air cargo demand has fallen 7% to 10% since March 2022 as ocean supply chains recovered and the global economy slowed after the pandemic. Conditions have marginally improved in recent months, but airfreight demand remains about 3% lower and shipping rates are 40% to 50% cheaper than a year ago. Excluding fuel surcharges, rates are near where they were in 2019 in many trade corridors.

Management said it didn’t anticipate improved results in the third quarter because of intensified competition and the drop in freight rates but that volumes could tick up as semiconductor companies deplete inventories and battery demand for electric vehicles picks up. 

Transportation of lithium batteries exceeds 10% of Korean Air’s total air cargo volume and this number is projected to grow with consumer demand for smartphones, handheld electronic devices and electric vehicles. The airline expects plans to leverage new certification from the International Air Transport Association for excellence in handling lithium ion batteries to attract more business. 

The cargo division is also working to improve margins by optimizing connecting routes in response to changing demand patterns, adding a freighter destination in Zhengzhou, China, and increasing contracts for e-commerce.

All Nippon Airways last week reported cargo revenue sank 60% during the second quarter. It partly attributed the weak results to lower shipping demand for semiconductors, electronics and automotive goods.

Singapore Airlines last week said cargo revenue fell 50.6% to $416 million. Cargo traffic fell 11.3% year over year while capacity increased 12% as more passenger flights returned to service. Cargo space was only half filled (51.8%), a drop of 13.7 points. Cargo yields fell 44.3% but remained 50% above the pre-COVID levels. 

Singapore Airlines operates seven Boeing 747-400 freighters in addition to a large passenger fleet.

The airline said it expects cargo demand to remain soft in the near term due to inflation, weak economic conditions and a modal shift back to ocean freight as supply chain constraints ease. It also cited higher competition exerting extra downward pressure on cargo yields. Air cargo experts have previously noted that many airlines and logistics providers are undercutting market rates to try and fill excess capacity. The manufacturing sector in many parts of the world remains in contraction territory and researchers have lowered their outlook for global trade growth in 2023.

Korean Air and ANA both said cargo businesses significantly deteriorated in North America, their largest market.

European carriers Air France-KLM and International Airlines Group saw second-quarter cargo revenues contract by a third, while U.S. majors American Airlines, Delta Air Lines and United Airlines reported cargo revenue deteriorated between 37% and 40%. 

Overall, Korean Air achieved a moderate operating profit of $356.5 million, reflecting the slower recovery of airlines in Asia, where governments maintained COVID travel restrictions longer than in other parts of the world.

Click here for more FreightWaves stories by Eric Kulisch.

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