"Another Cargo Airline Downsizes Operations as Parcel Business Dries Up"

The air cargo industry is facing a significant shift as passenger travel demand surges, leading to a decline in cargo revenue for major airlines. Delta and American Airlines have seen their cargo revenue drop to 1.3% and 1.6% of overall revenue, respectively, down from 3.5% and 12% in 2020. This trend is not isolated; it reflects a broader industry challenge as airlines prioritize passenger flights over cargo operations.

The resurgence of international travel has prompted airlines to add back service, increasing passenger capacity and reducing the need for dedicated cargo flights. This shift has led to a 47% drop in the Baltic Air Freight Index, which tracks worldwide air cargo rates. In May 2024, air cargo capacity was up nearly 15% from the same month of 2022, while demand dropped 5%. This dynamic highlights the changing landscape of the air cargo industry, where passenger travel is once again the primary focus.



Historically, air cargo has been a key facilitator of world trade, with goods transported by air accounting for 36% by value of all goods traded globally. The industry has grown about 50% faster than passenger transport during 1995 and 2004 and continues to grow in recent years. Boeing (2014) forecasts that the air cargo market will continue to grow by 4.7% per year and will triple in revenue by 2033 from 207.8 billion revenue ton kilometers (RTKs) in 2013 to over 521.8 RTKs in 2033. This growth is largely attributed to the expansion in Asian markets, particularly in China.

However, the current state of the air cargo industry is marked by a decline in cargo revenue as a percentage of overall revenue for major airlines. For instance, cargo revenue made up 1.3% and 1.6% of overall revenue at Delta and American, respectively, down from 3.5% and 12% in 2020. This decline is due to the renewed demand for international travel, which has prompted airlines to add back service, thereby increasing the world's supply of space to fly cargo at the same time that demand for air cargo is waning. The Baltic Air Freight Index, which tracks worldwide air cargo rates, is down 47% from a year earlier. In May, the latest available data, the International Air Transport Association, said air cargo capacity was up nearly 15% from the same month of 2022 while demand dropped 5%.



The decline in air cargo demand can be attributed to several key factors. Firstly, the resurgence of passenger travel has led to an increase in passenger capacity, which in turn has boosted the world's supply of space to fly cargo. Secondly, the Baltic Air Freight Index, which tracks worldwide air cargo rates, is down 47% from a year earlier, indicating a significant decrease in demand for air cargo services. Additionally, the shift in consumer behavior towards e-commerce during the pandemic has led to a decrease in demand for air cargo as supply chain problems and port congestion have eased.

To adapt their business models to better align with current market trends, cargo airlines can consider the following strategies:

1. Diversify Revenue Streams: Cargo airlines can explore new revenue streams by investing in e-commerce logistics, cold chain logistics, and other specialized cargo services. This can help them to mitigate the impact of fluctuations in air cargo demand and ensure a steady revenue stream.

2. Optimize Network and Capacity: Cargo airlines can optimize their network and capacity by focusing on high-demand routes and adjusting their fleet size and composition to better match demand. This can help them to improve their operational efficiency and reduce costs.

3. Enhance Customer Experience: Cargo airlines can enhance their customer experience by offering value-added services such as real-time tracking, customized delivery options, and improved customer support. This can help them to differentiate themselves from competitors and attract more customers.

4. Invest in Technology: Cargo airlines can invest in technology to improve their operational efficiency and reduce costs. This can include investing in automation, data analytics, and other digital technologies to streamline their operations and improve their decision-making.

5. Collaborate with Partners: Cargo airlines can collaborate with partners such as freight forwarders, ground handlers, and other stakeholders to improve their service offerings and enhance their competitiveness. This can include forming strategic alliances, joint ventures, and other collaborative arrangements to leverage each other's strengths and capabilities.

By implementing these strategies, cargo airlines can better align their business models with current market trends and ensure their long-term sustainability and profitability. The current state of the air cargo industry presents both challenges and opportunities, and airlines that can adapt to the changing landscape will be better positioned to thrive in the years to come.