Covid-19 Insights: Air Cargo & Logistics Facilities and Services (Part 1)
Ray Brimble, CEO and Founder, Lynxs Group, LLC
- Current Status: Varied depending on sector, but aggressively UP, if cargo/e-commerce facing.
- Longer-Term Concerns: Possible airport and airline bankruptcies, and aviation/logistics service providers could quit paying their bills, causing negative financial contagion up and down the chain.
- Noteworthy Aspects: Passenger carriers were the overwhelming focus for airports and service providers. Cargo and logistics have always been treated as “step children”. Currently passenger carriers are suffering greatly and cargo is prospering, so attitudes toward cargo and logistics in the general aviation sector have reversed. Interesting tidbit is that many passenger aircraft are now being used exclusively for air cargo. Air cargo rates/kg have skyrocketed to levels never before seen, after years of extremely low rates which made air cargo barely profitable on many routes. It would be as if oil prices suddenly went from $20/bbl to $200/bbl. Cargo is extremely profitable in some cases, but it will not (should not) last. Question to consider: is this a proper way to do business, or is it profiteering? In an industry used to doing “variable pricing” (think passenger ticket pricing, depending on the time you purchase it), will this help or hurt the airlines’ image over the long run? How do airlines justify this pricing in the midst of a crisis?
- Important Variables: Government bailout money can stabilize many of the airports and service providers over the next few months. However, it is unclear if passengers will quickly return, elongating the situation. What to watch for: Will global trade return to its previous levels once economy stabilizes? Will new trade routes be developed as supply chains evolve and diversify? With regard to manufacturing, previously all roads (and flights) were leading to and from China. Will this change in any way? How dominant can e-commerce become in the next era? Can anyone compete with Amazon?
- Personal Assessment: Government assistance and some industry expectations appear to be, “Let’s all just get back to the way it was”. Highly unlikely. Data point: Delta airlines parked most of their inactive aircraft (about 90% of their entire fleet) on regular airports (like DFW, AUS and IAH). The appearance was that they were parking temporarily to see if market conditions improved soon. This week, Delta began moving most of those aircraft to the “desert”, former Air force bases in the West used to “stack” aircraft for long term storage and possible decommissioning. Read: Delta doesn’t think these aircraft will be needed any time “soon” and is preparing for downsizing in the long haul.
- Ones to Watch: Amazon, Atlas Air, UPS, Cincinnati/Northern Kentucky International Airport, Delta, Emirates Air, Cathay Pacific Air, could you say why? US Congress for aviation related bailout money, Airports Council International (trade group).
- Personal Note: I am so surprised to see that many of my tenants and customers actually have increased business (because they are mostly cargo), in the midst of all of the news stories about other sorts of businesses going broke. Today, two of my customers (names withheld) said that they were increasing flights to and from Asia, and from China to the rest of the world, mostly in response to the need to move medical supplies around the world.