Covid-19 Insights: Air Cargo & Logistics Facilities and Services (Part 2)

Ray Brimble, CEO and Founder, Lynxs Group, LLC

View the initial Insight on this topic (published May 7, 2020).

• Status Update: What a difference a month makes! In April, many thought the sky was falling. Never a good thing when you are in an aviation related business! Cargo and logistics are by nature, agile. Things that fly usually move fast. Over the last month, we have seen passenger aircraft rapidly converted into cargo aircraft, by the thousands. E-commerce continues to dominate, and products sold this way like to move by air. Global commerce in general dropped, but then was stimulated by the unprecedented flow of medical supplies around the world, mostly by air. I say with some sheepishness (because of the real pain and malaise I see all around me), that the last 30 days have been good for cargo. After being the ugly duckling of the aviation world for so many years, cargo might now deserve to say, “Don’t hate me just because I am beautiful!”
• Noteworthy Developments: Federal stimulus is now pouring into both airports and service providers. Many deals have been made between landlords and tenants to defer payments and bills. In April this felt like simply deferring pain. But today, with volumes and traffic already increasing again, and with money flowing into the system from the outside (government), this scheme just might work. That is, unless things get worse again due to a recurrence of the virus spread, bankruptcies and foreclosures, and other problems caused when industry players, their customers, and employees just cannot hold out any longer. But for now, the lifeline is holding.
• Important Variables: It stood to reason that cargo carriers with freighters would benefit from increased air commerce, much of it stimulated by the need to move emergency medical supplies around the world. Major cargo airport traffic reflects this as Louisville, KY, home of the UPS Worldport hub, becomes the fifth largest cargo airport in the world. But who could have foreseen the Ted Stevens Anchorage International Airport, in Alaska, becoming the world’s no. 1 busiest airport, solely based on its increased cargo traffic? If you want to win $10 on a virtual happy hour bet, ask your friends “what is the busiest airport on the planet right now?” They may guess Atlanta, Heathrow, Hong Kong, or perhaps Dubai. Almost no one will bet on Anchorage. Go ahead — take their $10!
• Emerging Themes: Stabilization appears to be taking place, at least for the moment, much of it built on government bailout money. This is a good thing for airports whose infrastructure is vital to national and global commerce. But what about airports and service providers that were not particularly good businesses before COVID-19? Many of these will be bailed out too. I am not for the government being the chooser of winners and losers, but there is no doubt that taxpayer money will be used to extend the lives of enterprises , both public and private, which would/should have died a natural death had life and business gone on as “normal”. As we go forward, it’s important to discern good businesses thrown a life line so they can see a better day from bad businesses that got lucky when the government opened the door of the vault.
• My Analysis: Global commerce? Conventional wisdom would have you believe that it’s the walking dead. And that the USA and China are the midst of a “great decoupling”. They want us to believe that the world’s two largest economies (by far) will not have substantial commerce, requiring incredible amounts of trade and transport. Don’t you believe it. Just as water always find its way to flow, trade will also flow. Will supply chains diversify? Absolutely. Will more development and production be re-nationalized? Positively. Will we quit buying and selling things to each other and providing an ever increasing amount of services on a global scale?. Never. Commerce will continue, and the volume in trade may actually increase in some sectors. Let’s not get all macro in our pronouncements that “global trade is dead”, because it’s just not.
• On the Horizon: Like the emergence of Anchorage as the dominant airport handling transpacific traffic, no one would have predicted that passenger carriers would so quickly convert many of their aircraft to strictly cargo carriage. But as of May 21st, more than 1,450 previously configured passenger aircraft are now operating in cargo-only service. So many of those aircraft I thought would be parked in the desert are flying across the world filled with boxes of medical supplies, your e-commerce purchases, and the like. Statistics about the drop in passenger counts for the major airlines suggest that the total revenue for these airlines has dropped proportionally. But they rarely factor in the revenue generated by increased cargo traffic. Additionally, the last month has seen huge savings for the airlines on their fuel bills. It is estimated that the total fuel bill for American airlines will be cut in half this year, saving them collectively about $17 billion. Add in the federal bailout money for the airlines, the retirement of older, less efficient aircraft in their fleets, and the downsizing of their workforces, and a far different picture of the airlines’ future emerges. Don’t be surprised if the industry actually comes out even healthier in the long run. But of course, you can also expect to pay more for your airline tickets, just like you do for your cargo (roughly 2–3 times more, per kilo, on some routes). All of this means that the airlines’ demise, like Mark Twain’s early death, might have been greatly exaggerated.
• Emerging Players: Amazon … Need I say anything more to prove that it’s the one to watch? I know some families, including my own, who are single handedly purchasing from amazon at a pace that will hold up the company’s stock value. What is surprising (but should not be) is how other competitors, such as Walmart and Wayfair, are also cashing in. But Amazon is the only one building its own dedicated air cargo fleet (+200 large air cargo freighters at present), and its global logistics hub at Cincinnati (CVG). Just as Amazon sneaked up on the cloud computing industry by building its AWS cloud network, Amazon aims to build its own global logistics capability and lease its excess capacity to its competitors en route to what I believe will be world domination in yet another sector. Atlas Air, the world’s largest all cargo airline, has seen its stock price almost double in the last six weeks. Even Delta, Emirates and Cathay are making a few happy noises for the reasons described above.
• Personal Note: When I last posted, I was very, very concerned about the state of my commercial world, as well as the world in general. While we are most definitely not out of the woods, and may even still be stuck in the branches, there may be a path out of this after all. The path will not be without pain and suffering. Some of us, maybe even me, might not make it. However, all crises are a point in time, and this too shall pass. Lets keep telling ourselves that — it’ll make us feel better.