By Eun-Young Jeong
SEOUL--The only major airlines making money these days are busy
flying cargo, not passengers.
Of the world's 30 largest airlines by revenue, just four
reported profits for the April-June quarter, according to a Wall
Street Journal analysis. They are all based in export-heavy South
Korea or Taiwan, benefiting from the surge in demand for tech
components and electronic gadgets as more people work from home,
and for personal protective equipment, much of it produced in Asia.
Continuing demand for automobile parts and other Asia-made goods
has also helped.
The analysis excluded some major carriers that didn't report
recent quarterly earnings.
Industrywide cargo revenue is expected to reach about $111
billion this year, according to the trade group International Air
Transport Association. That is only a slight uptick from its
pre-pandemic forecast, but the plunge in passenger revenue--IATA
has slashed its 2020 forecast to $241 billion from an initial $581
billion--means cargo's contribution would represent more than a
quarter of total industry revenue, compared with the typical
eighth.
For the four airlines that showed a profit in the latest
quarter-- Korean Air Lines Co., Asiana Airlines Inc., China
Airlines Ltd. and EVA Airways Corp.--cargo's share of revenue
ranged from 72% at Korean Air to 93% at China Airlines, compared
with no more than a third last year.
When the pandemic hit, it wiped out some 40% of the world's
capacity for air cargo carried in the bellies of passenger planes,
according to the trade group IATA. Plenty of airlines looked to
fill the gap and boost cargo capacity as the pandemic triggered
mass layoffs and widespread flight cancellations and led
governments to provide more than $120 billion in aid. They are
using passenger planes for cargo operations temporarily, stashing
freight in overhead bins and buckling it into seats or removing
seats altogether. Travelers aren't allowed aboard with cargo in the
cabin.
The four carriers that showed profits enjoyed gains because they
already had sizable cargo fleets. The profit boost came from the
low supply of global airfreight capacity that sent the cost of
shipping goods on common routes from Asia to the U.S. or Europe
soaring; they have increased less going the other way. IATA's
latest figures show capacity still about a third below last year's
levels.
Rates have fallen from recent highs, according to TAC Index, a
market researcher, and industry analysts say they should decline
further later this year--though demand for shipping Covid-19
vaccines could disrupt that.
Seoul-based Korean Air recently removed passenger seats on two
planes and has plans to soon modify two more, said Eum Jae-dong,
the head of the airline's cargo business division. One unexpected
benefit: Regulators still treat them as passenger flights, meaning
goods can now fly to certain cities, like Yangon, Myanmar,
previously difficult to reach for cargo fleets.
"They can fly into airports and other destinations where cargo
aircraft couldn't go because of airport conditions or the lack of
operational equipment," Mr. Eum said.
But their advantage is also their limitation. Under aviation
rules, a modified passenger plane cannot make multiple stops as an
airfreight plane, according to Kim Yu-hyuk, an analyst at Hanwha
Investment & Securities Co. in Seoul. They can make only round
trips, as they typically would while carrying passengers.
Routes for airfreight carriers from South Korea and Taiwan
typically begin with transporting locally made high-value
electronic components to China or Southeast Asia. There, the
components are dropped off and the plane picks up finished products
to fly to Europe or North America. On the way back home, the planes
often carry fresh foods and pharmaceuticals.
U.S. airlines, despite having the federal authority to do so,
largely haven't removed seats to fly more cargo, partly because
most flights are domestic, using narrower-body planes that lack
significant cargo capacity, industry experts say.
Still, U.S. carriers started cargo-only flights using just the
bellies of their planes at the start of the pandemic and have now
flown thousands of them--1,200 since February for Delta Air Lines
Inc. alone, which now averages about 50 a week, a spokesman said.
The airline did remove seats from one Boeing 777-200ER, boosting
its cargo capacity by 35%. The plane was first used on Sept. 11 for
a cargo charter flight between Mumbai and New York. Delta, which is
retiring its 777 fleet, has no current plans to reconfigure more
planes, the spokesman said.
Seats have also come out at Air Canada--on three 777-300ERs--and
European carriers such as International Consolidated Airlines Group
SA's British Airways and Deutsche Lufthansa AG. China Southern
Airlines Co. reconfigured two Airbus A330 passenger planes.
Dubai-based Emirates, which has one of the world's largest
air-cargo fleets, has ripped out economy seats on 10 passenger jets
since June.
"The airline industry is still bleeding cash by the billions
each month, " said Tim Clark, president of privately held Emirates,
in a written statement. "We're taking baby steps on the path to
recovery."
The shift to cargo is a stopgap measure, say aviation experts.
"The core competency for passenger airlines is to serve
passengers," said Bijan Vasigh, of Embry-Riddle Aeronautical
University in Daytona, Fla., who specializes in airline economics.
But about 3 billion fewer passengers are expected to fly this year
than last, with airlines reducing available seats by about half--by
about two-thirds on international routes--according to the
U.N.-affiliated International Civil Aviation Organization.
Meanwhile, for the April-June quarter Korean Air reported an
operating profit of $90 million, hometown rival Asiana Airlines $19
million, Taiwan's EVA Airways $6 million and China Airlines, also
from Taiwan, $92 million--more than four times what it had earned a
year earlier.
This month, Korean Air deployed its first modified Boeing
777-300ER; removing most of its 291 cabin seats added 10.8 tons of
capacity to its previous limit of 22 tons, the airline said. The
newly cleared cabin and belly were packed with boxes of automobile
parts, garments and electronics devices.
"South Korean carriers have a geographical advantage being
plugged into a location that produces goods," said Mr. Kim, the
Hanwha analyst. "The same applies to Taiwanese carriers."
Alison Sider in Chicago and Lekai Liu in Beijing contributed to
this article.
Write to Eun-Young Jeong at Eun-Young.Jeong@wsj.com
(END) Dow Jones Newswires
September 22, 2020 09:45 ET (13:45 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.