Cathay Pacific Airways was the first airline to succumb to coronavirus flying restrictions in 2020 and one of the last ones to come out. Finally unshackled, the Hong Kong-based airline is quickly ramping up operations and restoring international passenger destinations, which is providing a big boost to the cargo business.
Until late October, Cathay Pacific was operating with 3% of its pre-pandemic passenger capacity. Major U.S. carriers, by comparison, had more than 90% of seats restored then and now have more supply than in 2019. Cathay Pacific’s passenger capacity increased to a quarter of 2019 levels in the fourth quarter as the Hong Kong and Chinese governments finally loosened all travel rules.
The carrier is currently close to 60% of pre-COVID passenger flight capacity and on track for meeting its 70% target covering 80 destinations by year’s end. It plans to be at full force by the end of 2024.
Restoring operations that were mothballed for nearly three years takes time. Aircraft in desert storage need to be retrieved and activated with a maintenance overhaul. Pilots, cabin attendants and ground staff need to be rehired and trained. And many airports around the world are encountering worker shortages, which can restrict how many flights an airline can deploy.
“It took us 75 years to build this airline. We can’t rebuild it in one year,” said Fred Ruggiero, Cathay’s vice president of cargo for the Americas, during a June meeting at an air cargo conference in Miami.
The combination carrier operates a fleet of 20 Boeing 747 freighters but also moved 50% of pre-pandemic freight in the belly hold of passenger aircraft. Much of the cargo is routed through Cathay’s massive Hong Kong hub and dispersed around the world. Before the pandemic, cargo represented 25% to 30% of the company’s total revenue.
“We were a network carrier without a network,” said Ruggiero.
Cathay Pacific slipped to 13th from ninth in the latest rankings of the largest cargo airlines, based on last year’s volumes.
Cathay Pacific saw passenger loadings explode more than 2,200% in the first half, helping it swing from a large loss a year ago to a profit of $546 million, according to results released Wednesday.
Cargo revenue for the six-month period decreased 11.6% to $1.4 million as the slowing global economy, high retail inventories and inflation reduced shipping demand for goods. When all-cargo subsidiary Air Hong Kong, with a fleet of 15 Airbus A300 and A330 freighters, was included, cargo revenue declined 10.1% to $1.6 million.
Air Hong Kong posted a profit of $51.5 million.
The contraction in business is far less than that experienced by most of its global competitors. All Nippon Airways recorded a 60% drop in cargo sales during the second quarter. Korean Air’s cargo revenue fell 56%. Cargo revenues at Singapore Airlines and Lufthansa were down 50%. Cargo sales for the top U.S. passenger airlines were down 37% to 40% and were off about a third at Air France-KLM and British Airways.
Cathay Pacific’s first-half cargo traffic in terms of distance flown increased 83%, and volume by weight increased 23.8% to 717,604 tons. Yields, reflecting the overall softness in market rates, decreased nearly 52% to 35 cents per kilogram.
In June, the company said it will optimize its freighter schedules as more widebody passenger capacity is deployed. Toronto and Miami will receive additional freighter flights as a result.
The reopening of borders between Hong Kong and the Chinese mainland early in the year led to more cross-border trucking services that are able to reach Hong Kong airport.
Management said it expects cargo demand will continue to shrink from the extraordinary industry peaks of the prior three years when airfreight became a relief valve for supply chain bottlenecks.
“Nevertheless, we anticipate a continued solid performance throughout the second half of 2023 with some tonnage improvements towards the end of the third quarter as we enter the traditional peak period,” Chairman Patrick Healy said during a media briefing about the earnings.
Upstream ship delivery service
Cathay Cargo is also regularizing use of Hong Kong airport’s new logistics park in Dongguan that allows approved freight forwarders to use a short-sea shipping option as a truck, or air, alternative for companies in south China’s coastal manufacturing zone. Under the novel program, ships directly transfer goods to a new pier at the airport for export to the U.S.
Hong Kong airport handles about three-quarters of the international air cargo in the greater south China area. Cathay Pacific opened an upstream warehouse at the logistics park and plans to expand to import traffic once all operational kinks have been worked out, officials say.
The sea link, which Cathay Cargo began testing last year, allows flight-ready shipments to be accepted, screened for security and consolidated in containers in Dongguan, and then transported to a secure area at Hong Kong airport. Upon arrival, pallets and containers can be towed directly to waiting aircraft. The intermodal program essentially functions as an inland terminal, bringing the airport closer to shippers.
Cathay Pacific and airport officials say the logistics park offers a more efficient delivery service and will reduce operating costs for transshipments by about 50% and handling time by a third when fully implemented. The program also reduces pressure on scarce space and labor at the airport by allowing consolidated shipments to be built upstream.
‘We look forward to having more connectivity between Dongguan and Hong Kong with more frequency and faster vessels, which will reduce the voyage time from six to three hours from the summer,” said Frank Yau, Cathay Cargo’s head of sales for the Hong Kong region, in the March edition of the “Cargo Clan” newsletter. “We want this model to be extended so that we can reach out to more points in the Greater Bay Area, as is the case with our airline passengers, so we can see further opportunities for the future.”
The Hong Kong Airport Authority says it expects to complete construction of permanent facilities at the logistics park by 2025.
Service upgrades
Cathay Cargo and its terminal at Hong Kong International Airport recently were certified by the International Air Transport Association for meeting the highest standards for safe handling of lithium-ion batteries during air transport. Incorrect charging, handling and mislabeling of shipments containing lithium batteries have caused fires and pose a growing risk for the air logistics sector, especially with growing demand for electronic products and more incidents of undeclared or misdeclared shipments.
The cargo division also upgraded its online booking platform so customers can make multiple bookings in one transaction rather than manually entering each one. The batch feature was launched in the Southwest Pacific region in May and is being gradually rolled out to other markets.
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