Boeing’s biannual forecast predicts freighters will continue to carry more than half of cargo, but are subject to volatility
Despite costing more than other modes of transportation, worldwide air cargo traffic remained fairly stable through the political and economic turmoil of the past several years, and signs of renewed growth are evident. The nature of the core demand for air cargo services gives freighter airplanes competitive advantages over lower-hold capacity on passenger airplanes. Freighters continue to carry more than half of the world’s air cargo (measured in revenue tonne-kilometers), even as lower-hold capacity expands.
The unusually challenging business environment over the past several years kept air cargo traffic volume relatively flat, resulting in persistent overcapacity and weak yields. Recently, however, traffic growth has strengthened as a variety of industries that require transport of time-sensitive goods and high-value commodities have stepped up production. Typical commodities that demand the speed of air transport include perishables, consumer electronics, high-fashion apparel, pharmaceuticals, industrial machinery and high-value components such as auto parts. With unequalled speed and punctuality, air cargo retains an indispensible role in the global economy despite improvements in less expensive surface modes.
Cargo capacity on passenger flights has been expanding as airlines deploy new jetliners, such as the 777-300ER and 787, that have large lower-hold cargo capacities, even with a full load of passenger baggage. Yet dedicated freighter services still provide significant advantages, including more predictable and reliable volumes and schedules, greater control over timing and routing, and a variety of services for outsize, hazmat and other types of cargo that passenger lower holds cannot accommodate. For these reasons, it is expected that freighters will continue to carry more than half of the world’s air cargo, even as lower-hold cargo capacity expands faster than freighter capacity. It should be noted, however, that the faster growth and economical pricing of passenger lower-hold capacity makes the freighter share of the cargo market subject to greater volatility when air cargo traffic growth is constrained.
The number of airplanes in the worldwide freighter fleet will increase by more than half during the next 20 years, as demand for air cargo services more than doubles. The role of large production freighters continues to increase, climbing from a 21 percent share of the world’s freighter fleet today to a 30 percent share by 2033. By leveraging the efficiency and capability of large freighters, carriers will be able to manage projected air cargo traffic growth without a proportionate increase in the number of airplanes.
In response to challenging market conditions, freighter operators have adjusted freighter utilization, temporarily grounded portions of the fleet and/or retired older freighters. In the long term, the industry will benefit from this removal of surplus capacity and replacement of older freighters with more efficient airplanes. The overall balance between demand and capacity is expected to return within a few years.
The industry’s resilience is projected to prevail once again over the most recent adverse pressures, with traffic more than doubling by 2033. This demand growth will spur the world freighter fleet to expand by more than half, from the current 1,690 airplanes to 2,730 airplanes by the end of the forecast period.
The imperative for efficiency favors large production freighters and will drive their share of the fleet to grow from 21 percent to 30 percent during the forecast period. Growing demand for regional express services in fast-developing economies will drive the standard-body share of the fleet to increase from 35 percent today to 40 percent in 20 years. All new deliveries of standard-body freighters will be converted passenger airplanes.
Of the 2,170 projected freighter deliveries, 1,130 will replace retiring airplanes, with the remainder expanding the fleet to meet projected traffic growth. More than 60 percent of deliveries will be freighter conversions, nearly 85 percent of which will be from standard-body passenger airplanes. A projected 840 new production freighters, valued at US$240 billion (182 billion euros), will be delivered, of which more than 70 percent will be in the large freighter category.
Cargo capacity, measured in available tonne kilometers, supplied by lower-hold passenger airplanes, will continue to rise slightly faster than dedicated freighter capacity. Although by 2033, more than 60 percent of the world’s air cargo capacity will be from the lower hold of passenger airplanes, freighters will still carry more than half the revenue tonne kilometers because of the significant operating advantages of dedicated freighters. Underscoring the importance of freighter capabilities, more than 85 percent of industry revenues are generated by operators who have freighters in their fleet.
Significant developments and trends
The diverse factors that affect world freighter fleet growth often exert contrary pressures. For example, high fuel prices increase air cargo transport costs, depressing demand for services. At the same time, high fuel costs are a compelling incentive for airlines to replace aging airplanes, bolstering demand for new freighters.
The forecast takes into account the following significant world freighter fleet developments and trends.
- The introduction of wide-body passenger airplanes that can carry significant revenue cargo in addition to a full load of passenger baggage continues to moderate freighter demand. The unique advantages of freighter operations, however, often offset the lower price of shipping in the lower hold of passenger airplanes.
- Volatile fuel prices accelerate freighter retirements and enhance the value of newer airplanes that offer higher operating efficiency. Near-term overcapacity exerts downward pressure on the market for new freighters when yield, load factor and utilization decline.
- Freighter fleets will be concentrated at the most efficient operators that focus on the business and on market flexibility. There will be further industry consolidation and fleet rationalization among existing carriers.
- Passenger airlines continue to exploit the revenue potential of carrying cargo in the lower-hold. Yet airlines that operate freighters in addition to passenger airplanes typically enjoy 20 percent higher cargo load factors and higher yields on lower-hold cargo than airlines that fly only passenger airplanes.
- Cost-effective ground transport alternatives and abundant lower-hold capacity will moderate growth of medium wide-body fleets, even within regions where internal trade is expanding rapidly. In addition, the 20-30 percent operating cost advantage that large freighters enjoy presents a formidable barrier to profitable intercontinental operations for medium wide-body freighters.
The model mix within the three freighter payload categories remains unchanged from previous forecasts. Boeing’s integrated top-down/bottom-up approach combines a thorough analysis of macro-trends in the industry with detailed consideration of regional and operator-specific information, developments and strategies.
We divide the current and projected fleet into three categories based on fuselage width and payload capability. Production freighters and conversions are both included in these categories, regardless of airplane range or service market. The three payload categories are standard body (all freighters less than 45 tonnes), medium wide-body (40 to 80 tonnes) and large (more than 80 tonnes).
We begin with a top-down analysis of worldwide air cargo flows and traffic. Next, we subtract current and projected lower-hold cargo capacity (adjusted for passenger baggage requirements) from the total air cargo demand, as developed for the World Air Cargo Forecast. We use analysis from the companion Boeing publication, Current Market Outlook, to evaluate available lower-hold lift for each carrier by region, as well as actual reported load factors. Developments such as the imposition of checked baggage fees and restrictive security requirements on lower-hold capacity are considered. The freighter fleet lift requirement is calculated from the difference between total demand for air cargo services and the supply of revenue cargo capacity provided by the passenger fleet. Remaining air cargo traffic is apportioned to regional domiciles and specific carrier freighter fleets.
After we identify the nature and timing of likely future freighter offerings, we assess airplane capability, performance and availability. At the regional domicile level for each airline (that is, from the bottom up), we factor in variables such as fleet type and age, airplane size, retirements, utilization, load factor, market share, service and market strategies. We round out the top-down/bottom-up analysis by balancing these variables with total air cargo lift, traffic and availability of passenger airplanes for conversion.
Freighter fleet development
Highlighting the importance of size and efficiency for freighter operations, fleet growth has concentrated on wide-bodies and particularly on the large freighter category.
Several striking comparisons illustrate the importance of freighter efficiency and capability. Wide-body freighters account for about 65 percent of freighters in the current fleet, yet they supply 95 percent of the fleet’s capacity. In particular, the 747 freighter, the largest regularly scheduled freighter in service, represents less than 20 percent of the fleet, with more than 250 production and conversion freighters flying. Yet its size, high utilization and high load factors allow it to provide more than half of the world’s total freighter capacity.
Profitability margins are much narrower for freight carriers than for passenger carriers, owing in large part to competition from ground transport and lower-hold passenger alternatives. Freighter operators are therefore sensitive to tonne kilometer costs. This sensitivity has created a trend for operators to replace retiring freighters with larger models. This trend toward up-gauging is projected to continue during the forecast period.
Production and conversion freighters
Although more than half of fleet additions will come from converted passenger airplanes, operators targeting premium, long-range service often find production freighters more attractive than conversion freighters. Their greater reliability, utilization and capability can be significant competitive advantages.
Production freighters will continue to play an important role because their superior reliability, operating cost and capability can outweigh the advantage of the lower acquisition cost of conversions. Because cargo payloads, on average, generate only half as much revenue by weight as passenger payloads, freighter profitability is extremely sensitive to airplane size. The profit margin for smaller freighters is tighter than for larger freighters, so the lower acquisition cost of freighter conversions is attractive for the standard-body freighter size category. It is not surprising, then, that all additions to this fleet will be conversions.
Current market dynamics and the overlapping roles of large and medium wide-body conversion freighters have made it difficult to model long-term demand for the two size categories separately. This year, therefore, we condense the forecast for large and medium wide-body conversion freighters into a single category.
Nearly 65 percent of freighters added to the world fleet will be conversions. Growing demand for regional express services in fast-developing economies will drive an increase in the standard-body share of the fleet. The ready availability of the latest generation of medium wide-body passenger airplanes will encourage operators to accelerate airplane replacement plans. As a result, many relatively new medium wide-body airplanes will be candidates for conversion before the typical 15- to 20-year average service life for passenger airplanes. In the high-yield, long-distance markets that large freighters typically serve, however, production freighters still hold the advantage of higher utilization and greater profit potential.
Freighter deliveries by carrier domicile and operational model
Continuing a trend of many years, all-cargo and combination carriers will take the majority of large freighters, which are suited to long-haul, intercontinental markets. Express carrier networks will take the majority of medium wide-body production freighters, which are ideally sized to support high-yield, time-critical operations. Standard-body freighters will serve emerging regional niche and express markets.
More than 40 percent of all freighter deliveries during the 20-year forecast period will be to carriers in North America, predominately to express operations. Historically, up to three-quarters of medium wide-bodies, production and conversion, have supported express operations, where relatively low airplane utilization makes converted freighters economically attractive.
Asia Pacific carriers will continue to receive a high proportion of large production freighters to serve their long-haul, intercontinental routes. Standard-bodies will continue to support the needs of emerging regions, niche segments and express operations. Competitively priced surface transport and lower-hold airfreight alternatives constrain expansion of the medium wide-body fleet in Asia and Europe. Deliveries to the Middle East and Africa will be more balanced in terms of freighter size. Latin America is forecast to receive mostly standard-body freighters for use within the region and will rely predominantly on medium wide-bodies, rather than on large freighters, for service to other regions.
The largest share of medium wide-body production freighters delivered during the next 20 years will go to dedicated express operators or airlines that support express operations. High-yield express traffic is growing faster than the industry average. Medium wide-bodies are particularly attractive to express carriers that seek to expand their networks and replace retiring smaller freighters. Airplane utilization tends to be relatively low for express carriers, so converted freighters are particularly suitable for these operations.
All-cargo and combination carriers tend to favor the economics and reliability of large production freighters. Wide-body conversions are generally balanced among all carrier types. Regional and niche carriers, challenged by cost-competitive ground transport modes, tend to favor standard-body converted freighters for their lower purchase price and low trip costs. The large freighter category enjoys the highest potential for new freighter market growth.
(This article is an excerpt of Boeing’s biannual World Air Cargo Forecast.)