Cargo keeps airlines afloat

In the short term, current demand for medical equipment transported via air freight will provide some buffer to airlines’ topline

by AFIQ AZIZ/ pic credit:

THE Movement Control Order (MCO) has tanked Malaysia Airlines Bhd’s (MAB) passenger ferrying business, but the cargo division is thriving, rising 60% due to the frantic demand to transport medical supplies and daily necessities.

The boost in cargo business is the only bright spot for carriers worldwide as the global passenger ticket revenue will drop as much as US$320 billion (RM1.4 trillion), according to estimates.

The coronavirus pandemic has grounded tens of thousands of planes as countries lock down their borders and citizens cocooned in their homes.

In an email to The Malaysian Reserve (TMR), MAB Kargo Sdn Bhd (MASkargo) CEO Ibrahim Mohamed Salleh said more than 50% of the goods currently transported using the MASkargo service are items such as surgical masks, goggles, gloves and ventilators.

He said the freighters fly to several destinations beyond the region, with its popular main stations now being Kuala Lumpur, Kota Kinabalu, Kuching, Guangzhou, Shanghai, Hong Kong and Sydney.

Passenger aircraft are converted to accommodate larger cargo space since travel restrictions were imposed by the government in an effort to battle the Covid-19 pandemic.

Countries around the world closed their borders, while Malaysia announced restrictions on incoming foreigners since March 18 to comply with the MCO that has prolonged to six weeks since then.

More than 90% of commercial flights have been removed from the schedule since the pandemic started in January, affecting airlines’ revenues.

National carrier MAB has taken a drastic measure to double its passenger-to-cargo (P2C) flights from about 100 flights to 250 flights a month, to fulfil a high demand of cargo entry, mainly ferrying medical goods into the country.

“We have operated 94 P2C flights from March 22 to April 14, and we planned for more than 250 P2C (sectors) from April 15 to May 31,” Ibrahim told TMR.

He said MASkargo holds about 30% of the local market share in the air cargo industry. MAB also dominates 65% of the market share in groundhandling activities through another subsidiary, AeroDarat Services Sdn Bhd.

Ibrahim said due to lesser passenger carriers, the flights are now operating with minimal crews. The absence of passenger baggage on board has allowed higher cargo load space in the plane.

“Operation-wise, besides a lesser number of crews, there is not much difference as all goods are to follow the packaging standards set and declared accordingly.

“On April 9, we completed a charter movement from Shanghai, China, to Kuching, Sarawak, for the Health Ministry, with almost 50 tonnes of medical aids. We are expecting more flights in the coming days with more medical aids for Malaysians,” Ibrahim said.

AirAsia Group Bhd’s logistics arm — Teleport Commerce Malaysia Sdn Bhd — has also mobilised its passenger aircraft as a cargo-only fleet following the grounding of most of AirAsia’s fleet in the past months.

Teleport CEO Pete Chareonwongsak said the company operates between five and eight cargo-only flights during this period.

“Among the popular items being carried are medical supplies and aids like masks, gloves, critical personal protective equipment, hospital beds and Covid-19 test kits, besides seafood and e-commerce stuff,” Chareonwongsak told TMR via email.

Through this initiative, he said Teleport is expected to generate overall revenue growth of 36% for the first quarter this year compared to the same period last year.

Chareonwongsak said, for now, only Teleport and AirAsia’s e-commerce platform, OURSHOP, remain the two active businesses under the low-cost carrier’s umbrella.

Industry observers opined that the cargo activities could not turn airline companies into the black in a short period of time.

Research aviation analyst Adam Mohamed Rahim said aside from medical supplies, the demand for air cargo is actually nowhere near normal levels.

“For March 2020, worldwide demand for air cargo declined by 19% year-on-year. The environment for air freight rates is very volatile at the moment — if you are quoted a rate, you need to decide on it within an hour, or it’s gone,” he told TMR in a text reply.

Citing the case of Teleport, Adam said the company — which has started to utilise some passenger aircraft to transport special cargo to selected destinations — may help AirAsia stay afloat for a short period of time.

“The Civil Aviation Administration of China has eventually allowed AirAsia to fly to Tianjin to transport the first batch of 28 ICU (intensive care unit) beds, with the second batch of 48 ICU beds arriving on April 10.

“In the short term, we believe the current demand for medical equipment being transported via air freight will provide some buffer to airlines’ topline since passenger ticket revenue has declined.”

Putting things into perspective, Adam said AirAsia’s Teleport contributed around RM480 million in revenue to the group in 2019.

“Assuming this figure holds in 2020, the contribution from Teleport may still be offset by the decline in passenger ticket revenue.”

Freighters like US multinational package transporter United Parcel Service, global logistics company DHL International GmbH and Emirates SkyCargo have been kept occupied with tonnes of medical goods and foods filling up their belly capacity.

Germany’s carrier Deutsche Lufthansa AG has also started operating passenger aircraft for cargo transport. The International Air Transport Association estimates the global industry will lose US$252 billion this year due to the Covid-19 pandemic.