In pandemic travel bust, cargo shipments of Botox and cheese replace passengers for starving airlines

Key Points
  • Air cargo prices have surged in the pandemic as capacity plunged.
  • International travel has dropped sharply, taking belly-cargo space out of the market.
  • Some passenger carriers have started flying cargo-only flights in an effort to boost sales.
American Airlines fleet services employees prepare to load cargo pallets on a 777-300 at Dallas/Fort Worth International Airport (DFW) bound for Frankfurt Airport in Germany during the cornoavirus (COVID-19) pandemic on March 20, 2020 in Dallas, Texas.
Tom Pennington | Getty Images

The coronavirus pandemic has created a global crunch in air cargo markets and retailers like Alex Motamedi in Harbor City, California are feeling the pain.

"We've been so desperate that we take anything and first available," said Motamedi, general manager of La Espanola Meats, which sells imported Spanish ham, cheese, sweets and other products.

Certain products are arriving a month later than usual and air freight costs have doubled in some cases, Motamedi said. Such perishable items often arrive by air so they don't spoil.

The root of the problem is the slump in air travel during the pandemic, which has forced carriers to drastically reduce flights to help curb their losses, taking air cargo capacity out of the market and driving up prices.

About half of the world's air freight demand is usually met by space in passenger planes' bellies. That means a flight home from a vacation in Greece or Iceland might be shared with goods like feta cheese or cod.

New Covid-19 cases, lockdowns and a web of travel restrictions have had an outsize impact on international travel, while domestic demand has recovered some ground. Demand for international air travel was down close to 90% in September from a year ago, according to the International Air Transport Association, a trade group whose members operate most of the world's airline capacity.

Seeing a bright spot in otherwise bleak landscape, United, Delta and American this year started flying cargo-only flights. All three already had cargo businesses but their customers' goods usually fly on passenger flights.

What began as cargo-dedicated flights to transport personal protective equipment and other medical-related items at the start of the pandemic has expanded. Airlines have been redeploying their aircraft to help deliver produce, apparel, electronics, fish, like Scottish salmon, and pharmaceuticals, executives say. American Airlines' vice president of commercial cargo, Roger Samways, said the airline saw an increase in Botox shipments to the U.S. this spring.

"We hadn't seen quantities of this nature" before, he said.

Capacity remains limited, making air cargo more expensive.

Cargo rates from Europe to the U.S. this month were about $4 a kilogram, up 150% from a year ago, according to the TAC Index. From mainland China and Hong Kong to the U.S., prices on Nov. 2 were about $5 a kilogram, up 64% from a year earlier.

The fourth quarter is the peak period for air cargo as it coincides with the holiday season, a surge that could drive prices even higher, particularly without the usual surge in passenger air travel that happens at that time of year. A shift to even more online shopping could keep air cargo rates aloft for months to come.

Globally, year-over-year air cargo demand was down 8% in September, an improvement from the previous month, IATA said. In the U.S., it rose on the year by more than 1%, the trade group said. Global cargo capacity was down by more than 25% from last year, however.

U.S. passenger airlines adapt

U.S. airlines are reeling from the pandemic and have lost more than $20 billion combined in the last two quarters.

Cargo sales aren't enough to make up for those losses on their own, especially with capacity still limited, but the business has become a more important revenue source with many passengers still forgoing flights.

In the third quarter, United's cargo revenue jumped close to 50% from a year earlier to $422 million, while passenger revenue dropped 84% to $1.64 billion. Sales from cargo accounted for 17% of the Chicago-based airline's sales in the quarter, up from a 9% share in the third quarter of 2019.

Chris Busch, United's managing director of cargo for the Americas, said the airline sold out its cargo capacity this year for some service. The airline is "staying close with our customers and really being honest with them" about what's available, he said. United has flown close to 7,500 cargo-dedicated flights since March.

"We still have plenty of mozzarella coming out of Italy," he added.

American Airlines said most of its cargo capacity, particularly into the U.S., is similarly spoken for this year. The carrier has also added several chartered cargo flights for some customers to meet the demand.

American's capacity is still down by about half on the year, but higher yields make the cargo business attractive, especially when carriers are desperate for revenue. The airline is operating 756 widebody cargo-only flights with its widebody aircraft this month and about 1,900 widebody passenger flights.

Delta earlier this month announced daily cargo flights between New York and Madrid to bring in clothing and shoes from Spain before the holidays and other cargo-only service between New York and Dublin, as well as from New York and Atlanta to Mumbai through Frankfurt for pharmaceuticals among other goods.

The air cargo market has been "really strong since April," said Shawn Cole, Delta's vice president of cargo. "This year, [peak season] started earlier because people are trying to take advantage of carriers that are still flying."

Since February, Delta has flown some 1,600 chartered cargo flights, mostly for international routes.

Some small carriers have found reprieve from the pandemic with partnerships. Sun Country, small a leisure airline dedicated mostly to sun-seekers, started flying Boeing 737s freighters for Amazon this year. And Mesa Airlines, a regional airline that flies short routes for larger carriers like American and United, this summer said it would start flying for Deutsche Post's DHL Express

Specific high-demand products like Apple's new iPhones, will also provide a boost to the air cargo market, Delta's Cole added. Passenger and cargo airlines are also starting to prepare for shipping an eventual coronavirus vaccine.

"When that vaccine is ready we'll be ready to transport it as well," said Cole.

Longer term

How long will the cargo price boom last?

"Capacity comes back in and eventually prices drop," said American's Samways. "Eventually we will get to that point, but it's taking a lot longer than we had foreseen."

Cole said Delta will likely stop flying cargo charters if the pandemic abates but said they're still part of Delta's plans for the first half of 2021.

Other businesses are preparing for air cargo's relative resilience. Boeing last month said cargo demand is on more solid footing compared with passenger travel demand, which it expects will continue to struggle.

Brian McCarthy, vice president of marketing and sales at Precision Aircraft Solutions, based in Oregon, which specializes in aircraft conversions, says there's been an increase in queries about converting passenger aircraft into freighters.

"We actually see a bright year coming," he said.

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