Airlines in the Middle East are getting hit harder by the slowdown in global trade than their peers elsewhere in the world, according to industry data. The amount of cargo traffic being carried by the region’s airlines was down 8% year-on-year in September and by 6% in October, in both cases the sharpest fall of any region.
Despite this, airlines from the Middle East have on average been adding more cargo capacity as they expand their fleets and networks in the search for more passengers. Capacity was up almost 1% year-on-year in October.
Lower cargo demand is an issue for the aviation industry as a whole. The sector is suffering its worst slump for more than a decade, with global freight traffic currently down by around 4% compared to last year. But Middle East airlines are suffering more than others, with the region having the worst record of any part of the industry for the six most recent months for which data is available from the International Air Transport Association (IATA), an industry trade body.
The extensive networks of some carriers such as Emirates, Etihad and Qatar Airways are based on a strategy of linking regions around the world, making them vulnerable when trade levels falter.
Different parts of their route networks have given them difficulties as the year has gone by. In early 2019, it was weakening trade to and from North America but since then there have been declines in demand on other routes too. IATA noted that “volumes to Europe and Asia-Pacific were particularly weak” in June. And in its review of market performance in September, it noted that “most key routes to and from the region have seen weak demand in the past few months.”
This is all in clear contrast to last year, when Middle East carriers’ freight volumes increased 3.9%, the third fastest growth rate of any region in the world.
IATA has blamed a combination of escalating trade tensions between some major economies, a slowdown in global trade and airline restructuring for the problems facing the Middle East airlines. It has also said economic uncertainty caused by oil price volatility has brought further pressures.
Cargo is a significant revenues stream for airlines. For example, Emirates’ freight division SkyCargo accounts for 14% of the group’s total transport revenues, contributing $3.6bn in the financial year 2018/19.
The softening demand for cargo traffic has already been reflected in some financial results. Dubai-based Emirates said in its recent half-year report, covering the period April 1 to September 30, that cargo volumes were down 8% year-on-year to 1.2 million tonnes and yields fell by 3%. The group’s ground handling subsidiary Dnata handled 1.5 million tonnes of cargo, 6% less than the same period the year before.
“This reflects the tough business environment for air freight in the context of global trade tensions and unrest in some key cargo markets,” it said in a statement issued on November 7.
The competition to win cargo business is leading some airlines to take surprising steps. It recently emerged that Qatar Airways had been operated a cargo flight of just 24 miles from Maastricht in the Netherlands to Liege in Belgium to service one customer.
Others have been cutting back on their capacity. Abu Dhabi-based Etihad Cargo has been shrinking its cargo operations, with its capacity falling 21% in 2018. Last year its cargo revenues were $827m, down from $877m the year before. It saw a 20% reduction in the amount of cargo it carried to 682,100 tonnes in the same period.
However, there is a limit to how much airlines can reduce their capacity. Passenger growth has been more buoyant than demand for freight this year, with a year-on-year increase in the number of tickets sold every month from April onwards. And with every passenger flight there is room for cargo in the hold too.
“The Gulf carriers have a large amount of cargo lift not only as belly hold capacity on their wide-bodied passenger aircraft but also significant cargo fleets too. The only thing they can do is shed capacity which we have seen Emirates and Etihad do in some markets but they still face significant excess capacity in the market,” says John Strickland, founder of aviation consultancy JLS Consulting.