Are airports at an inflexion point between passengers and cargo?

Heathrow reported its July passenger numbers this week, with an increase of 74% compared to July 2020, but an 80% decline compared to pre-pandemic levels in July 2019. While passenger numbers have suffered during the pandemic, cargo has fared much better, only 12% down on July 2019.

However, the Manchester Airport Group has seen cargo volumes exceed their 2019 level, and growing by up to 20% in recent months, while in Europe, Schiphol and Frankfurt cargo volumes have grown by 14% and 9% respectively.

So what is driving the air cargo performance? There are several factors at play…

• Surge in cargo as factories hit full production in late 2020 – coupled with high demand for consumer durables during covid lockdowns
• Growth of temperature controlled pharmaceutical air cargo – Vaccine rollout has added to the demand for air cargo capacity as demand and supply is balanced globally.
• Shift to on-line shopping – the lockdown has sped up the shift on-line and seen increased demand for air logistics to meet tight delivery commitments.
• Sea Cargo Problems – whether it’s the shortage of containers or the blocking of the Suez Canal earlier this year the bulk moving of cargo by sea has been hit by problems which has pushed demand to air cargo as the solution to maintain delivery deadlines.
• Move from belly hold to freighter cargo – With passengers not flying, most cargo has moved from the belly of aircraft to cargo freighters or “preighters” (converted passenger aircraft). The move to freighters and preighters has increased capacity and is likely to remain in the future as businesses look to de-risk their logistics with dedicated cargo flights.
• BREXIT – UK trade is starting to shift away from European markets towards far flung countries with new trade deals. The greater distance means air cargo becomes much more important for trade.

There are implications for airports and the property industry with these changes. The requirement for investment in modernising and increasing warehouse capacity on airport will be challenging for revenue starved airports.

Secondly, the development of air cargo facilities off airport will come into direct competition with the surge in demand for road-based logistics operators.

Finally, runway capacity for cargo freighters will present a challenge when passengers finally return. Airports generate significantly more revenue from a passenger aircraft than a cargo freighter.

These challenges will drive innovation in airport business models as airports lock-in the gains in cargo demand. Among the many changes we will see in the air cargo sector, these are some I predict we will see in the short term:

• A greater proportion of freighter flights compared to pre-pandemic and changes in airport aero charges to reflect this.
• We will also see more “hybrid” aircraft with the ability to flex between passenger and cargo which will have the dual benefit of increasing cargo capacity and making marginal passenger routes profitable.
• Greater demand for air cargo warehouses, which will increase competition in the industrial and logistics sector.