Qantas drops aircraft plan due to slow cargo market
The latest figures from the peak airline body also show that while the global air-freight market recorded modest growth in July, cargo demand in the Asia-Pacific region fell 1.4 per cent due partly to sluggish business activity in China.
Qantas had intended to take on the 747 freighter later this year to replace a contract it has with US air cargo company Atlas Air to lease an older jumbo and crew - known as a wet lease. A wet lease Qantas has on another Atlas Air jumbo also expires in 2015.
But Qantas said it decided not to finalise the new lease agreement for the 747 freighter because of softness in the global air-freight market. "The air-freight industry is cyclical and Qantas will re-examine options when the markets have strengthened," a spokesman said.
Last week Qantas gave an insight into the weak state of the freight market when it released its annual results.
Its freight division booked a 20 per cent fall in pre-tax profit to $36 million in the year to June, which the airline said reflected an 11 per cent fall in its international cargo capacity.
Qantas took full control of air-cargo business Australian Air Express late last year following an asset-swap deal that involved Australia Post buying the airline's half share of road-freight business Star Track Express.
Its freight unit now has a fleet of 13 aircraft including three 747s, one Boeing 767 used on the trans-Tasman route and four 737s. A large portion of freight is also carried in the bellies of Qantas and Jetstar passenger jets.
Despite encouraging growth in Europe, International Air Transport Association boss Tony Tyler said the weakness in the Asia-Pacific region and a deteriorating political situation in the Middle East gave "ample reason for concern". "It is premature to say that air cargo may be emerging from the doldrums of the past 18 months," he said.
Airlines in the Asia-Pacific region have experienced a 2 per cent fall in air freight so far this year.
The air-cargo market tends to be the canary in the coalmine for airlines. In the midst of the global financial crisis in 2008, demand for freight fell considerably further and faster than for passenger traffic.
Deutsche Bank analysts have warned that the near-term outlook for the global air-freight market, particularly on major export lanes in Asia, remains bleak because of an oversupply in capacity.
Airlines are expanding their fleets of large aircraft such as A380 superjumbos, which will boost capacity in what is considered an oversupplied market.
Separately, Qantas also released traffic statistics on Tuesday that show that yields - or return on fares - from its international operations fell in July because of foreign airlines such as Singapore Airlines boosting capacity on routes to Australia in response to the alliance with Emirates.
Yields from domestic operations, including Jetstar, were flat in July, compared with the same month last year.
Frequently Asked Questions about this Article…
Qantas abandoned the planned lease of a near‑new Boeing 747 freighter because of continued softness in the global air‑freight market. The airline said weak cargo conditions — including falling demand in the Asia‑Pacific region — made finalising the new lease impractical, and it will revisit the idea when markets strengthen.
According to industry data cited by the article, the global air‑freight market recorded modest growth in July, but Asia‑Pacific cargo demand fell around 1.4%, partly due to sluggish business activity in China. Overall, airlines in the region have seen about a 2% fall in air freight so far this year, and industry bodies and analysts remain cautious about a near‑term recovery.
Qantas’ freight division reported a 20% fall in pre‑tax profit to $36 million for the year to June. The airline attributed this decline in part to an 11% reduction in its international cargo capacity.
Qantas’ freight unit operates a fleet of 13 aircraft, including three Boeing 747s, one Boeing 767 used on the trans‑Tasman route, and four 737s. A significant portion of freight is also carried in the bellies of Qantas and Jetstar passenger aircraft.
A wet lease is an arrangement where an airline leases an aircraft together with crew (and often maintenance and insurance). Qantas had a wet‑lease arrangement with US air cargo company Atlas Air for an older jumbo and crew, and it had planned to replace that arrangement with the 747 freighter before deciding not to finalise the new lease.
Yes. Deutsche Bank analysts warned the near‑term outlook for global air freight — especially on major export lanes in Asia — looks bleak due to an oversupply in capacity. The article also notes that expansion of large aircraft such as the A380 is increasing capacity in an already oversupplied market.
Qantas reported that yields (return on fares) from its international operations fell in July after foreign airlines such as Singapore Airlines boosted capacity on routes to Australia in response to their alliance with Emirates — increasing competition and putting downward pressure on yields.
The article suggests a few investor‑relevant points: the air‑cargo market is cyclical and currently weak, Qantas’ freight profits and capacity have fallen, and industry analysts warn of oversupply on key routes. Qantas said it will re‑examine freighter options when markets strengthen, so investors should view the decision as a response to near‑term market weakness rather than a permanent retreat from cargo operations.
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