Even though there has been an uptick in air-travel demand (particularly for leisure) in various parts of the world, the same lies way below the pre-pandemic levels. Moreover, demand for business travel is still very anemic. This is exemplified by the International Air Transport Association’s (IATA) April report on air-travel demand.
Per IATA, total demand for air travel in April 2021 (measured in revenue passenger kilometers or RPKs) was down 65.4% from the April 2019 reading. Even though the scenario pertaining to domestic demand improved in April from the March levels, international passenger demand continued to be lackluster with a massive 87.3% plunge from the Apr 2019 actuals.
Given this scenario, passenger revenues, which account for bulk of the top line at most airlines across the globe, remain weak and are unlikely to recover to the pre-pandemic levels any time soon.
Focus on Cargo Unit: A Saving Grace
With passenger revenues lagging the 2019 levels, despite the recent improvement, airlines are focusing on their cargo units to drive the top line. The coronavirus-induced cancellation of multiple passenger flights aided the air-cargo markets to be in the pink of health across the globe as demand in the said space is moving northward.
Per IATA report, global air-cargo demand, measured in cargo tonne-kilometers, was up 12% in April 2021 from the April 2019 reading and 7.8% from the March 2021 levels. The strongest performance came from the North American carriers. Notably, carriers from that zone contributed 7.5 percentage points to the overall 12% growth rate.
The highly impressive April performance of the North American airlines is basically an extension of their upbeat show on this front during the March quarter. Evidently, cargo revenues surged 88.3% year over year to $497 million at
United Airlines ( UAL Quick Quote UAL - Free Report) in first-quarter 2021. At American Airlines ( AAL Quick Quote AAL - Free Report) , the same soared in excess of 100% in the January-March time frame. Cargo revenues increased 12% at Delta Air Lines ( DAL Quick Quote DAL - Free Report) . All three carriers currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
Apart from the North American carriers, airlines in other parts of the world except those in Latin America (including the likes of
Gol Linhas ( GOL Quick Quote GOL - Free Report) Azul ( AZUL Quick Quote AZUL - Free Report) and Copa Holdings ( CPA Quick Quote CPA - Free Report) , exhibited higher air-cargo demand for the month of April. For example, European carriers, that include Ryanair Holdings ( RYAAY Quick Quote RYAAY - Free Report) among others, displayed an 11.4% jump in cargo demand during April 2021 from the April 2019 levels. To Wrap Up
With passenger revenues unlikely to return to the pre-pandemic levels, at least in the near future, we expect airlines to continue laying an emphasis on cargo revenues to bump up their top lines. Notably,
IATA expects cargo revenues to surge to $152 billion in 2021 from $128 billion in 2020 and $101 billion in 2019.
Air-cargo demand should continue to be solid. Precisely, the gradual improvement in global economic conditions and supply-chain dynamics could constantly support the uptick in air-cargo demand.
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