Qatar Sees Cargo Strength in Loss

Madhu Unnikrishnan
October 4th, 2021 at 12:01 AM EDT

It took a year, but now we know. Qatar Airways, which publishes its audited financial results for the fiscal year only annually, said it lost $4.1 billion in the 12-months ending in March. Part of that was an impairment charge the carrier took for grounding its Airbus A330 and A380 fleets.

Passenger revenue plunged to 8 billion Qatar riyals ($2.1 billion), but the carrier was encouraged by the flexibility of its commercial teams. While the pandemic raged uncontrolled, Qatar Airways focused on repatriation flights and flights to reposition stranded commercial sailors. And it says it also is encouraged by the pandemic’s trajectory. At the nadir of the Covid-19 crisis, the carrier pared back its schedule to operate to just 33 destinations. Now, that number has risen to 140.

“Whilst our competitors grounded their aircraft and closed their routes, we adapted our entire commercial operation to respond to ever-evolving travel restrictions and never stopped flying, operating a network our passengers and customers could rely on,” CEO Akbar al Baker said in a statement.

As with many other airlines around the world, cargo was a lifeline for the Doha-based airline. Qatar Airways’s cargo revenue dwarfed its passenger earnings. The carrier reported 18 billion riyals in cargo revenues last year, and freight traffic was up 5 percent from the year before, despite the collapse in belly-hold capacity. Earlier this year, Qatar Airways told Airline Weekly it had restructured its cargo team, integrating the operation with passenger fleet and network planning, to capitalize on demand.

At the cargo operation’s peak during the last fiscal year, the carrier flew 183 cargo-only flights per day.

Qatar Airways flew just under 6 million passengers last year, compared with 32 million in the previous fiscal year. It earned 29 billion riyals in revenue, compared with 51 billion in the prior fiscal year. Qatar Airways did not get a direct bailout from the government during the crisis, although the airline said it got a $3 billion investment in its equity for continuing operations.

Madhu Unnikrishnan

Aeromexico Maps Bankruptcy Exit

Aeromexico submitted its Chapter 11 reorganization plan to a U.S. bankruptcy court late on Friday. The plan doubles down on the airline’s Mexico City hub where it wants to “strengthen and leverage” its strategic position to expand and grow connectivity. Given the airport’s slot constraints, Aeromexico will do this by flying more larger jets. To this end, it has committed to 40 Boeing 737 Max 8 and 9s, which are larger than the 737-700s and Embraer E170s it retired during its reorganization, to expand capacity at the airport. And has signed for additional Boeing 787-9s from lessor Air Lease Corporation that will allow it upgauge its long-haul flights as demand returns.

All of this planned growth will leverage Aeromexico’s international partnerships. Joint venture equity partner Delta Air Lines is at the top of this list with the plan calling for additional synergies between the airlines including “joint cargo and network services, revenue management and sales best practices.” Aeromexico also plans to leverage its SkyTeam Alliance relationships and, in a nod to Delta’s growing equity partner footprint in South America, Latam Airlines Group. Delta invested in Latam in 2019 and the carriers are in the process of securing regulatory approvals for a U.S.-South America joint venture.

If approved by the court, Aeromexico would exit bankruptcy with $1.19 billion in equity from the issuance of new shares, and $538 million in new exit financing. Delta would maintain a stake in the new carrier; previously the U.S. carrier had a 51 percent stake in Grupo Aeromexico. A hearing is expected on October 21.

Edward Russell

Cargo Demand Remains High But Storm Clouds Appear

Cargo remains the brightest spot in a confusing airline landscape. Now, almost two years after the pandemic roiled airlines, demand for cargo remains as strong as ever and is in fact growing. It was up in August almost 8 percent from the same month in 2019. Air cargo has stabilized at higher than pre-pandemic levels for the last four months, IATA said. August’s growth was down only slightly from the 9 percent jump over 2019 in July, the group reports.

Regionally, Africa reported the largest growth in cargo, up 32 percent from August 2019. North America was second, at almost 20 percent over 2019. Latin America, however, contracted by 13 percent from that year, mainly due to the airline sector’s volatility in the continent.

Although cargo has been a rare patch of blue sky for many airlines during the pandemic, IATA warns that storm clouds are appearing on the horizon. Air cargo has benefited from the industrial restocking cycle, as factories reopen and ramp up to meet consumer demand. But this cycle could be complete. Demand is slowing and the Delta variant is wreaking havoc on economic activity.

And speaking of the Delta variant, factories, ports, and airports in mainland China and other manufacturing regions in Asia have been forced to close in response to the spread of the virus, further constraining cargo traffic. Capacity remains down 12 percent from 2019, mainly due to less available belly-hold space from fewer longhaul international flights.

But the yearend holidays and new technology product launches will provide a ray of hope. IATA expects ecommerce to fuel package deliveries over the last quarter of the year.

Madhu Unnikrishnan

Delta Takes a Bite Out of Domestic Demand Worldwide

The picture for passenger traffic is decidedly more mixed. After great hopes that peak-season demand would approach pre-Covid levels, the pandemic had other ideas. The spread of the Delta variant worldwide has stalled the recovery. This is particularly noticeable in domestic markets, which had provided much of the growth in demand as the initial shock of the pandemic receded. RPKs fell by 7 percent month-over-month in August, the first decline since January, IATA reports.

Large domestic markets, especially China but not limited to that country, began to cool. Brazil, Japan, Australia, and the U.S. all reported declines in demand. Indian domestic demand grew slightly as it emerges from a brutal wave of the disease. The sole outlier was Russia, where domestic traffic in August was 32 percent over 2019.

“August results reflect the impact of concerns over the Delta variant on domestic travel, even as international travel continued on a snail’s pace toward a full recovery that cannot happen until governments restore the freedom to travel,” IATA Director General Willie Walsh said. “In that regard, the recent U.S. announcement to lift travel restrictions from early November on fully vaccinated travelers is very good news and will bring certainty to a key market.”

August RPKs were down 56 percent compared with 2019, a slight deterioration from July, when RPks were down 53 percent. September so far appears to be flat from August, suggesting the recovery is stalling, IATA said. “But challenges remain, September bookings indicate a deterioration in international recovery,” Walsh added. “That’s bad news heading into the traditionally slower fourth quarter.”

Further bad news: The economic recovery worldwide appears to be stalling as well, IATA said. Supply chains worldwide are strained. Labor shortages plague countries around the world. Vaccines offer hope, but vaccine resistance is stalling recovery in several countries, including the U.S. And a note to the future: Vaccination rates in some regions, like Africa, remain very low, potentially signaling that the Covid pandemic may not end any time soon as long as community transmission remains potentially high. The continuing uncertainty makes it very difficult to plan capacity, which remains 46 percent below 2019 levels.

On the more positive side, international traffic continues to grow, although from a very low base. International traffic has grown for six consecutive months but was still 69 percent below 2019 in August. Europe leads the way, due to its high vaccination rate. Travel between North and South America is showing promise and traffic now is only 14 percent below 2019, IATA said.

Madhu Unnikrishnan

In Other News

  • Delta and JetBlue Airways both unveiled new sustainable aviation fuel (SAF) offtake deals last week — deals that show just how far the industry still has to go to transition away from Jet A. Delta will take 250 million gallons of blended SAF from Aemetis and JetBlue at least 670 million gallons of blended SAF from SG Preston under the separate 10-year agreements. However, based on each carrier’s 2019 fuel usage, Delta’s deal only amounts to 0.5 percent of its annual need and JetBlue’s at least 8 percent. The U.S. airline industry is pushing for federal subsidies or tax breaks for SAF to help jump start the nascent sustainable fuel industry.
  • Korean Air Chairman and CEO Walter Cho kept to the script during an Aviation Week webinar last week. The airline’s merger with Asiana is proceeding well with regulatory approval expected by year-end, followed by two years — or until 2024 — of integration work. That integration will include streamlining the combined fleet of nearly every Airbus and Boeing family on the market, including the A220, A330, A350 and A380, and the 737, 747 and 787. “There isn’t an easy solution,” said Cho on the fleet question, adding that they will select the “most efficient and cleanest airplane[s] we can operate.” One thing is clear, Cho reiterated his view that the A380 will leave the Korean Air fleet in roughly five years.
  • China’s bankrupt HNA Group is moving forward on its restructuring with plans to consolidate its 11 airline brands, including Hainan Airlines, into a single carrier, according to a Shanghai Stock Exchange disclosure. Other brands include Air Changan, China Xinhua Airlines, Fuzhou Airlines, Guangxi Beibu Gulf Airlines, Lucky Air, Shanxi Airlines and Urumqi Air. The combined company would likely be comparable in size to the Big 3 Chinese carriers: Air China, China Eastern and China Southern.
  • Thai Airways has provided an update on its restructuring that aims to see it emerge from the crisis a financially healthy carrier — something it was not even before Covid-19 hit. The airline has rejected 20 aircraft lease or maintenance agreements, and sold roughly a third of its stake in budget carrier Nok Air for Thai baht 279 million ($8.3 million) in proceeds. In addition, the carrier repaid Thai baht 1.2 billion in outstanding debt and interest during the three months ending September 14. Thai Airways previously outlined plans to slash its fleet by selling 34 used aircraft and reduce its overhead as part of its restructuring.
  • ExpressJet is coming back to fight another day. The regional carrier, which ceased operations last year, early in the pandemic, will launch eight new routes throughout the West from Reno, N.V., branded aha! Initial routes from the Nevada city will begin next month and operate to: Pasco, Wash.; Bakersfield, Ontario, Eureka, and Fresno, Calif.; Medford, Eugene, and Bend, Ore. The aha flights will operate three times per week to each destination on Embraer ERJ-145s. Aha is aiming to be a hotel, lifestyle, and airline brand and will announce partnerships with hotels and resorts soon, the company said. The aim is to provide smaller cities in the West nonstop access to essentially a package Reno or Tahoe vacation. The Transportation Department restored ExpressJet’s certification in July.

Edward Russell & Madhu Unnikrishnan

Madhu Unnikrishnan
October 4th, 2021 at 12:01 AM EDT

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