Asian air cargo volumes are set to rebound this year from the worst slide since the global financial crisis as a strengthening U.S. economy and demand for products such as Apple Inc. (AAPL)’s new iPad revive exports.
The region’s air freight may rise as much as 8 percent in 2012, faster than any other part of the world, according to estimates by Boeing Co. (BA), the largest U.S. aircraft maker. Shares in Cathay Pacific Airways Ltd. (293) and Korean Air Lines Co. (003490) stand to benefit from a cargo recovery, according to HSBC Holdings Plc.
“Fears of an economic collapse have been replaced by greater confidence that the advanced economies are slowly recovering,” said Tim Condon, chief Asia economist at ING Groep NV in Singapore, who previously worked at the World Bank. The rise in semiconductor booking data and increases in Asian exports are “signs that the air cargo industry may recover more quickly than most currently expect.”
The release of Apple’s latest iPad model, assembled in China by Foxconn Technology Group (FOXCGZ), may help boost airline companies’ profits and stocks, said Kelvin Lau, a transportation analyst at Daiwa Securities Capital Markets in Hong Kong.
“The picture will be better in the second half,” Lau said. “Air traffic globally, including cargo, will be on the road to recovery and there might be some upside surprises.”
Hong Kong-based Cathay Pacific “would be a good choice,” Lau said. He reaffirmed his “hold” recommendation on the company’s shares in December. The airline’s stock fell 2.4 percent to HK$15.20 as of 1:40 p.m. in Hong Kong after it reported annual profit declined. Lau had a six-month share price estimate of HK$14 at the end of 2011.
Leveraged to Growth
Airlines are the better bet among Asia transport shares, HSBC analysts led by Mark Webb said in a March 1 report. Cathay Pacific, the world’s No.1 international freight carrier, and Seoul, South Korea-based Korean Air Lines were the top picks.
“We are looking at growth starting at the second half, with global growth of roughly 3 percent” for the year, Seattle- based Tom Hoang, Boeing’s regional director for cargo marketing, said in a phone interview. World air cargo posted almost zero growth last year, according to data from Boeing.
“Positive trends” in the U.S. economy, including low retail inventory, improving consumer confidence and a falling jobless rate, may return world air cargo to growth, according to Chicago-based Boeing’s Hoang. Asia may outperform the rest of the world, he said, with air freight traffic increasing about 5 percent to 8 percent over last year.
In the U.S., the Bloomberg Consumer Comfort Index rose to the highest level in four years in the week ended March 4. Payrolls at U.S. employers rose by 227,000, more than forecast, in February, the Labor Department said on March 9. The unemployment rate of 8.3 percent was unchanged even as the labor force rose by 476,000.
There are “signs of a stabilization in the euro-area economy,” European Central Bank President Mario Draghi said in Frankfurt on March 8, noting that “downside risks” remain.
Asia, the biggest driver of world growth during the global financial crisis, may see intra-regional demand for air freight from Japan’s post-earthquake reconstruction this year and sustained expansion in China, according to Hoang.
The Chinese central bank since the start of December has added liquidity via open-market operations and made two cuts to banks’ reserve requirements after expansion slowed last year. Chinese Premier Wen Jiabao, giving his annual state-of-the- nation speech last week, pledged to raise minimum wages and boost public housing to sustain growth in the world’s second- largest economy.
Airlines also are counting on the introduction of electronic products, which require shipment of parts and components, one of the biggest contributors to air cargo demand. Taiwan-based Foxconn also makes Hewlett-Packard Co. (HPQ) computers, Sony Corp. (6758) televisions and Microsoft Corp. (MSFT) game consoles.
“Whenever you’ve got a hot new item, the consumer says, ‘I’ve got to have it now,’” said Seattle-based Boeing spokesman Bob Saling. “That can be a real driver of air cargo demand.”
Still, growth is more likely in the second half of the year than the first. Freight traffic in the Asia-Pacific region, home to the world’s top cargo carriers, fell each month year-on-year for 12 months through January, said the International Air Transport Association, the main global trade body for airlines. Reports from the Airports Council International show 10 months of straight declines through January.
“There is still a perfect storm out there, with financial markets remaining very weak and business sentiment good one week and turning bad the next,” said Rafael Echevarne, director for economics and program development at Montreal-based ACI, which tracks global airport data, in a phone interview. For Asia’s air cargo volume, “I wouldn’t be surprised to see growth remain in negative territory this quarter or in the first half.”
Cathay Pacific doesn’t see “much signs of a pickup” in the near term, Chief Executive Officer John Slosar told reporters in Singapore Feb. 13: “I would hope in the second half of this year things start to look better, but that will very much depend on the economy.”
“It is hard to predict how sustainable the recovery in economic fundamentals is or how soon it may translate into market demand that would benefit air freight,” said Luo Yanyan, a Shenzhen-based analyst at China Merchant Securities Co., the nation’s No.4 listed brokerage by market value. “I wouldn’t recommend Chinese airline stocks just yet, and I would wait until at least after March when there is a clearer picture for the industry’s growth.”
February, though, saw a jump in cargo volume in both China and Hong Kong. Shanghai’s Pudong International Airport posted a 17 percent increase in cargo volume last month versus a year before after a 21 percent decline in January. In Hong Kong, volume rose 17.4 percent in the same period.
Capacity cuts may also help profits. Singapore Airlines Ltd. (SIA), the world’s second-largest carrier by market value, announced last month that it cut freight capacity by 20 percent because of slumping demand and higher fuel prices. Cathay Pacific has been “cutting capacity aggressively” on North America and European routes, the company said last month.
“If we see more of this, it’s positive for the industry and will help improve their profitability,” said Corrine Png, a Singapore-based analyst at JPMorgan Chase & Co. “The near-term outlook remains challenging but hopefully we’ll have some potential upside surprises from the tech sector’s restocking and new iPad shipments in the second half of this year.”
To contact Bloomberg News staff for this story: Li Yanping in Beijing at firstname.lastname@example.org
To contact the editor responsible for this story: Paul Panckhurst at email@example.com