Airlines get a lift from cargo business, but they’re still struggling
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Demand for cargo shipped by air is back to pre-pandemic levels. That is good news for airlines, but not quite good enough to save their bottom lines.
One person who knows first-hand about the impact of the pandemic on airline-related businesses is Mark Pollack. His company is called Sage Parts. It supplies the parts for all those weird Star Wars-looking vehicles moving boxes or suitcases or fuel on the tarmac.
They include “transmissions the hydraulic systems, all of those replacement parts,” he explained.
And Pollack can basically take the temperature of the airline industry by looking at the orders he gets. Business is way down for the most part, but there’s one group that is still coming to him, clamoring for parts.
“Our cargo customers, our package carriers, UPS, FedEx, Amazon are doing very well,” Pollack said.
Basically, Americans are buying a lot of stuff these days, which is pushing up that demand for air cargo. Overall cargo revenues were up 75% year over year in December.
Passenger airlines benefit from this because they also carry goods. You might have a row to yourself in the cabin, but you can bet the cargo hold below you is crammed full of freight.
“United [Airlines], for example, generally has 2% to 3% of its revenue being cargo revenue,” said Burkett Huey, an equity analyst at Morningstar, said. “In 2020, that figure jumped to about 10% of revenue.”
Huey said United generated about $1.6 billion just in cargo revenue last year. But it had an operating loss of about $6.3 billion. Which gets us to the bottom line.
“A few more packages doesn’t make up for us missing a half a billion passengers,” said Samuel Engel, who leads the aviation group at consulting firm ICF.
Even if all the airlines took the expensive step of converting some passenger planes into full-on freight carriers — and some have — the increased capacity would probably lower the price of freight to the point where airlines would still be in the hole.
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