To represent, lead and serve the airline industry

Understanding air cargo markets and their importanceNovember 2011Brian Pearcewww.iata.org/economics

What is driving air cargo?

11

12

13

14

15

16

17

270

290

310

330

350

370

390

410

430

450

2007 2008 2009 2010 2011

FTK

s pe

r mon

th, b

illio

n

RP

Ks

per m

onth

, bill

ion

Total air travel and air freight volumesSeasonally adjusted

Source: IATA

FTKs

RPKs

It’s not relative transport costs

0

0.5

1

1.5

2

2.5

3

3.5

4

Sea Air

The cost of air freight versus sea, $/kg

14x

Shippers use air cargo only when they have to

Perishability (e.g. food, fashion)Opportunity cost (e.g. capital tied up in high

value product) Inventory-related cost (just-in-time)Time-definite requirements (express)50% ‘emergency’/ 50% planned (Merge

Global)

There are good leading indicators

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

50%

2006 2007 2008 2009 2010 2011

Growth in air freight and the PMI index (advanced 2 months)

Growth in PMI index

Growth in air freight

But even they fail at major turning points

 10

 11

 12

 13

 14

 15

 16

2007 2008 2009

Billion

s per m

onth 

Freight tonne kilometers flown, seasonally adjusted

IATA forecastMarch 2008

‐25%

Even long-term trends are hard to get right

50

100

150

200

250

300

350

400

450

1990 1995 2000 2005 2010 2015 2020

FTKs billion

Long‐term cargo forecasts in 2000 and 2010

Boeing, 2000

Airbus, 2000

Airbus, 2010

Boeing, 2010

+45%

Where we are today

Population and purchasing power are the long-term pull factors for trade flows

Large cities too

Source: UN, SRS Analyser

5-10 mln10-15 mln15-20 mln> 20 mln

Urban Popn. 2015

No GDP ‘rules of thumb’ e.g. 5-6% cargo growth on 3% GDP growth doesn’t work

‐1

0

1

2

3

4

5

6

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Ratio of FTK growth to GDP growth

%FTKs/%GDP

10‐year moving average

But can look directly at international trade

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

1970 1975 1980 1985 1990 1995 2000 2005 2010

Air freight and world trade growth

FTKsWorld trade

Air cargo has been losing share in world trade in the past 18 months

110

120

130

140

150

160

170

180

9

10

11

12

13

14

15

2005 2006 2007 2008 2009 2010 2011

inde

x of

wor

ld tr

ade,

200

0=10

0

Bill

ion

FTK

s

World trade in goods and FTKs by airSource: Netherlands CPB and IATA

FTKs by air(left scale)

World goods trade volumes(right scale)

For several different reasons

Mode shiftCommodity mixTrade lane

Mode shift - cyclical

8

9

10

11

12

13

14

15

16

17

18

0.8

1

1.2

1.4

1.6

FTK

s (b

illio

n)

Inve

ntor

ies

to s

ales

ratio

Total Business inventories to sales ratio and FTKsSource: US Census Bureau and IATA

Inventories to sales ratio

FTKs

Mode shift - structural

Source: Seabury Cargo

The commodity mix has also weakened air cargo

-26-22-18-14-10-6-2261014182226303438

-34-26-18-10

-26

142230384654

Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11

% g

row

th -

Inte

rnat

iona

l FTK

s

% G

row

th, S

emi-C

ondu

ctor

Shi

pmen

ts

Semi-Conductor Shipments and Air FreightSource: IATA, SIA

International FTKs

Semi-Conductor Shipments

Major air cargo trade lanes weakened by consumers in Europe and US

Source: Merge Global

Consumer spending Directional air cargo flow

But air cargo and air transport connectivity is vital for modern economies

Businesses can set up much more efficient global supply chains

Dell manufacturing plantAustin, Texas

MexicoKeyboards

FranceSoundcards

ChinaPower supplies

Hong KongVideo Cards

Microprocessors

SingaporeSCSI CardsDisk Devices

JapanRAM Chips

CD-ROM Drives

TaiwanNetwork Cards

MonitorsCooling Fans

MalaysiaFloppy Drives

Critical value of air transport becomes clear when it is not there

Value of aviation campaign

Connecting cities enables flows of trade, tourists, investment and ideas