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Does the Pacific fulfil its promise?

Until October came along, 2013 had been another lacklustre year for air cargo. Since that strong month, business has continuously looked up. One year later, October delivered again, with a volume increase of 5.5% year-over-year (YoY). Yields (in USD) dropped 2.3% YoY, but increased 2% MoM. Results for Jan-Oct reinforce the view that 2014 will become the second-best year in revenues since 2008, in spite of a 10.4% yield drop since 2011 (the best post-crisis year so far).

China and N.E. Asia showed YoY revenue increases above 14% for their business to the US. Markets from South Asia to S.E. Asia and from the US to Southern Africa were leaders in yield improvement (+12%), but yields suffered almost 10% in the market from N.E. Asia to S.E. Asia. Top regions for revenue increase were S.E. Asia for outgoing and USA for incoming traffic, both + 12% YoY. Revenue from pharmaceuticals transport rose by 9.7%, making for continued growth of its share in total air cargo revenues.

The Transpacific did considerably better than other major markets in October and the full year's figures for this market ("TransPac") could still improve, given events in the western US ports. But how about the TransPac's past? A recent article in The Economist mentioned Abraham Lincoln's secretary of state, who predicted in the middle of the 19th century (!) that "the Pacific Ocean will become the chief theatre of events". At that time, the "American Century" had not even begun.... In other words: the Pacific has been promising for quite a while. We looked at three years of air cargo business between Asia Pacific and the Americas.

Over these years, TransPac easily outperformed the worldwide average: volumes were up by 12.8% vs. 7.3%. 2013 was poor, but this year the market is vibrant: YoY revenues are up 11.4% vs. 5.8% worldwide. The bulk of the business comes from a few countries only: N.E. Asia and China on the western edge, and the USA across the water. The eastward flow is 1.6 times the size of the westward flow.

The Pacific States of the US form the largest TransPac market, with reasonably well-balanced outbound/inbound flows. Of the ten largest TransPac markets, Australia shows the biggest imbalance, outbound volumes being only 24% of inbound. The best balanced market in the top-10 is the N.E. USA, where the outbound flow is 76% of the inbound flow. NB: the small market of Peru has the perfect balance!

In yields, imbalance is the norm as well: westbound yields are only 60% of eastbound yields. The top markets show less yield decline than the smaller ones. Nine of the 50 largest O&D's bucked the yield trend of the last three years: their yields were higher in 2014 than three years ago, remarkable given the worldwide trend. Chief among them was N.E. China to the American Midwest (+9.4%) and Southern USA to Australia (+5%). The best yield performance came from a small market, though: outbound New Zealand, recording +17% YoY for specific cargo such as perishables.

Carriers from the Middle East and Europe play a role in the markets between Asia Pacific and the Americas, mostly through transport via their home bases. Their volume shares may be small, but they increased considerably, to the detriment of the shares of Asian and (even more) American carriers. The "non-Pacific" airlines more than doubled their share from Asia Pacific to the USA, and in the large market from Asia Pacific to USA Midwest, the revenue increase of 8.6% went to them completely. The China-USA market brought some consolation for US carriers, who jointly increased their yield in this market with 6%, which more than compensated for their volume loss.

The Pacific Century may have arrived, but there is some space for the Old World players as well.

- WorldACD provides air cargo market data based on airline sources covering all countries.

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