Cathay Pacific Airways aims to replicate its business-class strategy in a cargo trade upgrade. It wants to fly more diamonds and medicines rather than T-shirts. Nick Rhodes, the airline’s Cargo Director, said: “Similar to the passenger service, we are not a low-cost carrier. We try to be a full-service cargo carrier. That’s really our DNA.” The airline, the world’s biggest international air-cargo carrier, started operating its first independently-owned goods terminal in Hong Kong this month, increasing the airport’s capacity by half. The airline has spent HKD5.9 billion on a facility it says will help Cathay target an increase of up to 20% in more profitable shipments of high-value goods, perishables and vaccines. Success with that strategy is critical to boosting profit in a business that accounts for over a fifth of the airline’s revenue. Both Singapore and Korean Air Lines also want to move to higher-value goods even as the global air-freight market declined for a second straight year in 2012, amid a slump in demand across Europe. Cathay, which moves cargo with 22 dedicated aircraft and in the bellies of passenger aircraft, carried 1.56 million tons of cargo and mail last year, 5.3% less than a year earlier. Revenue, measured by weight multiplied by kilometers, also fell 7.3% to CNY8.94 million.

Air cargo and passenger airlines using older fuel-guzzling long-range freighters could pull out of the air cargo market this year as they battle falling yields and persistently high fuel costs, according to industry observers. They said this could remove capacity and help balance supply and demand growth, which would support yields for major airlines in the air freight market. Nick Rhodes, Cathay Pacific Cargo Director, said carriers operating older Boeing 747s on long-haul routes will find it extremely difficult to make a positive return in the current climate, even if the aircraft are fully depreciated. Rhodes said Cathay Pacific had already scrapped one of its six 747-400s that was converted from a passenger to a freighter aircraft. Four cargo aircraft have been parked as the airline reduces freighter capacity and prepares for the arrival of more Boeing 747-8 freighters and the launch of its 777-200 freighter services. Air China Cargo, Cathay’s joint venture with Air China, is rumored to be the recipient of some of the 777 freighters to replace 747-400 converted freighters as it seeks to stem losses. The International Air Transport Association (IATA) estimated that fuel accounted for 33% of an airline’s operating expenses last year compared with just 14% in 2003.

Growth of shipments at FedEx’s home hub in Memphis, Tennessee, topped Hong Kong’s for the first time since the U.S. facility lost the title of world’s busiest cargo airport in 2010. Volume rose 2.5% in Memphis, outpacing Hong Kong’s 2.3%, Bloomberg data show. That helped shrink Hong Kong’s lead in tonnage to 0.2% from 5.3% in 2010. Kevin Sterling, Analyst at BB&T, said: “Memphis has kind of held steady versus Hong Kong, which has been on more of a roller-coaster ride.” The International Air Transport Association (IATA) forecast that air cargo demand worldwide would increase 1.4% this year, resuming growth after declines of 1.5% last year and 0.6% in 2011. The U.S. will be the top cargo market in 2016, with 7.7 million tons of international freight that year, against 3.49 million for mainland China and 3.23 million for Hong Kong, it predicted. Hong Kong faced more challenges, grappling with slower mainland Chinese expansion, declining shipments to Europe and fiercer competition from other airports, Wells Fargo Senior Economist Mark Vitner said. Lower European volumes would probably remain a challenge in the next four years, the IATA predicted. Shipments between the Asia-Pacific region and Europe would drop to 17% of global freight traffic by 2016 from about 18% in 2011. At the same time, Hong Kong’s regional competitors are vying for larger market share. Terminals in China, such as Shenzhen Baoan International Airport and Guangzhou Baiyun International Airport, where FedEx opened a hub in 2009, were getting more traffic because of infrastructure improvements, said Chris McNally, Political Economist at the East-West Center.

Cathay Pacific Airways will open its HKD5.9 billion air cargo terminal at Hong Kong International Airport about five months early on February 21. The complex, which will become fully operational by the end of this year, will boost airfreight capacity at the airport by 50% to 7.4 million tons. By comparison, total cargo throughput rose about 1% last year to 4 million tons. Cathay Pacific Chief Executive John Slosar was able to shorten the construction and development program by carrying out more detailed project planning when work on the 240,000 square meter complex stopped due to poor global economic conditions. Construction of the facility, which will be able to handle 2.6 million tons of cargo, was halted soon after work started in late 2008, and restarted in April 2010. The complex, which has been built on a 109,000 sq m site between Hong Kong Air Cargo Terminals (HACTL) and the Asia Airfreight Terminal (AAT), will become operational in three phases. Portia Cheuk, Spokeswoman for Cathay Pacific Services, which was set up to design, build and operate the terminal, said the facility will initially handle transit and valuable cargo. Phase two will see the terminal handling transshipment and import cargo from summer, while the third phase, covering export cargo, is planned to start “late in the third quarter or early in the fourth quarter”. Slosar said the facility will first handle Cathay Pacific and Dragonair cargo, but under its 20-year franchise from the Airport Authority, Cathay Pacific could later handle cargo for other airlines in competition with HACTL and AAT. The facility is equipped with an automated material handling system to help move and store laden and empty airfreight containers together with areas for bulk cargo, dangerous goods, livestock and perishables such as seafood and flowers. About 1,800 people will be employed at the seven-story building when it is fully operational, including 500 to 600 directly employed by Cathay Pacific Services, the South China Morning Post reports.

A pickup in air cargo shipments from Asia may benefit shares of Expeditors International and FedEx as global economic growth improves. Exports at Hong Kong Air Cargo Terminals (HACTL) grew 5.9% in December from a year earlier, following an 8.5% increase in November, based on data from the biggest handler in the world’s busiest freight airport. The recent gains came after shipments had contracted by an average 4.2% in the 24 months to October. The rise in shipments from Asia was encouraging for Expeditors, with 2011 revenue of USD2.9 billion from airfreight services, and FedEx, said David Ross, Transport Analyst at Stifel Nicolaus. These exports – particularly high-technology shipments – were “part of the equation” that boosted earnings for those companies. While Expeditors had missed analysts’ earnings estimates for the past four quarters, it might be “nearing a beatable quarter” this year, he said. The company is scheduled to report fourth-quarter results on February 26. Exports from Hong Kong Air Cargo Terminals have a “strong correlation” with annual growth in airfreight revenue at Expeditors and yearly gains in the average daily weight of FedEx’s international priority freight, according to Peter Nesvold, Analyst in New York at Jefferies & Co.