New devices are huge hits with freight airlines

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New devices are huge hits with freight airlines

Apple’s new iPhones and Samsung Electronics’ Galaxy Gear watches are the gadgets that Asian freight airlines have been waiting for.

Asian carriers, suffering from a traffic slump of six consecutive months, may be able to break the losing streak with the help of the new devices. Samsung just unveiled its Galaxy Gear and Note 3 tablet and Apple plans to show its new iPhones next week, which means a rush to deliver product from factories in Asia ahead of the Christmas shopping season.

As China’s growth cools, cargo carriers will need U.S. and European consumers to scoop up these new models as transporting electronics is their biggest business. Six of the world’s 10 largest freight airlines are in Asia, so a revival eases earnings pressure at companies such as Korean Air, which moves Samsung’s phones, and Hong Kong-based Cathay Pacific Airways.

“The market needs revolutionary products to generate constant demand,” said Park Eun-kyung, a Samsung Securities analyst. “Whenever a new device is introduced, there’s always an increase in shipments for about 15 days to a month.”

Asian cargo shipments have dropped every month starting in February, declining 1.4 percent in July, according to the International Air Transport Association. Global shipments rose 1.2 percent, helped by a 14 percent surge in the Middle East.

Korean Air, Asia’s biggest freight carrier, moved 2.1 percent less cargo in the second quarter. Cathay, the region’s No. 2, posted six straight months of decline to July.

Freight carriers from United Parcel Service to DHL Worldwide Express get traffic moving finished goods and components that go into making them.

Demand for gadgets is typically strong immediately after introduction, and companies rush to new markets using planes. Moving high-value goods such as smartphones and tablets by ships delays efforts to capture market share quickly.

“We want Apple and Samsung to introduce new products more frequently,” said Zhu Zhiyong, general manager of sales and marketing, at Yangtze River Express Airlines. The company has moved every major iPhone and iPad model using its Boeing 747 jumbos to the U.S. from Chengdu and Chongqing in China.

“New products will give carriers bargaining power on pricing, especially in September, right before the peak Christmas season,” Zhu said.

With components such as memory chips to cameras coming from different locations, air delivery is essential to cut lags.

The iPhone, designed in California, has parts made in Korea by Samsung, and in Japan by Sony. They all need to reach assembly lines in China for production to carry on smoothly.

Combined, that logistics chain is key to generating traffic for cargo airlines.

“Manufacturers require just-in-time delivery, so they rely on air freighters, and don’t mind paying more for moving these goods by quality airlines,” said Eric Lin, a Hong Kong-based analyst at UBS Securities Asia.

Cathay last month reported its smallest profit in at least 15 years as cargo revenue dropped. High-tech product shipments account for more than half its freight volume, said Kelvin Lau, a Hong Kong-based analyst at Daiwa Securities Group.

“We definitely welcome these new product launches as they present opportunities to air cargo,” Elin Wong, a Cathay spokeswoman, said by e-mail.

The new electronic devices pose a challenge as well.

Phones and tablets have continually shed weight and are getting thinner. Consumers are voting against bulky laptops. That’s occupying less space inside a plane.

The iPhone 5 weighs 3.95 ounces compared with 4.90 ounces for the iPhone 4S.

“That’s good for consumers, but bad news for air cargo companies as rates are often determined by weight and size,” said Um Kyung-a, an analyst at Shinyoung Securities in Seoul.

With a slew of new products coming, cargo carriers can expect a reversal in downtrend. Apple has helped the industry in the past too. When the iPhone 5 went on sale in September last year, the decline in freight traffic in the Asia-Pacific region shrank to 2.6 percent, easing from a 6.3 percent drop.

“Apple products of course will stimulate airlines’ traffic, especially in current prolonged, bleak market,” said UBS’s Lin.

Bloomberg

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