June 8 (Bloomberg) -- FedEx Corp., the biggest air-cargo carrier, and Cathay Pacific Airways Ltd. forecast a pickup in freight demand in the second half of the year that may help airlines offset surging fuel prices.
“The momentum we see in the cargo sector is strong,” David Bronczek, chief executive officer of FedEx’s FedEx Express unit, said June 6 at the International Air Transport Association’s annual general meeting in Singapore. “The momentum will continue as long as the oil issue doesn’t throw a wrench in the works.”
Cathay, the largest international cargo carrier, also said customers were expecting a second-half rebound, signaling that consumer spending in the U.S. and Europe may withstand rising oil prices and slowing growth in payrolls. The rising demand prompted IATA this week to more than double its forecast for full-year cargo yields, a measure of rates, to 4 percent.
“We’ll get a strong second half,” said Cathay CEO John Slosar. “When we talk to forwarders and shippers they’re all saying things are bit quiet now, but they’re expecting pretty big demand.”
Full-year global air-cargo traffic may rise 5.5 percent this year, picking up from a 4.3 percent pace in the first four months, according to IATA, whose 238 members account for 93 percent of worldwide air traffic. Traffic surged 21 percent last year as the end of the global recession triggered a surge in demand for shipments of Apple Inc. iPads, luxury handbags and fresh foods.
Hong Kong-based Cathay will bolster its cargo capacity in the second half with the arrival of six Boeing Co. 747-8 freighters. It’s due to receive two a month from August to October, Slosar said. The planes will help the airline boost full-year cargo capacity about 10 percent.
The increase follows a 2.3 percent decline in the carrier’s cargo traffic in April, the first drop since October, 2009. The fall was partly caused by slowing demand for shipments to Europe from China, according to a May 13 statement. Hong Kong Air Cargo Terminals Ltd., the biggest freight-handler in Cathay’s home airport, the busiest worldwide for cargo, also reported a 12 percent drop in volumes for last month.
“Hactl’s figures were softer this year than they were last year, but last year was incredibly strong,” Slosar said. “This year we think it’s looking just like a regular year, where the first half is weaker and the second half will be stronger.”
The last six months of the year are traditionally the busiest for cargo carriers, partly because of back-to-school and holidays shopping in the U.S. and Europe. Cathay is yet to release its May traffic data.
Still, the demand increase may not be enough for airlines to fully offset fuel prices that have jumped 56 percent in the past year in Singapore trading. IATA cut its industrywide profit forecast, including passenger operations, by 54 percent to $4 billion because of fuel costs and disruptions caused by an earthquake in Japan and political unrest in the Middle East and North Africa.
“There are lots of airlines with weak financial positions today who will clearly struggle,” said Willie Walsh, chief executive officer of British Airways’ parent International Consolidated Airlines Group SA. “It’s going to be a challenging environment.”
IATA raised its fuel-year forecast for the average price of Brent crude to $110 a barrel from $96. Every $1 increase boosts the industry’s annual fuel costs by $1.6 billion, according to the airline group.
A jump in oil prices could also damp consumer spending in the U.S., where payrolls grew at the slowest pace in eight months in May and the unemployment rate unexpectedly climbed to 9.1 percent from 9 percent in April, according to the Labor Department.
“That’s a big concern,” said Memphis, Tennessee-based FedEx’s Bronczek. “It’s an incremental cost -- a tax almost -- on people’s groceries, the gas into their cars, and of course into our planes.”
Asia-Pacific airlines will be the best positioned to withstand higher fuel costs because of their larger air-cargo businesses and because of rising passenger traffic in China and India, the world’s most populous nations, according to IATA.
Cathay, which is spending HK$5.5 billion ($708 million) to build its own cargo terminal at the Hong Kong airport, earned 29 percent of sales from cargo last year, while the figure for Korean Air Lines Co. was 33 percent. By comparison, cargo at both Delta Air lines Inc. and United Continental Holdings Inc. accounted for less than 5 percent of sales, according to data compiled by Bloomberg.
Cargo demand will help Asia-Pacific airlines, which carry 40 percent of air-freight, make a $2.1 billion profit this year, the highest tally for any region, according to IATA. The group predicted a $1.2 billion profit for North American carriers and $500 million for European airlines.
“It does still look like quite a positive outlook for air- cargo, especially in the Asia-Pacific region,” said Brian Pearce, IATA’s chief economist.
--Editors: Vipin Nair, Neil Denslow
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