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Gaining altitude

Buoyed by soaring demand for freighter capacity, Atlas Air went from strength to strength in 2018, and looks geared to expand strategic agreements even further. Ian Putzger reports
We had great momentum in 2018, building on a very strong 2017,” says William Flynn, President and CEO of Atlas Air Worldwide Holdings. “The market was strong both in cargo and passenger business. We expect that to continue.”
When the world’s largest freighter leasing outfit unveiled its results for the third quarter at the beginning of November, it also raised its outlook for the full year, projecting net income to rise in the neighbourhood of 50% over the previous year.
“Looking to the full year, we continue to expect our revenue to exceed $2.6 billion. We project adjusted EBITDA to increase to more than $525 million. And we anticipate our full-year adjusted net income to grow near or above 50% compared with 2017,” Flynn stated in November. “We see volumes for the year rising approximately 17% to around 297,000 block hours, with about 75% of the hours in ACMI and the balance in charter.”
Revenues in the third quarter climbed 23% to $656.6 million, which brought the company’s tally to $1.912 billion for the first nine months of 2018, up from $1.528 billion for the same period the previous year. Net profit for the January-September period reached $59.593 million, up from $14.025 million a year earlier.
The results have been fuelled by strength across all of the segments covered by Atlas – from ACMI over dry leasing and CMI to commercial charters and government contract work, Flynn says. Revenues in the core ACMI segment advanced 21% in the first nine months to reach $832.777 million, with block hours growing 19%. This reflects strong demand for freighter lift in a market where major trade lanes continued to show strength.
Airline executives, as well as charter brokers and other ACMI providers, have pointed out that freighter capacity has been tight, owing to a combination of demand outstripping capacity for most of 2018 and a lack of new freighters coming on stream, as airlines refrained from placing orders during the global downturn. In response to slack demand, Boeing had throttled back production of its large widebody freighters in 2017 to one B747-8 every other month and five 777s a month. Medium widebodies have been gobbled up for e-commerce.
Boeing predicts that over the next 20 years 2,650 freighters will join the global jet aircraft fleet, which is projected to grow from 1,870 aircraft in 2017 to 3,260 units over the period, with half of the additional planes needed to replace retiring models. The aircraft maker expects global air cargo to grow on average 4.2% a year.
Rival Airbus and some observers have argued that freighters will be losing ground to bellyhold capacity, as passenger demand is going to fuel a steady stream of new widebody planes, but Boeing dismisses this argument.
Tom Crabtree, Regional Director, Airline Market Analysis, Marketing and Business Development at Boeing, notes that the share of global air freight volume commanded by freighters did not diminish during the global economic downturn. More than half of the new widebody passenger aircraft are being deployed on routes that are of minor significance for global shipping patterns, he points out, adding that between 66-75% of global air freight volume is business-to-business.
The ACMI market looks solid, judging from clients’ commitments to leased freighters. Flynn points out that engagements with DHL and Amazon are long-term. He reckons that the focus will be largely on longer-term alignments, saying that for many Atlas customers the company is becoming part of their value chain. “Our status is more long term, less ad hoc,” he says.
Crabtree sees a promising market for ACMI providers at least in the near term. After the last downturn, many airline boardrooms are hesitant to invest in new freighters. Instead they are showing greater interest in used models and ACMI contracts, he says. As used freighters remain in short supply, ACMI is the most likely option for many.
In recent years Atlas has shifted its focus increasingly from general cargo carriers to the express and parcel sector. It now has 41 aircraft in service for DHL and 20 for Amazon. During the peak season it also operates charters for FedEx and UPS.
The trend is unlikely to reverse itself in the foreseeable future. Heavy freight has grown 4%, whereas the integrators have clocked up 7% 
growth, Flynn notes. He expects e-commerce to continue to grow, pointing to the way consumers are increasingly shopping. “Growth in e-commerce favours air,” he adds.  “It has extended our growth cycle.” 
In November Atlas delivered the twentieth B767 freighter to Amazon. The e-commerce giant has contracted another 20 767 cargo planes with ATSG, and is rumoured to plan a further expansion of its dedicated freighter fleet. Other e-commerce carriers are also looking to boost their capacity. In September, Atlas signed an agreement with SF Express to operate a B747-400F for the Chinese express carrier “on key global routes across the fast-growing transpacific market, connecting China with the United States”.
Ten years ago Atlas signed an agreement with DHL for a 20-year partnership that included a 10-year capacity deal for the freighter operator to provide transpacific lift via its Polar Air Cargo arm. Starting with six 747 freighters, this has since grown to encompass 41 aircraft that Atlas has in service for the express firm. The initial capacity agreement is now approaching its life span, but the pair intend to continue their collaboration. The aircraft leasing terms are part of the umbrella agreement, which is for 20 years, Flynn remarks.
“The partnership is strategic for both. We look to continue with them,” he says. The capacity on Polar’s flights not used by DHL is eagerly filled by forwarders, notably on the transpacific and intra-Asian sectors. Lately a rising number of large cargo agents have secured dedicated freighter capacity, such as Flexport across the Pacific or Senator International for automotive traffic moving across the North Atlantic or between Europe and South Africa. Likewise, charter brokers have lined up more dedicated freighter operations over the past couple of years. Shippers are also interested. Atlas has started flying for Spanish fashion giant Inditex. >>

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