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The Latin link

Carriers have been piling capacity into South America to take advantage of trade with Asia. But while Asian airlines struggle to make Latin operations profitable, routing through Europe is becoming popular, finds Ian Putzger

Last autumn a jubilant media officer at Dallas/Fort Worth (DFW) airport proudly announced a freighter link to South America, as Singapore Airlines (SIA) launched a weekly all-cargo service to São Paulo’s Viracopos (VCP) airport. The flight was an extension of SIA’s run from Singapore over Hong Kong and Anchorage to DFW, returning to Asia via Dallas, Brussels and Sharjah.


The Asian carrier did not make any formal announcement to the media about its new route, and probably with good reason. The airline’s previous foray into the Latin American maindeck market had proved short-lived. Back in 2010, SIA Cargo had mounted Boeing 747-400F flights from its home base over Europe to Brazil, Colombia and Ecuador, but suspended the operation after just two months.


In the event, SIA’s new DFW-VCP freighter lasted an even shorter time than the carrier’s first Latin American all-cargo venture. The end came after just two flights, reducing SIA’s presence in the market to three weekly passenger flights from Singapore to Barcelona and on to São Paulo’s Guarulhos airport.


SIA’s efforts exemplify the dilemma that Latin America poses for Asia cargo operators. The area has been one of the few markets around the world that have held up relatively well in the global downturn, but taking freighters out of congested lanes and placing them on routes to Latin America has been anything but a slam dunk. Cathay Pacific has built up a sizeable main deck presence in Miami to tap into the Asia-Latin America market, but management’s ambitions to fly to the southern hemisphere have so far been frustrated.


“We have studied a direct service into markets such as Viracopos and have struggled to make the numbers stack up,” remarks James Woodrow, general manager of cargo sales and marketing.


“With fuel [prices] remaining high, it is difficult to make the economics work,” he adds.


The difficult mix of long routes and high fuel costs is exacerbated by seasonal demand fluctuations out of Latin America, Woodrow observes. And while exports from the region to Asia have been going up, they still consist chiefly of perishables, most of which do not generate attractive enough yields for carriers. However, what really hurt freighter operators over the past year and tipped the balance in operating economics were two other factors that undermined yields.


The relative strength of the Latin American market and downward pressure on yields in established markets caused a marked influx in capacity as carriers from overseas piled up flights to the region. At the same time, Latin carriers, above all LAN, have been expanding, adding ample widebody capacity on trunk routes to and from the region as well as on intra-regional routes.


The rise in capacity coincided with a rather sudden and sharp decline in demand in Brazil, far and away the largest market in the region. According to Cargo Account Settlement Systems (CASS) statistics, exports out of Brazil in the fourth quarter of 2012 were 35 to 40% below the level seen a year earlier, notes Daniel Bleckmann, regional director for South America, the Caribbean and Florida at Lufthansa Cargo. The shock was all the more painful as it came unexpectedly.


With rates and yields dropping precipitously, the erstwhile El Dorado turned into a challenge. “It has been a struggle,” comments Ram Menen, senior vice president cargo at Emirates. “Like Lufthansa, we have also seen the LatAm market taking a beating. Brazil has seen a major drop, especially in the automotive sector. This has also affected Asia-LatAm traffic, where volumes are not as strong as they used to be.”


Most observers of Brazil’s economy, as well as airfreight operators, have expressed confidence that Latin America’s largest market will rebound, most likely before Europe and the US see a sustained upturn in their economic fortunes. Above all, two looming mega-events augur well for air freight traffic to Brazil.


“We believe that we will see a good growth in that market. There are two big events coming up in Brazil with the Olympics and the world soccer championship, but also major infrastructure projects are on their way that will assure a continuous growth,” comments Thomas Mack, senior vice president and head of global air freight at Schenker.


“We see a steady growth of our traffic ex most of our Asian countries to LatAm. Over the last years, the region has shown a steady growth and was not as affected by the general development as other regions,” he remarks.

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