Cathay Pacific 2009 Annual Report Download - page 24

Cargo demand weakened from late 2008 in
response to the global economic downturn. Freight
movements started to fall on all major trade routes.
All our major markets were affected to some
degree. The India and the Middle East markets were
the least affected. The USA and Europe (which are
the key export markets for Hong Kong and Mainland
China) suffered badly as consumers reduced their
spending, with the consequence that the flow of
new orders dried up while retailers and their
suppliers waited for a reduction in inventories.
The same factors affected intra-Asian cargo traffic
where much of the volume is made up of semi-
manufactured parts moving to other points within
the region for final assembly and export.
The reduction in freight volumes led to a global
imbalance of supply and demand with too much
capacity chasing too little available cargo in the
market. The resultant and intense competition caused
rates to fall rapidly and this led to a rapid reduction
in yields and revenues.
Carriers responded to the reduction in demand by
reducing capacity; either through ad hoc but
frequent flight cancellations or through the parking
or decommissioning of older, less efficient aircraft.
It is estimated that approximately 20% of the global
wide-bodied freighter fleet had been parked or
decommissioned by the middle of 2009.
Business started to improve in the third quarter.
Capacity reductions and an increase in demand,
albeit from a low base, resulted in increased load
factors. New orders were being placed for the year
end retail season and inventories needed to be
rebuilt. Uncertainty as to the strength of final
consumer demand and the desire to hold the least
possible amounts of inventory meant that many of
these orders were placed later than would normally
be the case. This favoured airfreight over sea freight.
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As a result, the seasonal peak in air cargo demand
was stronger than expected. By the end of the third
quarter yields and load factors had returned to 2008
levels. In addition, there was a partial reversal of the
usual imbalance between outbound and inbound
traffic, with stronger inbound traffic than normal in
particular from the North American, European and
Southwest Pacific markets.
Along with most other cargo carriers, we
reduced capacity in 2009. This began with ad
hoc cancellations early in the year. As the extent
of the downturn became clearer, we reduced
scheduled services (with effect from May) from
126 to 84 a week. We parked five of our aircraft –
all Boeing 747-400BCFs – in the desert in California.
A further aircraft was wet-leased to our subsidiary,
Air Hong Kong.
A central objective of the capacity reductions was to
maintain the integrity of our freighter network. We
therefore reduced frequency and capacity but not
destinations served.
On the positive side, the network was strengthened
by the introduction of a new service to Jakarta and
Ho Chi Minh City in January 2009 and a three-times-
weekly service to Miami and Houston in March
2009, which gave us access to the increasingly
important Latin American markets. Three additional
frequencies were added to the Milan service in
February 2009.
The composition of the freighter fleet changed
materially and for the better during the year. We
completed the retirement of our older, fuel-
inefficient Boeing 747-200F “Classic” freighters,
with the last aircraft leaving service in July and we
continued to introduce new Boeing 747-400ERF
freighters into the fleet, so improving operational
efficiency. The sixth and final Boeing 747-400ERF
arrived in April.
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Review of Operations CARGO SERVICES | ASIA MILES
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