American Airlines’ cargo revenue shrinks by a third in tough market

October 19, 2023

American Airlines said third-quarter cargo revenue fell 31% to $193 million, following a similar trajectory as its U.S. peers that are also dealing with a prolonged contraction in cross-border shipping volumes driven by economic uncertainty and improved ocean shipping reliability.

The downbeat cargo figures came against record corporate revenue of $13.5 billion and adjusted net income of $263 million during the three-month period, in which a nearly $1 billion one-time payout related to a new pilot labor deal was not recognized. The company has posted six consecutive quarters of profits and paid down 70% of its of its total $15 billion in debt coming out of the pandemic.

American Airlines (NASDAQ: AAL) received $613 million in cargo revenue for the nine-month period through September, a drop of 36.8% from a year prior.

United Airlines (NASDAQ: UAL), by comparison, experienced a 33% decrease in cargo revenue year over year to $333 million. Year to date through September, cargo was off nearly 36% at $1.2 billion. At Delta Air Lines (NYSE: DAL), cargo revenue slid 36% in the quarter to $154 million and by a third to $535 million for the first nine months.

The results were expected in an air cargo market that has seen overall volumes fall by 8% to 10% since March 2022, finally hitting bottom in late summer. Airfreight shipping prices have been 40% to 50% lower than last year for most of 2023 and have only recently seen marginal seasonal improvement. Cargo was a rare silver lining for airlines after the pandemic disrupted ocean supply chains and caused carriers to halt passenger flights, resulting in a huge loss of belly capacity.

American’s cargo results lagged 2019 levels of $208 million for the third quarter and $647 million for the first three quarters.

Fewer large jets in the fleet and a smaller Asia-Pacific network have constrained the cargo business and partly explain the difference. The airline retired all of its Boeing 767 medium widebody aircraft at the beginning of the pandemic, as well as its Airbus A330s, and has about 30 fewer widebodies flying today, American Airlines Cargo President Greg Schwendinger said on a recent episode of the Cargo Masters podcast.

American Airlines resumed taking delivery of Boeing 787-8 Dreamliners last year and will begin receiving 787-9s in mid-2024 after Boeing resolved manufacturing issues. As aircraft orders get fulfilled, the fleet will return to its 2019 size in a few years, he noted.

The Fort Worth, Texas-based carrier is not serving markets like Beijing and Hong Kong and has fewer frequencies to Shanghai than prior to the pandemic. Passenger demand has been slower to ramp up in Asia, where strict COVID policies remained in place until late last year, and geopolitical tensions between the U.S. and China have led the governments to limit air service by each country’s respective airlines. As of Aug. 31, the 12 roundtrip operations between the U.S. and China allocated to U.S. carriers were split among American, Delta Air Lines and United Airlines. A new agreement allows the number of bilateral flights to double by the end of October, but the amount of air service between the U.S. and China will still be well below the pre-COVID level.

Schwendinger said that as cargo yields retreat, many large freighters are becoming less economically viable for all-cargo operators, which could push more volume to passenger airlines.

“With yields where they are at this point, serving our forwarder needs on belly space on passenger flights becomes more attractive. The break-even point of putting it on a passenger operated aircraft in the belly as opposed to operating a freighter is starting to change. So to some extent that could serve as somewhat of a yield floor. We’ve heard from some of our customers, particularly those that operate a network of aircraft on their own, that they’re making efforts to potentially put a few aircraft on the ground and move that business onto passenger operations,” he said on the podcast.

AA Cargo has improved the performance of its interline connections, which is drawing more customers, he added.

Cargo system upgrades

In June, American’s cargo division upgraded to the latest version of its iCargo platform from IBS Software. The airline launched the cargo management system in October 2019 but spent a couple of years during the pandemic slowly rolling out the capabilities to make sure the system aligned with the business operation. Rather than adopt new versions when IBS made them available, American waited and jumped forward about eight versions with a single upgrade during the summer, Schwendinger said.

“It was a big effort by our team. We spent seven to eight months preparing and a couple of months after the cutover ensuring that all our processes, systems and reporting that we could generate from iCargo were working,” he said. “We did a major upgrade without any of our customers feeling any kind of impact. In fact, most of them weren’t even aware we were doing anything. We had zero impact on the operations of the airline or our cargo business.”

The smooth IT transition stands in marked contrast to the one experienced at Qantas Freight, which is still digging out from a container logjam caused last month when a switch to a new cloud-based cargo management system went off the rails and data didn’t properly transfer.

The iCargo management system unlocks a trove of data about American’s customers and operations that is now discoverable through various dashboards that make it easier to run the business, the cargo chief said.

American has also established its own software interface that allows its reservation system to connect directly with a couple of large forwarders, which allows them to search for capacity, run price comparisons and book space within their own transportation management systems.

Schwendinger said AA Cargo is also leveraging those programming connections to establish direct communications with ground handling companies at airports, which is expected to improve efficiency at domestic and international destinations.

AA Cargo distributes capacity on the WebCargo and Cargo.one marketplaces, as well as its own website, and recently began to offer dynamic rates where prices adjust on a lane-by-lane basis depending on market factors.

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Contact Reporter: ekulisch@freightwaves.com