While the global aviation industry has been hit by the biggest crisis in its history due to COVID-19, the air cargo, one of the key components of the industry, started to experience the golden era in its history.

When border closures, travel restrictions and inconsistent quarantine practices came together with people’s fears of getting infected, passenger traffic has dropped dramatically, more than 40 percent of passenger aircraft in the airline's fleet around the world have grounded and been waiting for meeting the sky again.

On the contrary, with the sharp drop in passenger flights as well as the decrease in the belly cargo capacity carried in the cargo compartment of the passenger aircraft, cargo planes have been in great demand and conducted flights more than ever. With less capacity, huge earnings were achieved.

To summarize, passenger aircraft yearn to fly, cargo planes yearn to rest during the pandemic!

For the time being, on one hand all the stakeholders of the industry are struggling to survive, on the other hand they are preparing for the new aviation industry to emerge in the post pandemic period. Calculations are made to grab a bigger piece from the pie by taking the proper position according to market dynamics and creating circumstances where the impacts are minimized. 

For the post pandemic period, it may be not enough to consider the temporary and permanent effects that emerge merely in the aviation industry for taking the proper position. In the scenario of returning to pre-pandemic levels in terms of passenger traffic, structural changes will probably occur also in issues such as the growth, change and transformation of global supply chains. This issue directly concerns all stakeholders of the aviation industry in their future plans.

The inevitable rise of E-Commerce

Since the pandemic restricts the mobility of all people worldwide and keeps us locked in our homes, naturally, traditional physical retail channels have shrunk quite dramatically. All consumers had to opt online shopping for all their needs.

E-commerce sales in the U.S. only grew by 32% in 2020 hitting US$791 billion. Only one company took share about half of this amount. Yes correct, it is Amazon.com.

E-commerce sector in Turkey closed the year 2020 with 65% growth and the volume was approximately TRY 250 billion. In 2021, it is expected to exceed TRY 400 billion.

Sectoral reports reveal that the COVID-19 crisis has speeded up the world's inevitable transition to e-commerce by five to ten years. The Economist Magazine names this pandemic-induced growth and acceleration in the field of e-commerce as "tech-celeration".

Air Cargo and autonomous systems take advantage of the E-Commerce

According to industry experts, the boom in e-commerce will serve air cargo. In the transportation of commercial products around the world, the 1% shift from sea transportation to air cargo means over 10% growth in the air cargo sector.

New distribution channels created by e-commerce giants such as Amazon rock the entire system to its foundations. Now, an era has begun what the industry describes as B2B2C, where products are delivered from factories or production centers to logistics centers and from there to customers in smaller sizes and with higher frequencies. This system is believed to significantly increase the drone delivery processes in the near future, the work on the establishment of technological and legislation infrastructure in this regard has gained momentum. In other words, the rise of e-commerce will have a direct impact on the air cargo as well as the development of autonomous air vehicle technologies.

Despite the global recession, figures showing that air cargo activities reached pre-pandemic level in the last quarter of 2020 provide a clear outlook for the future.

The financial statements of all companies performing air cargo activities, including FedEx, UPS, DHL and Atlas Air for 2020 contain quite positive details. Looking at the bigger picture, we see that air cargo represented 12% of the total revenue of the airline industry in 2019, whereas it achieved around 30% in 2020.

As air travels return to pre-crisis levels with the increase in vaccination rates and in the light of other positive developments, the belly cargo capacity of passenger aircraft will certainly increase. In this case, even though the revenues seem to decrease unavoidably for the air cargo sector, when the system achieves the equilibrium again, the air cargo sector will have completed its biggest growth trend in its history and will be in search for new growth opportunities.

Direct and indirect effects of COVID-19 pandemic on the industry 

Aircraft manufacturers complain about customers who have requested to cancel their previous orders or postpone the final deliveries. The production programs of the aircraft have been revised several times in the recent year. The production capacity had to be reduced. The only thing that can be considered positive for manufacturers in this process is the increasing demand for new cargo planes. Part of the workforce in production has been shifted to these demanded planes.

On the other hand, there has been a huge demand in the transformation of passenger aircraft into cargo planes recently, and as a consequence the companies having transformed their passenger aircraft to cargo planes are happy. The number of aircraft that will be permanently transformed to cargo planes is expected to increase by 36% in 2021 to 90% and to 109% in 2022. The companies that transformed their passenger plane to cargo planes have already closed their business calendar for the next 2 years.

One of the important factors that make such transformations attractive is that the market value of aircraft aged 15 and over has dropped by nearly 30% during the pandemic. Current estimates suggest that international passenger travel demand will not return to pre-pandemic levels by 2024 and accordingly it justifies this trend.

Permanent transformations, which are more critical than the temporary transformation activities of airlines that are unable to conduct passenger flights due to the pandemic, may expand more depending on the future growth in air freight demand. Existing companies have already taken action to increase their capacities, while investors have already taken action to establish new companies in the sector.

Regarding the transformation into cargo planes, there is an increasing trend for the 737-800, A321 and A330 models. Older aircraft such as the Boeing 767 have started to be more in demand for transformation over the past few years as Amazon built its own fleet.

It is also another key factor that the belly cargo capacity of passenger aircraft will decrease in the post-pandemic period due to the increase in retirement rates of twin aisle aircraft during the pandemic. The factors, such as the airlines’ having announced that they would focus on narrow-body aircraft that can fly longer in the short and medium term, and Airbus’ speeded up activities for launching new models such as the A321LR and A321XLR, confirm all such scenarios.

The estimations made in the industry suggest that the share of twin aisle aircraft, which was previously 24% in the total aircraft manufactured, will decrease to 16% following the pandemic.

Transformation activities will continue to expand in the post-pandemic period, because following the pandemic, there will be plenty of retired or withdrawn passenger aircraft in the market. Moreover, such aircraft will find buyers at prices well below the market average. This will increase the number of transformations from passenger aircraft to cargo plane.

Another field that will benefit from this process is companies performing maintenance, repair and overhaul services. Approximately 1.900 cargo planes that fly actively today are much older than passenger aircraft and are quite worn out during this period. This means aircraft maintenance companies and parts suppliers will have a lot to do. In particular, companies that provide maintenance services to old aircraft fleets and supply spare parts for these aircraft are likely to achieve a significant revenue growth.

To sum up, the impact of COVID-19 pandemic has been huge to the aviation industry, while on the other hand, it promises hopes for the future for the industry in general over the significant acceleration it has created in air freight, one of the components of the industry. From that perspective, isn’t it fair to say COVID-19 pandemic is both a poison and an antidote for aviation industry?