The must-know drivers of air cargo growth for US airlines

Cargo traffic and capacity

The demand for cargo transportation is measured in freight traffic kilometers (or FTK). This metric is similar to revenue passenger miles (or RPM) and it’s calculated as the weight of cargo in tons multiplied by the total distance traveled. Similarly, available freight ton kilometers (AFTK) is a measure of freight capacity and freight load factor (FLF) is a measure of capacity utilization.

Trends in global and North American freight traffic

According to the IATA, global air freight volume has increased by 4.5%. Capacity, measured by available freight ton kilometers (or AFTK), increased by 3.5% year-over-year in August 2014. The drivers of cargo revenue include the business confidence index, corporate profits, and industrial production. Industrial production increased by 3.2% in the third quarter of 2014 with a year-over-year growth of 4.3% in September 2014, according the Federal Reserve. Corporate profits increased at a quarterly rate of 8% in 2Q14 after declining by 9.4% in 1Q14.

In North America, although freight volume grew by 5.5%, there was a decrease in capacity. While global freight load factor was 43.4%, North America’s load factor was less, at 34.2%. Cargo revenue forms a small portion of total airline revenue of major U.S. airlines, including Delta (DAL), United (UAL), American (AAL), Southwest (LUV), and JetBlue (JBLU). The major portion of their revenue comes from passenger services. An alternative to investing directly in individual airline stocks is to invest through ETFs such as the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN).

Total air freight traffic market shares by region in terms of FTKs (freight ton kilometers) are as follows.

• Asia Pacific: ~40%
• Europe: ~27%
• North America: ~15%
• Middle East: ~14%
• Latin America: ~3%
• Africa: ~2%