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02/07/2024

IBA forecasts rise in air cargo capacity and demand in 2024

IBA, the leading aviation market intelligence and advisory company, has revealed indicators that both air cargo demand and capacity will rise in 2024 compared to 2023.

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In its latest webinar on the freighter market, IBA highlighted data from its aviation intelligence platform, IBA Insight, that forecasts air cargo demand will grow modestly by 5% to 258.1 billion cargo tonne kilometres. However, this will be outstripped by 8% growth in air cargo capacity to 600.3 billion air cargo tonne kilometres. This will see cargo load factors continue to fall from a pandemic high of 56% in 2021 to a forecast 43% this year.

 

IBA forecast that, in 2024, average air cargo yields are expected to decline by approximately 18% year-over-year due to plentiful capacity but generally subdued demand. This projection is an improvement from earlier forecasts for the year, which had anticipated a 20% year-over-year decline in yields.

 

Data from IBA Insight also revealed that the active freighter fleet stood at 75% in June 2024, down from 85% before the pandemic in May 2019. Despite the increase in air cargo demand, freighter aircraft have not significantly benefitted due to growing passenger aircraft belly hold capacity, leading to a greater number of freighters being parked or stored.

 

IBA’s intelligence highlighted that narrowbody aircraft are the primary drivers of the cargo market's conversion activity. From January 2024 to mid-June 2024, there have been a total of 45 narrowbody conversions, compared to 126 conversions throughout the entirety of 2023. IBA forecast narrowbody conversion levels to normalise in 2024, aligning closer to the 80 total conversions seen in 2021 and 89 in 2022.

 

The 737-800 and A321-200 lead the narrowbody conversion sector for Passenger-to-Freighter (P2F) conversions. From January to mid-June 2024, there were 27 737-800 conversions and 12 A321-200 conversions, comprising 87% of total narrowbody conversions in that period. IBA forecast these models will maintain their market dominance due to their efficiency and adaptability. A321-200 P2Fs are expected to become increasingly common in future years once feedstock is available.

 

Meanwhile, in the widebody market, the 767-300ER has long dominated, primarily through P2F programs offered by Boeing and IAI. However, IBA expects to see a shift toward the A330 P2F programs on the horizon. This is evidenced as from January to mid-June 2024, there were 5 A330-300 conversions and 15 767-300ER conversions, compared to 6 A330-300 conversions and 44 767-300ER conversions throughout the entirety of 2023, representing a major Airbus uptick.

 

The large widebody market faces evolution with an array of new offerings. Currently, three 777-300ER conversion programs are underway by IAI, KMC, and Mammoth, alongside a 777-200LR P2F program in development by Mammoth. Both Airbus and Boeing are also developing new production freighters, with the A350F forecast to enter service before the 777-8F.

 

Turning to value performance, high feedstock prices support Market Value retention in the narrowbody market, while Lease Rates generally continue to soften.  This trend is exemplified by the Boeing 737-800BCF. In July 2019, a 21-year-old 737-800BCF was valued at US$18 million and as of July 2024, its value has increased slightly to US$19 million. Despite this rise in Market Value, Lease Rates for the same aircraft have decreased from close to US$200,000 per month to between US$170,000 and US$180,000 per month over the same timeframe.

 

Meanwhile, converted widebody Market Values have stabilised since the beginning of 2024, while Lease Rates have generally decreased due to heightened supply and softened demand. This is demonstrated by the Boeing 767-300ERBDSF, where a 21-year-old converted aircraft was valued at US$24 million in July 2023, slightly increasing to US$25 million by July 2024. During the same period, the Lease Rate for a 767-300ERBDSF of the same age dropped by 2.4% from almost US$300,000 per month to below US$290,000.

Related content

IBA's Cargo Update: The Outlook
Webinars28Jun 2024

IBA's Cargo Update: The Outlook

This webinar, moderated by Mike Yeomans and featuring Jonathan McDonald, provided a comprehensive update on the cargo market and discussed the outlook for the future. Summary The market is experiencing an increase in capacity, with a strong demand for air cargo that was expected to stabilise though the tide is turning. The conversion activity is dominated by narrowbodies, particularly the 737-800 and A321-200 P2F. Widebodies are primarily 767s, with a gradual increase in A330s. The A350F and 777-8F were highlighted, with Airbus having a wider customer base than Boeing.   The impact of Amazon ending its relationship with Atlas was also discussed, indicating a potential oversupply and a shift towards larger cargo. The A350F is expected to integrate well with the passenger fleet due to its global distribution and crew commonality. The 777-8F faces challenges due to delays in the 777-9 passenger program. Market Values and Lease Rates have fluctuated, with the A321P2F and 737-800 while the 757 will probably see a decline in value. Despite the potential oversupply of narrowbody aircraft, the cargo market remains resilient, with new conversion programs expected to meet freighter aircraft demand.  Presenters Mike Yeomans, Director - Valuations and Consulting, IBA. ISTAT Certified Senior Appraiser Jonathan McDonald, Manager – Classic & Cargo Aircraft, IBA. ISTAT Certified Senior Appraiser   Watch on-demand Key Takeaways Resilient air cargo market: The air cargo market has shown resilience during the Covid years, with a rising level of capacity in terms of pure freighters and belly cargo, and strong demand which was expected to stabilise, but the tide is now turning. Narrowbody conversion dominance: The conversion activity in the cargo market is dominated by narrowbodies, particularly the 737-800 and A321-200 P2F, which are expected to continue leading the market. Widebody conversion trends: Widebody conversions are dominated by 767s, but there is a gradual increase in A330s, and the 777-300 ER programs are also gaining traction.  A350F's competitive advantage: The A350F is expected to operate well alongside the passenger fleet due to its mature fleet of hundreds of A350-900s and 1000s and well-established global distribution of passenger aircraft, giving Airbus an inherent head start.  777-8F market challenges: The 777-8F faces challenges due to delays in the 777-9 passenger model, and even if the -9 enters the market by 2025, it will take time to ramp up the fleet. Ultimately it will be a success mind.  Fluctuating Market Values: Market Values and Lease Rates have fluctuated, with the A321P2F and 737-800 seeing a slight increase in value due to high conversion costs, while the 757 has seen a decline in value due to its age. Conversely, IBA has seen A321-200P2F and 737-800SF lease rates slide slightly.  Resilient cargo market demand: Despite a potential oversupply of narrowbody aircraft due to many 737-800s being converted, the cargo market remains resilient, and current and future factory new programs, along with conversion programs, are expected to meet the demand for freighter aircraft.    "It is still a challenge to find decent passenger Airbus A321-200 feedstock. Good provenance aircraft are finding their way to P2F, but the quantity remains small. There are a lot of very good later build standard A321-200s that remain hot in demand as passenger aircraft. At some point, they will be replaced by A321NEOs, meaning they will be ripe for conversion. These will make lovely converted freighters while uprooting some of the ageing 757 fleet."

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