Source of Images: Internet

Due to the reduction in belly cargo capacity of passenger aircraft and the growth of e-commerce, many aircraft operators have turned their attention to passenger-to-freighter conversions as a potential revenue-increasing avenue. For example, many leasing companies remain optimistic about the long-term growth of air cargo and invest in new converted freighters. Airlines have also realized the importance of air cargo during the pandemic and have increased their plans and investments in this area.

According to data from McKinsey, global air cargo demand, driven by e-commerce, is expected to grow at an annual rate of 2% to 4% by 2030. From 2019 to 2023, the number of narrow-body freighter conversions increased from 61 to approximately 185, more than tripling with an annual growth rate of 32% during this period. This growth was mainly influenced by the introduction of various new freighter types, including the A321P2F in 2020 and the A321PCF and A320P2F in subsequent years. The 737-800 type freighter saw the fastest growth.

Taking the UAE as an example, despite production delays, Emirates remains committed to its plan to convert 10 Boeing 777-300ER passenger aircraft into freighters. An Emirates spokesperson stated that while there have been delays in the freighter conversions, they remain confident in the plan. Once converted, these freighters will provide unique advantages, including larger and more flexible capacity services, making them an ideal choice for transporting e-commerce goods and an important addition to the future freighter fleet, enabling faster and more efficient cargo transportation.

In 2021, Emirates SkyCargo first announced its plan to invest in 777-300ER conversions. By the end of 2023, it had 11 Boeing 777 freighters, with four more 777-200Fs to be delivered in 2024 and another in 2025.

Similarly, Alaska Air Cargo stated that it is working closely with Boeing to ensure the new 737-800BCFs operate at the level needed to serve customers. These two freighters will carry 10,000 pounds (over 4,500 kilograms) more than the previous three 737-700 freighters.

According to aviation analysis firm Cirium, freighter conversion companies set a record of over 170 converted airframes in 2022, up from 120 in 2021 and triple the number completed in 2019. From 2010 to 2021, the number of passenger-to-freighter conversions grew steadily at a compound annual growth rate of 9%.

Additionally, Cirium's latest forecast shows that the freighter fleet will grow by 2.6% annually, reaching 3,590 aircraft over the next 20 years. This includes 1,060 new-built aircraft (30%) worth $140 billion and 2,530 converted freighters (70%). The continued growth of global e-commerce will drive the long-term expansion of the freighter fleet, with conversion demand peaking in 2023.

Geographically, North America is home to the largest e-commerce providers, maintaining the leading share of the global freighter fleet despite a drop from 47% to 37%. China's freighter fleet share grew by 10 percentage points, reaching 18%, making it tied with Europe as the world's second-largest cargo market.

Boeing, in its 2022 World Air Cargo Forecast (WACF), stated that by 2041, the demand for air cargo services will more than double, with transport volumes tripling. The global freighter fleet will grow by over 60%, requiring nearly 2,800 new and converted freighters to meet the demand and replacement needs by 2041. Of these, one-third of deliveries will be new production freighters, while two-thirds will be conversions, such as the 737-800 Boeing Converted Freighter (BCF). Additionally, the Asia-Pacific region will receive about 40% of the new and converted freighters. As cargo volume doubles over the forecast period, operators will need more capable, fuel-efficient, and sustainable aircraft like the 777-8 freighter to meet demand. Over the next 20 years, the global freighter fleet will grow by over 1,300 aircraft, reaching a total of over 3,600.

Source of Images: Boeing

Driven by e-commerce demand, the narrow-body freighter conversion market saw significant growth over the past two years. However, with the recovery of passenger flights surpassing 2019 levels, the delivery pace of converted freighters seems to have slowed. Some STC holders have reduced their delivery plans for 2024, and some conversion companies have expressed concerns about facing challenges such as supply chain shortages and declining demand.

According to management consulting firm Oliver Wyman, narrow-body freighters coming off conversion lines are now entering warehouses, raising concerns about overcapacity.

McKinsey predicts that from 2023 to 2030, the number of narrow-body freighter conversions will decrease by about 5%-10% annually. The decline in demand is not only related to the recovery of belly cargo capacity in passenger aircraft but also to the strength of the passenger market itself and delays in new aircraft deliveries, prompting leasing companies to maintain longer-term cooperation with passenger operators.

In the long term, however, the rise and growth potential of e-commerce have already disrupted traditional thinking in the freight market. According to Boeing's latest Commercial Market Outlook, released in June 2023, although historically air cargo revenue tonne-kilometers (RTKs) have been closely linked to GDP growth, structural factors such as e-commerce and evolving supply chains will ensure that long-term air cargo volumes continue to outpace global trade growth.

Over the past five years, the share of e-commerce in retail sales has doubled and could reach 23% by 2026, significantly impacting the demand for narrow-body freighters. New express networks will continue to support e-commerce growth, with the express fleet expected to grow by 58% over the next 20 years. As new ACMI (Aircraft, Crew, Maintenance, and Insurance) opportunities are created around e-commerce platforms, specific growth rates in each sector will vary. For example, in the narrow-body freighter market, the 737-800 freighter has already been used by companies like Amazon, DHL, Mercado Libre, and JD.com to serve their air cargo networks.

However, with the massive growth of e-commerce and the continued retirement of aircraft in the coming years, coupled with the supply of converted freighters being affected by current demand shortages and reduced numbers, airlines hoping to leverage e-commerce growth to ensure transportation may face a shortage of converted narrow-body freighters.

Many aircraft in the express fleet will face retirement in the coming years. According to Cirium, about 75% of existing freighters will retire within 20 years. This includes the 737-400F and 757-200F freighters that e-commerce transport has relied on.

Boeing's Commercial Market Outlook estimates that over 700 older narrow-body freighters with an average age of 30 years are still in service. For example, Europe's largest operator, ASL Aviation Holdings, has begun replacing the classic 737-400 with 737-800 freighters. In 2019, ASL operated over 40 737-400s, but by 2023, this number had dropped to around 25.

Regarding the 757-200F, DHL has sent some 757-200F freighters for dismantling, and the largest 757 operator, FedEx, has recently started phasing out this type. While the 757-200F still has the capability to provide value to airlines, with these aircraft averaging close to 30 years old, it leads to an inevitable conclusion: more freighters will need to be replaced in the next 20 years as e-commerce volumes double.

Darren Hulst, Boeing's Vice President of Commercial Marketing, summarized that while the air cargo market is returning to a more normal pace after the historic demand of the past two years, structural factors such as the growth of express networks, evolving supply chain strategies, and new entrants into the cargo market are driving continued demand for freighters. In the global transportation network, air freighters will remain a key driver for transporting high-value goods, with increasing volumes in an expanding market.

In recent years, the air cargo industry has experienced short-term declines and turmoil, but it is worth noting that the air cargo industry is cyclical and still holds potential in the long term. Moreover, looking at quarterly data over the past decade, the global air cargo market shows excellent resilience: the steeper the decline, the higher the rebound, allowing for rapid recovery and explosive growth after short-term shocks. For example, during the financial crisis, the lowest point saw a drop of nearly 22%, followed by a retaliatory growth of about 30% at the highest point. Therefore, businesses investing in narrow-body freighters for e-commerce can expect stable long-term returns.

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Public Account: Cross-Border E-Commerce Logistics Baixiaosheng