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Xeneta Air Freight Update, November'22 | Hong Kong and Mainland China Market Trends

In this month's air freight blog, we are covering two of the world’s three busiest air cargo airports to discuss the status of the air freight market in Hong Kong and mainland China. Read more.

In this month's air freight blog, we are covering two of the world’s three busiest air cargo airports to discuss the status of the air freight market in Hong Kong and mainland China.

Hong Kong International Airport was the world's busiest cargo airport in 2021 when measured in weight. But this year, the airport had to deal with strict pandemic-related restrictions. On 26 September Hong Kong government eased its quarantine for inbound travelers keeping only three-day medical surveillance in place. 

Compared to Hong Kong, mainland China continues to face more stringent controls for coronavirus. The Civil Aviation Administration of China (CAAC) reported its latest September passenger throughput for international travel, which was only 3% of the throughput of September 2019.

Reopening of Hong Kong 

With the new rules in place, air cargo capacity for outbound Hong Kong reached its highest level year-to-date in the first half of November (ending 13 November), increasing by 21% compared to the week leading up to the easing of restrictions on 26 September. 

As expected, belly capacity rose 69% as passenger numbers rose. However, overall air cargo capacity remains subdued; for example, capacity remained down by 5% and 18% from last year and the pre-pandemic levels, respectively. 

This is attributed to the missing passenger belly capacity. Despite the recent increase, belly capacity in the first half of November was still 72% lower than its pre-pandemic level.  

Due to the war in Ukraine, its spill-over effects on energy costs, the slowing global economy, and inflation affecting consumer demand, year-to-date air cargo volumes out of Hong Kong are 16% lower than last year and 11% lower than in 2019. 

With increased cargo capacity and falling volume, dynamic load factor, measuring aircraft capacity utilization by cargo volume and weight, continued to trend downward. 

In the second week of November, the load factor for the outbound Hong Kong market stood at 84%, which is considerably lower than the load factors from 2019 (-7 percentage points). 

There is still no sign of a peak season this year, with rates in the second week of November out of Hong Kong continuing to decline, now down by 12% from last year's level. 

Xeneta Air Freight Update - Nov 2022

Looking at top volume corridors, the average air freight rate from Hong Kong to Europe stood at USD 5.97 per kg in the second week of November. It has trended downwards since the pre-Golden Week cargo rush. Compared to last year, the air freight rate on this corridor is down by 12%. But it remains 85% above the pre-Covid level. 

The average air freight rate from Hong Kong to North America in the same week was USD 5.71 per kg. As the war in Ukraine has less impact on this corridor, the inbound North American air freight rate fell more sharply than that to Europe, a decrease of 44% compared to the same week last year and 'only' 56% above the pre-Covid level. 

In addition, for the last two months, rates in North America have been lower than those in Europe, something last seen in March 2020. 

Looking ahead, the Hong Kong government is working on boosting its tourism industry by giving away 500 000 airline tickets. But despite its efforts, air freight capacity is unlikely to fully recover until 2024. 

This is due to the three-day medical surveillance for inbound travelers still being in place, encouraging foreign travelers to go elsewhere and a shift in business travel behavior. Also, the cost of living crisis and a gloomy outlook for the global economy will impact travel demand for tourists as well as business passengers. 

In addition, around four in five travelers to Hong Kong are from mainland China. As mainland China largely remains closed to the rest of the world, the regional air cargo belly capacity in and out of Hong Kong is unlikely to recover substantially. 

Hong Kong's Cathy Pacific expects to restore only one-third of its pre-Covid passenger capacity and two third of its cargo capacity by the end of this year; and to resume 70% of pre-Covid passenger capacity by the end of next year, with a full capacity recovery only by the end of 2024. 

In addition to external market conditions, one internal factor is the recruitment and training of competent employees, which will also take time to prepare. These all contribute to a slow recovery of the outbound Hong Kong air cargo market. 

Implications for China’s reopening 

As per Xeneta data from the week ending on November 13, mainland China's passenger belly capacity, which accounted for nearly half of its pre-pandemic total capacity, remained 89% below the pre-pandemic level.

For this year's winter season (from October 30 to March 31, 2023), CAAC says that Chinese and foreign airlines have scheduled 840 weekly passenger flights and 6 148 weekly cargo flights for international routes. It will be an increase of 106% and 7% compared to last year's winter season. However, it remains far less than the capacity from the pre-pandemic level.

While China is also taking steps to loosen COVID restrictions, this is unlikely to boost international travel substantially. Under the new regime, all inbound travelers still require a compulsory quarantine for five days (two days less than the previous regulation) and three days of home isolation. Based on the experience from Hong Kong, outbound Hong Kong air cargo capacity did not have any meaningful recovery when Hong Kong cut its hotel quarantine from seven days to three days in early August.

One exception likely to have a more significant effect is China's removal of the "circuit breaker" mechanism, under which inbound China flights were suspended if a certain number of passengers tested positive for coronavirus. Removal of this mechanism reduced the uncertainty of international travel for the few undertaking these journeys.

Overall, the mainland China air cargo market is unlikely to recover to the pre-pandemic level until 2024.

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