Spring 2023

Charter market faces evolving capacity challenges

Stefan Kohlmann is joint MD of NEO, an air charter broker based in Germany

Following the capacity challenges of the pandemic period, air charter brokers had hoped that supply and demand would return to a better balance. But the market has faced further capacity and demand challenges, highlights Stefan Kohlmann, joint MD of air charter broker NEO

After the capacity challenges of the pandemic period, we had hoped that supply and demand would return to a better balance. But the loss of Volga-Dnepr Airlines’ (VDA’s) IL76 and An124 fleets due to sanctions has significantly reduced the capacity for outsize and offline operations. VDA is still operating, but not for the western world and (due to sanctions) only in a very limited area: it can’t be chartered by any EU, UK or US companies. That leaves eight An-124 aircraft – seven from Antonov Airlines (Ukraine), and one from Maximus (UAE), and not all these aircraft are full-time operational. This limited availability is reflected in higher charter prices. The An-124 and IL76 markets will, without a doubt, remain limited until sanctions are lifted, as there are no realistic replacement aircraft types on the horizon.

Strong energy sector demand
At the same time, charter demand in the energy sector – especially oil and gas-related traffic – has increased again recently; the classic energy charter market is currently strong and probably will remain so throughout 2023 and beyond. High oil prices are encouraging the sector to invest in future projects again, and there is still a strong need for classic energy sources, as well as a desire for green energy technology. Due to the sheer size of wind farm products, and the siting of production facilities not very far away from installation sites, these products don’t generally require air charter services. Meanwhile, solar farm components are mostly transported by road, sea or scheduled airfreight at present. But increasing global demand for green energy production may still create future potential for the charter market.

The loss of the AirBridge B747F capacity has been less of a problem: it happened at a time when the boom for freighter capacity had just started to slow down, and the capacity gap could be readily filled by a number of other conventional freighter operators, so the effect on the market was manageable. In general, the worldwide cargo airline fleets cover market needs and there will be more aircraft coming into service in the foreseeable future, as airlines take delivery of orders already placed with Airbus, Boeing and the P2F convertors.
The slowdown in general air freight demand is currently increasing charter capacity, and causing a marked decrease in charter prices; although, of course, high fuel prices are preventing a return to pre-covid rate levels. During the Covid period’s high demand levels, several charter operators started to operate new scheduled routings – especially Asia-EU and EU-US; but they have now begun to withdraw these again due to reduced demand and the return of scheduled bellyhold capacity. This has provided us with an increase in route flexibility, as these charter airlines are no longer tied to their hubs and driven by crewing demands.

Looking forward, digitalisation will certainly play a greater role in the air cargo charter sector, as it is already doing in the mainstream market. NEO is in the process of creating its own bespoke platform to make our charter and onboard courier services more easily accessible to our forwarder and LSP clients, with the aim of saving their time and enabling them to respond more quickly to their own customers’ needs.