Policymakers must take a long-term view on trade with nations including China to reduce uncertainty among air cargo carriers and customers that rely on their decisions to plan investments, Atlas Air Worldwide Holdings chief executive William Flynn said in a speech on 10 September in Washington, DC.
“Uncertainty certainly hurts large and small companies,” Flynn told an audience at a luncheon hosted by the Aero Club of Washington. "It’s essential that we take a measured long-term view."
Ongoing trade tensions between the USA and China have contributed to declining demand for air cargo deliveries, according to International Air Transport Association (IATA), which has discouraged protectionist and anti-globalist approaches to trade. The association reports that global demand for air freight stopped growing in November 2018, marking the first month since March 2016 that it did not increase.
In his speech Flynn did not mention the Trump administration or its threats of tariffs on goods imported from China that IATA has criticized as part of a trade war between Beijing and Washington. In an interview with Cirium following his speech, Flynn discouraged "protectionist tendencies" that can arise during short and medium-term dips in economic growth.
Asia-Pacific markets, which represented 35% of freight tonne kilometers in 2018, saw freight volume decrease 5.4% year-on-year in June, which IATA says is in part due to the trade war, in part because of decreasing demand within Asia.
"Trade is essential to everything that we do, so we need to foster the policies and perspective to continue to encourage free trade," Flynn tells Cirium. "There is free trade and fair trade, they are not mutually exclusive, and the continued engagement between two trading partners does ultimately result in a better good, a better free flow of not only goods but ideas as well."
Air carriers that operate in Hong Kong are also facing uncertainty amid ongoing protests there. Pro-democracy protesters seeking to prevent China's Communist government from exerting influence in the semi-autonomous island state have sought to disrupt transportation in Hong Kong to gain attention, which led to the closure of Hong Kong international airport in August.
The Purchase, New York-based parent company of Atlas Air and Polar Air Cargo has an office in Hong Kong, but the carrier says its air cargo operations have so far been unaffected by the protests.
ATLAS PLANS FOR GROWTH
Global air cargo capacity has grown faster than demand due in part to trade tensions, but Flynn says Atlas is making long-term preparations for growth amid short-term headwinds.
The aircraft leasing part of Atlas that includes its subsidiary Titan Aviation is "a growth opportunity", Flynn says. Atlas is eyeing Airbus A330 and A300 aircraft for future conversions from passenger to freighter aircraft. These could become good options for conversion as Boeing 767 passenger aircraft are expected to become less available for freighter conversion because he says "so many have already been converted".
"The other aircraft that is getting some analytical work done is the [Boeing] 777-300 passenger plane," he says in an interview. "That’s a bit nascent right now but there are a number of companies looking into whether that could be a useful converted freighter."
Atlas during its second quarter earnings call in August forecast adjusted annual net income for 2019 to be 80% of last year's $204 million. The company says it will wait to see how the market performs in the fourth quarter to update investor guidance for 2020.
Flynn is bullish about demand for air freight amid the growth of the e-commerce market with its customers including DHL and Amazon. Atlas has "a great customer relationship" with Amazon flying aircraft for the company including Boeing 737-800s, Flynn says, but declined to go into detail about that partnership.
"I take them at their word they are going to grow", Flynn says of Amazon, which in May broke ground on its Prime Air hub near Cincinnati/Northern Kentucky international airport to increase its air freight operations. Atlas has also committed to a long-term lease on a facility near that airport in Erlanger, Kentucky, which is expected to open in 2021.
Amazon has expressed concern about the stalemate in collective bargaining agreement negotiations between pilots and management at Atlas that have been going on since 2016 following the acquisition of Southern Air. Flynn says he was glad that attendees at the luncheon speech included Robert Kirchner, a retired Atlas pilot who is executive council chairman for Teamsters Local 1224, which is the union representing pilots in the ongoing dispute.
"We're focused on negotiating that contract, we're focused on providing our pilots the wages, benefits and the quality of life they deserve," Flynn says of the ongoing negotiations.
In addition to e-commerce the US military, which consists of 12.5% of Atlas' business, is another foundation for the company's long-term outlook.
Demand for cargo and passenger flights from the US military "has been more stable than I would have thought a few years ago", he says, noting it was a larger share of its business a few years ago during the height of military presence in Iraq and Afghanistan.
"We've been able to grow the company and still serve the military as a valued customer but not be overly dependent," he says. "Our goal has been diversification first."
Flynn in January will step down from his position as chief executive and become chairman of the board of Atlas Air Worldwide Holdings. John Dietrich, the board's appointed successor, will assume the role of chief executive, succeeding Flynn in July. Dietrich, who joined the company in 1999, was previously the chief operating officer of Atlas, a roll he's held since 2006.