The End of the E-Commerce Hype Train Is Bad News for Planes
As the pandemic shift toward online purchases reverses, big investments in airfreighters are looking shortsighted
By Jon Sindreu
Cargo-jet investments are being supersized on the back of optimistic e-commerce forecasts. / PHOTO: BING GUAN/REUTERSThere will be a price to pay for believing the pandemic e-commerce trend could last forever.
Aviation may be one of the unexpected victims.
On Wednesday, Meta Chief Executive Mark Zuckerberg said he would lay off 11,000 workers, and admitted to being wrong in thinking that the surge in online purchases would be permanent.
The mistake, which has been echoed by companies such as Shopify and Wayfair, is widespread: According to data by Bank of America, the online penetration of European apparel and footwear sales is likely to be 22% this year, in line with the pre-Covid trend and far below the 26% registered in 2021.
However, it isn’t just online retailers and advertisers that have fallen prey to overhyped e-commerce forecasts: Eye-watering amounts of money have also poured into cargo planes.
Amazon.com, FedEx FDX -0.94%decrease; red down pointing triangle, UPS and DHL have all announced fleet expansions.
Maritime-shipping giants such as A.P. Moller-Maersk MAERSK.B -2.41%decrease; red down pointing triangle, CMA CGM and Mediterranean Shipping have raced to build up competitive airfreight divisions.
Startups have popped up.
Boeing has relied on increased freighter sales to keep its production rate up, and announced a cargo variant of its upcoming 777X.
Airbus is trying to stake a claim in this market with a freighter version of its A350 wide-body.
Both plane makers’ optimistic sales forecasts are based in part on higher cargo demand.
Secondhand freighter values have benefited too, enticing lessors and investors.
Meanwhile, conversions of passenger aircraft to freighters have reached a record high, data by appraiser IBA shows, and keep coming: Slots are booked into late 2024.
Two weeks ago, Hawaiian Airlines agreed to fly 10 converted Airbus A330 freighters on behalf of Amazon.com, which previously hadn’t ventured into anything larger than midsize Boeing 767s.
The problem isn’t just that traditional cargo-jet investments are being supersized, but also that smaller aircraft—better suited to carrying lower volumes more frequently for express deliveries—are being converted for demand that may not materialize.
Conversions within Boeing’s 737 narrow-body family have numbered 52 this year, IBA said last week, compared with an annual average of roughly 30 before Covid-19.
In May, Boeing opened a 737 conversion line at London’s Gatwick Airport.
Even planes with under 150 seats are entering the market: Last month, Brazilian plane maker Embraer signed a contract with Nordic Aviation Capital to convert up to 10 of its E-Jets into freighters.
These are big investments.
Today, a five-year-old 737 or A330 can sell for around $30 million, and conversions can cost about $5 million and $15 million, respectively.
IBA data shows that converted-freighter valuations haven’t yet felt a hit.
They almost certainly will.
This couldn’t last, and neither could pandemic bottlenecks.
The normalization is already happening: In October, spot air-cargo rates fell for the second consecutive month, coming in 20% lower than a year earlier, according to Xeneta data.
On top of this, the global economy is slowing, weighing on airfreight demand this year even as supply has expanded, figures by the International Air Transport Association show.
While this was predictable, transportation executives and aircraft investors pinned their hopes on e-commerce, mistaking a lockdown-driven spending pattern for a permanent change in consumer behavior.
In the aviation industry, which otherwise had a terrible pandemic, this may be forgivable.
But now they must take delivery of the consequences.
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