Navigating challenges in the charter market

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With any charter business, whether it’s passenger or cargo focused, companies want to have as much variation as possible to open themselves up to as many markets as possible, so it’s critical to offer a wide range of capabilities. 

The nature of the charter world dictates that companies never know what little niche is going to develop, and it’s usually unforeseen or with limited visibility, due to  force majeure, industrial action, or any number of other reasons. As such, an agile operation which can react quickly is vitally important.

“There will always be a demand to move stuff. Where A and B starts and ends will be different but there will always be a requirement to move cargo by air for a variety of reasons, and there will always be a pressure to do it as cost effectively as possible,” Alex Harrington, Commercial Director at Titan Airways, stated.

“At the moment, we don’t have as much variety in terms of aircraft that we’ve had historically, within our charter fleet dominated by A321 freighters, whereas in the past, we’ve had different size freighters that could do different types of jobs. 

“We’ve just placed an order for two Cessna Sky Couriers, an aircraft offering different capabilities  depending on what your load is and routing, and we’re excited by the markets it will open up to us. We’re really committed to the charter market and so increasing our variety of aircraft is very important for us,” he added.

READ:  Opportunity in Asia

Overcapacity impacts operations

At the moment, there’s too much capacity in the market. While it’s hard to state what “normal” looks like in the airfreight industry anymore, it seems the industry is back to a pre-pandemic position in terms of volume. 

During Covid, there was additional cargo volume in the charter sector due to the decline in frequency and reliability of passenger services. Demand was also boosted by people spending more money on items around the home, since they weren’t travelling. This situation saw companies make big orders for cargo aircraft to meet the opportunity in the market, creating overcapacity and putting pressure on rates.

The resumption of passenger schedule services over the past couple of years also meant there’s probably less requirement for charter capacity than during the pandemic. 

“When it comes to charter there will always be opportunities, but certainly the overcapacity means that currently there is real downward pressure on prices,” Harrington said.

“The overcapacity in the market is good for the customers but not so good for the operators. 

“Will the market change? I don’t know which way it will change but you can guarantee it will change at some point and that’s why you need to remain agile and opportunistic,” Harrington explained.

“We’re laser focused on making sure the contracts and the clients that we do operate for are executed really, really well because that’s what’s going to be the thing which continues to set Titan apart from our competitors over the long term. 

“We’ve been pleasantly surprised by what we’ve picked up so far this year. Hopefully that continues into Q2. There’s some promising signs that it will. 

“We’ve got an ACMI contract that we’re looking forward to starting out in the US in March, so there’s definitely a bit more movement compared to last year, which is great to see. So, “cautiously optimistic” is my outlook for 2024! We’ll see what happens because recoveries can always be a bit shaky but I’m hoping that if you come and speak to me at the end of 2024, I’ll be smiling!”

Regional reactivity

China has seen the biggest downward trend, an area which Titan Airways is seeing the effect of with its  A330 freighter that they operate on behalf of Geodis. Harrington argues that’s because the world has opened back up again, and a lot of people are using passenger belly capacity or sea. 

“That cargo, coming from Asia into Europe is the market which, from our point of view, has taken the biggest dip in terms of the rate you can get per kilo,” he outlined.

The instability in the Middle East has also had a big impact on operations to Tel Aviv. A lot of companies wanted to continue to operate to Tel Aviv, while some carriers thought it was too high-risk. This has had a knock-on effect on costs in terms of insurance. 

“The evolving situation in the Gulf of Aden will be interesting because obviously a lot of ships pass through the Suez Canal and have to go through the Gulf of Aden to get to Europe,” Harrington continued.

“Certainly, from a charter point of view, I’d expect an increase in demand because of that. That sudden market change is often when a charter broker can make a difference bringing new ideas and capacity in to fill the void. What a charter broker needs to add value is agile and flexible supply which is where I like to think Titan can assist. 

READ: An end-to-end solution for every challenge

Charters vs traditional airlines

Traditional airlines have been increasingly building freighter operations but Titan Airways isn’t concerned about the impact this will have on the overall charter market.

“I always think it depends on the appetite of the specific schedule service airline. If they start to have over capacity, and they haven’t got much work for their freighters,  then it’s a natural step  to look at  charter work,” he noted. 

“For the bigger schedule service carriers, I’m not sure freighter operations quite fit into their models, as it would mean often competing against their own passenger belly capacity.” 

However, Harrington believes charter work is more niche, requiring agility and flexibility, which isn’t the usual strength of  scheduled service carriers.

 “I would be surprised if they attack that space with any real aggression because I don’t think they will  see it being a worthwhile investment of their time and resource, in terms of crewing levels, so they will look first to protect their regular operations both passenger and cargo,” he asserted.  

 “That may change but I think, currently, if they have got too many freighters, they can easily redeploy their crew resource to their passenger operations which are  performing very well at the moment, and that makes more commercial sense for those carriers,” Harrington claimed.

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Author: Edward Hardy