Sri Lanka emerging as regional air freight hub

Cathay Pacific Cargo’s choice of Sri Lanka for its latest air freight expansion highlights not only the company’s continued focus on new markets in Asia, but the potential for Sri Lanka to increase its air freight role.

BMI has previously highlighted our positive view of Sri Lanka in the shipping sector, with the country well placed to develop as a global transshipment hub for the container shipping sector, and we believe that similar growth opportunities are available in the country’s air freight market.

Cathay Pacific Cargo will from December 2, 2012 offer a freighter service to Bandaranaike International Airport, in Colombo, Sri Lanka. Cathay Pacific Cargo’s parent firm Cathay Pacific has offered belly-hold cargo options on its passenger planes to Sri Lanka, but this will be the company’s first freighter service and Cathay Pacific Cargo will be the only air freight operator flying a Boeing 747-400F into Colombo.

The service will offer a rotation of Hong Kong-Chennai-Colombo-Hong Kong, offering Sri Lankan importers and exporters connections via Cathay Pacific’s hub in Hong Kong to the rest of Asia, Europe and North America. The freighter service will cater for Sri Lanka’s footwear and textile manufacturing sector as well as exports of seafood, which require a temperature-controlled environment.

BMI believes that Cathay Pacific Cargo will be part of a vanguard of interest from the air freight sector in Sri Lanka. We have previously highlighted from a shipping perspective that the country is ideally located to develop into a freight and logistics hub for Asia, the Middle East and Africa.

The country’s role in textiles manufacturing is likely to attract air freight operators, with the retail sector being one of the major clients of the air freight sector. Sri Lanka’s macroeconomic outlook also supports our view of the likelihood of increased interest from air freight operators. We forecast the economy to expand on average by 6.2% annually over the medium term (2013-2017).

This growth will, in BMI’s view, drive air freight volumes. In 2011 (the last available data), air freight volumes through Bandaranaike International Airport increased by just 0.9%, but at least freight operations are now back on a growth trajectory after declining for two consecutive years in 2008 and 2009.

Cathay Pacific Cargo’s decision to expand its freight operations in Sri Lanka continues the company’s Asia expansion trend of 2012. The carrier launched a dedicated freighter route to Zhengzhou, China, earlier in the year and in December 2012 is due to launch a link between Hyderabad in India and Hong Kong using an Airbus A300-300, which will offer belly-hold capacity for India’s growing pharmaceuticals trade.

The carrier’s expansion drive is one of the factors behind its improved air freight results. In October Cathay Pacific Cargo recorded its second consecutive month of y-o-y growth, after six months of decline. While October 2012’s growth was weaker than that recorded in September 2012, this can be attributed to the positive effects of the launch of the iPhone 5 on the September figures.

BMI expects Cathay Pacific to continue to focus on Asia for air freight expansion, with two new Boeing 747-8 F freighters due for delivery in 2013 and requiring employment.