Korean Air Cargo Increases Russia Exposure

BMI View: Korean Air Cargo's freight capacity expansion on its Incheon to Vladivostok flight highlights two core trends that BMI is tracking; the increasing interest from foreign air freight operators in Russia and the growing role which Vladivostok and Russia's Far East are playing in the country's freight transport sector.

South Korea's Korean Air Cargo has swapped the plane it uses to link the Incheon International Airport to Vladivostok from a B737-900F to a B777-200F and in doing so has increased the freight capacity it has on offer by 10 tonnes per flight (70 tonnes per week).

Korean Air Cargo is just one of a number of foreign air freight operators that are increasing their exposure to the Russian air freight sector. BMI believes that Russia holds considerable growth potential for this freight mode, with domestic demand driven by a growing consumer class and the development of industries such as pharmaceuticals which is reliant on air freight for supply chain requirements. The country's position places it geographically in a good position for Russia's air freight sector to develop into a hub. BMI forecasts that while air freight growth will slow slightly year-on-year (y-o-y) in 2012 the country's air cargo volumes are projected to increase by 1.2% to 1.13mn tonnes.

Growth Outlook Garners Carrier's Interest
Russia Air Freight, mn tonnes-km

Over the medium term (2012-2016) we project Russia's air freight volumes to increase by 6.9%. Russia's recent inclusion into the World Trade Organization (WTO) offers upside risk to our medium-term forecast with trade to be boosted over this period.

The major beneficiaries of Russia's entry into the WTO will be domestic carriers such as AirBridgeCargo and Aeroflot, which will not only benefit from the projected uptick in trade volumes, but also the lowering in equipment costs.

Foreign operators that have already got a footprint in Russia will be the next in line to benefit as they will be exposed to increases in trade volumes over the medium term and while we expect more operators to expand into Russia over this period, carriers that already offer services have the benefit of client connections and expertise in the market.

BMI highlights that not only is Korean Air Cargo increasing its capacity on its Incheon to Vladivostok route, but the company will also now be landing at Vladivostok's new terminal. The new cargo terminal was constructed by Russia's Air Catering- Vladivostok LLC and offers a capacity of 30,000 tonnes per year.

Vladivostok in particular (and Russia's Far East in general) is of major interest for the freight transport sector. Ports in the region are being added to intra-Asia loops and are developing their container and dry-bulk credentials. At Vladivostok airport, as well as a new cargo terminal, a new passenger terminal has been built, with the development being driven by the city hosting the APEC summit in September 2012. The Far East is one of Russia's least-developed regions, but a concerted effort is being made to invest and develop infrastructure and commerce in the region. The government's commitment to the region has been further highlighted with a new post of Minister of Far East Development created in the Russian cabinet following the March 2012 presidential election.


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