GlobalX Airlines, a Miami-based startup, has indefinitely parked two of its four Airbus A321 converted freighters due to thin demand in the cargo market. The decision was made as the company defers expensive safety upgrades, citing unprofitable flying costs. This move marks a significant shift for GlobalX, which had previously focused on its growing passenger charter business.
The company's cargo segment recorded an operating loss of more than $10 million, according to management. Weak domestic and regional cargo demand forced GlobalX to deemphasize cargo two years ago, but the market has not rebounded as expected. Instead, some businesses have dried up, further exacerbating the problem.
GlobalX faces several challenges in the cargo market, including being the only airline in North America operating the A321 passenger-to-freighter aircraft. The company's efforts to break into this market have been hindered by Boeing 737-800 converted freighters dominating the industry, which has created a surplus of narrowbody freighters.
The surge in e-commerce shopping and hyper-local distribution centers has reduced demand for express delivery companies, making it harder for GlobalX to find customers. The U.S. Postal Service's decision to shift more mail to ground transportation also eliminated a potential customer base.
Meanwhile, other airlines such as 7 Air Cargo are overlapping GlobalX routes to Central America and the Caribbean, often undercutting competitors on rates. This competition has further squeezed GlobalX's already thin cargo business.
Engine problems with new Airbus aircraft have also posed a long-term problem for conversion houses. Airlines and lessors typically retire passenger aircraft after 15-20 years, but the supply pipeline is drying up due to premature inspection and repair requirements.
Aviation regulators have directed all A321 operators to install a fuel tank venting system to correct a flammability hazard, adding another layer of expense for GlobalX. The company has opted to sideline two of its A321 freighters, citing the high cost of the fix.
GlobalX's President and CFO Ryan Goepel stated that if there is no work, why spend money on upgrades? With $4,000 an hour on freight and $7,000 an hour on passenger flights, he prefers to fly passenger flights. The company has 12 A320 and A321 passenger aircraft in the fleet and plans to take seven additional aircraft this year.
The owners of the cargo aircraft have been unwilling to offer more flexible terms due to the strong demand for A321s in the passenger market. This makes it cheaper for GlobalX to park its cargo aircraft, as they cannot get out of their leases.
