When the pandemic hit in early 2020, air travel came to a near halt. By April, 16,000 planes, more than half of the world's fleet of passenger jets were parked. But those planes carry more than passengers in their luggage. They carry roughly half of the world's air cargo, over 52 million metric tons of goods per year. Globally, we and other airlines help to keep the world's economy moving. In the first quarter of 2020, American Airlines and United reported billions in losses without planes flying regularly. There are fewer options to move goods quickly right when the world needed it most. And cargo, which is typically only a small percentage of an airline's revenue, became a lifeline for carriers desperate to make up for passengers who are under lockdown. Orders to stay home. Some airlines flew planes with just cargo in their bellies. Some even placed packages in passenger seats. One airline that normally flies sunseekers to the beach expanded a partnership flying packages for Amazon. We parked up our fleet on the 23rd of March in 2020, and within a week we were back up and running again and we used our incredible fleet of seven eight sevens to establish a mini freighter fleet. We were all moving huge volumes of PPE, vaccines, medical related shipments, but also e-commerce. In 2021, as supply chain struggled, global air cargo volumes rose by 18.7% from the previous year. Air freight prices around the world soared and broke records as manufacturers and consumers sought to fly over problems like congested ports to get their goods on time. E-commerce giants like Amazon have shifted their supply chain approach such that there are more frequent shipments of smaller packages, which benefits air cargo over ocean container shipping. But demand has been slowing due to the Russia-Ukraine war. A return of passenger flights and worries of a recession. Freight giant FedEx, which saw record profits in 2021, just announce its closing 90 offices and parking planes among a few other cost cutting measures, citing weakening demand in global shipment volumes, even though the cost to ship items by air has dropped from recent peaks, they are still higher than pre-pandemic levels. If you look at where the cargo industry is today versus pre-pandemic, there's so much more momentum behind it. Boeing and Airbus, the world's two biggest plane manufacturers, announced that they will make cargo only versions of their newest widebody aircraft. Boeing said it expects an 80% increase in the global freighter fleet through 2041. We have businesses that are under immense pressure to deliver everything very quickly and deliver a wider variety of items, I think, than we've ever seen. And that makes air cargo very important. CNBC explores the growing business of air cargo and whether it can last. Before we talk about how this boom in air cargo happened, let's take a look at how it works. When it comes to flying goods there are dedicated cargo companies like UPS, FedEx and Atlas. They fly from cargo hub to cargo hub using freighters. These planes are built or converted to have special cargo doors big enough to fit large containers and other items. The floor is reinforced to handle heavier weights. Dedicated freighters make up only about 9 to 10% of the total commercial fleet around the world. So about 2000 airplanes out of more than 25,000 commercial jets. A majority of passenger planes also move a lot of cargo in their bellies. When the passenger aircraft is filled up with passengers and baggage and then there's some space left, airlines will often sell that as cargo capacity. Passengers get the priority, but there's a substantial amount of capacity available for cargo. Looking around us, a lot of this cargo flew into Philadelphia on a 787-8. American said about 80% of the belly capacity of that seven eight, seven will be used to carry cargo rather than passenger bags. It can hold approximately £32,000 of cargo. Airlines have been hauling cargo underneath passengers for decades. First American Airlines flight was operated by Charles Lindbergh actually carrying mail. And we operated as a as a mail airline, as a cargo airline for the first six years of our existence until we then began carrying passengers. American, Delta and United fly cargo along with passengers. But there are commercial airlines that have dedicated cargo planes like Abu Dhabi based Etihad Airways. We operate five dedicated freighters. The rest is all belly hold. Like most airlines, commercial airline that flies long haul like we do. You can't not have the contribution from cargo. It's a very, very valuable business. We're 22% up this year on last year. And last year was a record. Air cargo represents less than 1% of trade by volume, but 35% of global trade by value. Still, that amounts to over $6 trillion worth of goods per year. Shipping things by air before the pandemic was more costly than shipping things by other modes, like in ocean containers. Things that have critical shipping times will travel normally in the belly of a passenger plane. And the same thing goes for domestic flights. Us mail, for example, Amazon packages. Many items like food need to be kept cold. Medicine and pharmaceutical materials require constant frigid conditions and must be shipped in special temperature controlled containers like this one at American Airlines cold cargo storage in Philadelphia. Here we have a dedicated 2 to 8 Celsius temperature zone, a dedicated 15 to 25 temperature zone. So in these particular units, there are commodities like vaccines. We'll have Botox occasionally. But airlines also ship lots of goods you wouldn't expect. One of the most memorable shipments we've had recently was a shipment of live sharks. We moved the gorilla from Buenos Aires to Dallas a few years ago to. A dedicated, super luxury, exotic car transport. So if you've got your Lamborghini, your Bugatti or your Ferrari, you're in New York and you want to take it to Abu Dhabi for the summer holiday. We've even got a dedicated proposition on that. We probably do about 800 racehorses a year. We actually move on any given day a number of organs are used for transplant operations, so they are prioritized by air traffic control. And that helps us to provide the organs back to hospitals as quickly as possible. The air cargo market has been on quite the up and down journey over the last five years. Pre-covid. In the years leading up to 2020, the air cargo market was rather anemic. If one thinks about the the pre-pandemic operation you had, you had a flight and you covered the cost of that flight, typically with passenger revenue and then you sold the subsidiary belly hold capacity is a bit of upside revenue for cargo when yields were were down where they were. When the pandemic struck, passengers stopped flying and so did the cargo that usually flew underneath them. Because passenger revenue has gone down so much during the pandemic, that cargo revenue became more important. In March of 2020, American Airlines operated its first scheduled cargo only flight since 1984. We were able to build a business case to actually start flying those aircraft to operate cargo missions. And so throughout the pandemic, we operated over ten and a half thousand flights, cargo only flights using our widebody aircraft just to carry cargo. Cargo yields got such to the point where airlines could generate sufficient revenue with just cargo in their flight to cover the entire cost of the operation. So cargo, which used to be kind of a sleepier smaller part of the airline business, is becoming more important. The demand for cargo went to an all time high, and that was something that kept us from being insolvent like many other airlines. Another key ingredient in the cargo boom was the significant increase in online shopping. The pandemic accelerated consumer's move to e-commerce by 2 to 3 to even five years, depending on the country and the region of the world. And that spurred the creation of e-commerce networks, logistics networks to facilitate that demand, which of course needs aircraft and aircraft networks to support it. Amazon sales surged 44% in the first quarter of 2021 compared to 2020. U.s. e-commerce sales grew 43% from 2019 to 2020 and another 14% in 2021. Some country has struck a deal with Amazon and it has been flying a fleet of planes that are dedicated for Amazon. There's been a bit of a modal shift during the pandemic. Look at the e-commerce segment of air cargo that has grown significantly and that's probably not going to cycle back because we've all learned to acquire things in a different way. The pandemic also caused global supply chain bottlenecks, with major ocean ports seeing big backups. Even large ocean shippers are moving more shipments to the air. There was definitely a move by the industry to use and really leverage the speed and reliability of air cargo as a great way to complement ocean shipping and other forms of transportation. We've even seen some tactical shifts in organizations that prefer to pay a premium to get things more quickly with freight. The growth of sending cargo by air is creating huge demand for belly space, new freighters and airplane conversions. The process of turning a passenger jet into a freighter, which had a record year in 2021 with almost 150 conversions. The excess demand for air cargo relative to supply is, of course, the fundamental driver behind the higher need for freighters under the fallouts of COVID is that long haul air travel will take longer to recover, which means Airbus and Boeing have had to find other customers to sell their widebodies to. And air cargo has been a rather resilient customer group for them. 2021 was a record year for freighter sales for Boeing, and 2022 has really seen a continuation of that momentum. We've sold 777 freighters to almost ten additional customers in this year, and I think it just reflects, again, the value of these aircraft in the current environment. And these aircraft are 20, 30 year decisions. So the confidence that our customers have in this market is really being reflected. The wait for a new freighter could take years, while conversions can be ready more quickly. Converted aircraft are also cheaper. Narrowbody conversion like a 737 or a320, is in the ballpark of about $6 million. A current list price of a new 777 freighter is about $350 million before discounts, while the all in cost of a777 conversion is about 50 million. But converted planes are older and less fuel efficient. You get an aircraft coming to the end of its passenger life with a certain value associated with it where it makes sense for the airline to purchase and then convert as opposed to purchase. New conversions could add years to a plane's life. After it's done flying, passengers and airlines consolidate or renew its fleets. We've seen tremendous amount of demand in the conversion business for a couple of reasons. One, because of the pandemic, the feedstock, the availability of aircraft to be converted rose as airplanes were put into storage. But two, with these Express and e commerce networks growing up and companies that are wanting to be the next Amazon around the world, setting up their logistics business, a737 800 converted freighter or a767 in some cases becomes a perfect tool to set up that initial network and start growing volume. But with the global economy slowing and inflation rising, it raises the question of whether or not the growth in air cargo is sustainable. If you look at where we've been recently, where actually the demand has also softened because of the issues in China and the war, etc., then the demand is softened, but the supply is increasing. I think it's logical that the yield will be starting to decline a bit, but it's still higher than it were pre-pandemic. While 2021 was a record year for conversions, we don't think we've hit the peak yet since some programs are still ramping up. Airlines say that there is still strong demand for air cargo and they're not really abandoning that strategy. For example, Alaska Airlines is going to be converting to more planes into cargo freighters that won't carry passengers. Passenger demand has returned so much that American is no longer flying cargo only planes, but cargo revenue has largely stayed afloat. Last year, we generated over $1.3 Billion worth of revenue from our cargo business. This year is going to be very, very similar. To give you a sense of where that stands historically, these will be the two best years in our history by quite some margin. Last year for us was a record year was about $1.25 Billion worth of cargo revenues. So if we continue between now and the 31st of December, logic tells us we're going to have an even better year on cargo this year. As we get into the post COVID era. E-commerce continues to be a long term tailwind for air cargo, especially in regional networks that have yet to be built out in other parts of the world. And moreover, there is a desire to reroute supply chains away from China to minimize geopolitical risk, which means smaller and more fragmented shipping networks and channels that air cargo is better positioned to serve over ocean container shipping. Even if some near-term softness were to occur, we're still going to see that strength continue, and it will probably overwhelm any sort of near-term concerns that we may see this winter. Prior to the pandemic. I don't think people really were aware of how important air cargo was in just allowing all of us to live the lives that we lead in terms of the food we eat, the things we use and the things we wear. So it's definitely a new appreciation of what we do.