By Vijay Grover
The way the global air cargo industry, which weathered the Covid-19 impact better than the passenger segment in the last two years, demonstrated that the Air Cargo sector is and will continue to be a pivotal contributor to keeping airlines flying. The air cargo sector’s role in keeping the global economy going has made airlines re-strategize their cargo operations.
While the passenger traffic dipped over 49% between 2019 and 2021, the dip in the air cargo was just about 28%. In many cases, the airlines flew only freighters across the globe to keep the cash registers ringing.
Emirates chief executive Tim Clark was quoted saying, “The critical need for cargo capacity was helping prevent a financial disaster”, as the Dubai-based airline after it halted all but a handful of its passenger flights. “We’ve converted ourselves to a mini UPS,” he said, after 85 of Emirates’ Boeing 777-300ERs operated as stand-in freighters, in addition to its 11 777Fs during the year.
The industry expects the market to be pretty much the same as in 2021, with intermittent travel restrictions, no clarity about Omicron and potentially other variants to follow. With slow growth of business travel and no significant increase in passenger traffic, additional freighter-aircraft are the only ones that promise hope to the market.
The air freight sector threw open various opportunities during the pandemic with makeshift freighters zipping between Asia and Europe and America supplying pharmaceuticals, PPE kits and other essentials. Many airlines converted passenger aircraft to freighters by removing seats to carry more freight. Looking at seasonal trends, aviation experts say that the first quarter of 2022 will remain challenging with rates elevated; the second quarter and early on in the third quarter may see an easing of the situation before the peak season ramps up in mid-September 2022.
From the Indian perspective, the cargo was never a priority sector before COVID-19. Indian aviation always remained in the headlines for the rapid expansion of its passenger base. The Indian market regularly achieved double-digit passenger growth. In fact, between 2009 and 2019, passenger airlines in India logged a massive 12% Compound Annual Growth Rate. The cargo market has long been relegated to backstage, despite achieving a respectable 8% growth rate for the same ten-year period. With the pandemic disrupting the growth trajectory of the passenger markets (e.g., Indian passenger volumes fell by nearly 70% in 2020), passenger airlines had to refocus their business models to remain viable like their international counterparts.
Covid-19 showed that cargo’s moment in the market spotlight finally arrived. Be it flying vaccines on SpiceJet flights from Pune and Hyderabad or the airfreight of PPE kits from Coimbatore, the Indian Cargo industry was seen playing a lifeline role.
India’s dedicated freight market has faced several challenges, including fierce competition from alternative transport modes, like ocean freight and rail lines, and Low-Cost Carriers utilizing their belly holds at significantly lower margins.
India has stayed behind in the air cargo business, which is evident from the fact that India had just one operator of dedicated freight aircraft, Blue Dart, until 2018.
On the other hand, India’s passenger fleet has grown by 60% alone in the past 5 years. It now comprises up to 800 operational aircraft, which has added significant belly capacity to the market. Since 2016, Blue Dart had been carrying around 18% of India’s total domestic cargo; in 2020, that number jumped to 25%, a 7% increase in market share, thanks mainly to Indian passenger airlines reducing their overall capacity.
In 2018, the cargo market experienced further growth with the Indian airline, SpiceJet, announcing the launch of a dedicated cargo subsidiary called SpiceXpress, with a fleet of B737s. Shortly thereafter, SpiceXpress added an array of Q400s to their fleet. Not long after that followed widebody aircraft such as B767s and A330s. The airline has been able to gradually expand its cargo portfolio to offer door-to-door service.
The sector is seeing some positive signs as, in today’s India, it sees rapid enhancement of airport cargo infrastructure, digital infrastructure for cargo handling, and the development of collaborative partnership models wherein all stakeholders manage cargo multilaterally.
Interestingly, Indian aviation is responding positively to the rising air cargo volumes. By playing a proactive role, the Government of India is offering support to the sector. The Airports Authority of India, which runs 23 common users Domestic Cargo Terminals and 20 International cargo terminals, is looking at expanding cargo services at several unserved airports under the regional connectivity -UDAN scheme.
The domestic cargo market in India is mostly concentrated in Delhi, Mumbai, Bengaluru, and Hyderabad, with 70% of cargo handled through one or more of those hubs. But the landscape is rapidly shifting. India’s rising demand for e-commerce is largely driven by Tier II/III cities like Kanpur, Ludhiana, Hubli Madurai, and Bhopal.
The growing demand from the smaller cities is fuelling the need for air cargo reach to the secondary markets more than before. A reason why the Airports Authority Of India is encouraging setting up Cargo terminals in these cities not just for domestic but also to promote direct export and import cargo by facilitating customs clearances.
By setting up world-class cargo handling infrastructure, the Bengaluru International Airport Limited (BIAL) has demonstrated the potential of Cargo business handling. The new facility set up last year enabled the airport to process 150,000 MT annually, taking the overall annual cargo capacity of the Bengaluru Airport from 570,000 MT to 720,000 MT. This warehousing facility, the first-of-its-kind at an Indian airport, has been designed and built to suit growing demand. It provides operators with streamlined operational workflows and the provision for expansion in the future.
The mechanized truck docks allow quicker acceptance as well as delivery of freight Satyaki Raghunath, chief strategy and development officer, BIAL, told the media, “Our cargo infrastructure, powered with technology, provides rapid distribution of perishable cargo, making BLR Airport the preferred cargo airport in South India. Our aim is to create an environment that enables our cargo partners to introduce new initiatives and facilities that cater to constantly evolving demand.”
Bengaluru is not the only one that saw massive Cargo traffic growth; the Delhi airport, the biggest Cargo terminal, handled a total of 9.3 lakh metric tonnes of cargo between January and December 2021, going close to the pre-pandemic levels of 10 lakh metric tonnes – making it the highest volume of cargo handled by any airport in the country in the past one year.
The recent pandemic also significantly boosted the international cargo handled by Indian airports. Known as the “Pharmacy to the world,” India is the single largest provider of generic drugs globally. It handles over 50% of the total global demand for generic drugs. The country saw a record 18% growth in exports during the last financial year. The growing demand came as a relief to several airlines who could keep the operations going by running freighters.
With both e-commerce and pharma relying heavily on ease of long-distance transport for quick delivery cycles, the need to ferry vital drugs and medical equipment dovetailed almost seamlessly with the imperatives of the e-commerce market. The freight carried per domestic flight in India has increased by an average of 0.6 tons in the post-pandemic era, cushioning the revenue shortage due to vacant seats.
With the domestic cargo per flight in India has doubled to an average of 1.2 tons, up from 0.6 tons during the pre-COVID times, many airlines have retooled their business strategies to meet the moment, with an emphasis on cargo, to mitigate the losses they are suffering on account of drop in passenger traffic.
Cost-cutting and a substantial cargo business have enabled many Indian airlines to offset the lower customer demand in the COVID economy. The recent announcement by Rahul Bhatia, CEO of Indigo airlines, clearly hints at cargo becoming a key component. The airline, which started off by running Cargo charters out of China last year after converting two of its A321Neo aircraft as freighters to carry Covid related medical equipment, has now placed an order for conversion of 4 of its A321 aircraft into Freighters. These are expected to come into service by mid of 2022.
Industry sources indicate that even SpiceJet reported a nearly 6-time increase in their cargo operations revenue, from $7 million to $41 million for Oct-Dec 2020 year over year.
An industry expert was quoted as saying, “Within just a matter of months, cargo operations were contributing around 32% of the total revenue for SpiceJet during the April-June 20 (Post-COVID) quarter as opposed to just 2% of total revenue during the previous financial quarter”.
According to data released by the Airports Authority Of India, in April – December 2021, the Indian airports saw 14,90637 MT international cargo, which was 40% higher than the 10,59,374 MT handled between April-Dec 2020.
Even on the domestic cargo front, the Indian Airports handled 8,82,237 MT cargo in April- Dec 2021 compared to the 6,41,491 MT cargo in April-Dec 2020. A sectoral growth of 39%. No wonder the investment in expanding cargo operations is a priority for most private Airports.
Even the airlines read the writing on the economic wall and invest in the same. As a part of the revamp of Air India under the Tat’s stable, strategists are planning to leverage Air India’s Global reach to expand cargo operations. Mr Balasubramaian, CEO and MD Of Air cargo Consultancy, has charted out a strategic blueprint for the airline’s future through the lens of leveraging cargo practices.
In a media interaction, he said, “The first thing Air India should do is to hit the nail on the head by leveraging its connectivity with critical European cities, especially Amsterdam and Frankfurt. Those are not just assets; they are valuable assets and should be leveraged from a capacity perspective. These routes have immense potential in terms of profitability.”
With the Cargo sector getting the much-needed thrust, the aviation sector is also hopeful that Prime Minister Modi’s “Gatishakti Mission” will help further their dreams faster. As an Industry expert told IA&D, “The Prime Minister’s vision is that Air Cargo operations should also be able to help an Indian Farmer send his produce to the dining tables across the world, much like the Bengaluru farmers being able to airlift Roses to snow-clad Europe on Valentine’s day every year.”
