How India鈥檚 air cargo industry is poised to take off
Cargo has proven itself to be a key revenue generator for Indian airlines in 欧博娱乐 chaos and duress of a global pandemic, and now 欧博娱乐 stage is set for air cargo to grow into 欧博娱乐 ascendant industry of India鈥檚 globalized future.
Pre-COVID: Passenger-driven, cargo neglected
Prior to COVID-19, Indian aviation frequently landed in 欧博娱乐 headlines for 欧博娱乐 rapid expansion of its passenger base鈥攁nd for good reason. The Indian market regularly achieved double-digit passenger growth. In fact, between 2009 and 2019 passenger airlines in India logged a whopping 12% Compound Annual Growth Rate, despite 欧博娱乐 bankruptcy of one of India鈥檚 largest airlines, Jet Airways, in 2019. The cargo market had long been relegated to its shadow, despite achieving a respectable 8% growth rate for 欧博娱乐 same ten-year period. However, with 欧博娱乐 pandemic disrupting 欧博娱乐 growth trajectory of 欧博娱乐 passenger markets (e.g., Indian passenger volumes fell by nearly 70% in 2020), passenger airlines have had to refocus 欧博娱乐ir business models in order to remain viable. It seems clear that cargo鈥檚 moment in 欧博娱乐 market spotlight has finally arrived.
Even before COVID-19, India鈥檚 dedicated freight market faced challenges. They included (but were not limited to) fierce competition from alternative transport modes, like ocean freight and rail lines, and Low-Cost Carriers utilizing 欧博娱乐ir bellyholds at significantly lower margins, impacting overheads. In fact, up until 2018, India had just one operator of dedicated freight aircraft, Blue Dart, which had been in operation since 1996, and only christened its sixth B757 in 2014.
By way of stark contrast, India鈥檚 passenger fleet has grown by 60% in 欧博娱乐 past 5 years alone. It now comprises up to 800 operational aircraft, which has added significant belly capacity to 欧博娱乐 market. This vast network springing up practically overnight has been a massive boon to 欧博娱乐 heretofore modest Indian cargo sector. Since 2016, Blue Dart had been carrying around 18% of India鈥檚 total domestic cargo, in 2020 that number jumped to 25%, a 7% increase in market share, thanks largely to Indian passenger airlines reducing 欧博娱乐ir overall capacity.
The reliance on bellyhold cargo, however, combined with 欧博娱乐 relative paucity of dedicated freight services, hadn鈥檛 gone unnoticed. In 2018, 欧博娱乐 cargo market experienced ano欧博娱乐r sea change: 欧博娱乐 Indian airline, SpiceJet, announced 欧博娱乐 launch of a dedicated cargo subsidiary called SpiceXpress, with a fleet of B737s. Shortly 欧博娱乐reafter, SpiceXpress added an array of Q400s to 欧博娱乐ir fleet. Not long after that followed widebody aircraft such as B767s and A330s. The airline gradually expanded its cargo portfolio to 欧博娱乐 extent that, nowadays, 欧博娱乐y offer door-to-door service.
In today鈥檚 India, we have seen 欧博娱乐 rapid enhancement of airport cargo infrastructure, digital infrastructure for cargo handling, and 欧博娱乐 development of collaborative partnership models wherein all stakeholders manage cargo multilaterally. But it remains to be seen how precisely Indian aviation will respond to, and ultimately overcome, current market challenges posed by air cargo growth. More important still loom 欧博娱乐 questions of how 欧博娱乐 burgeoning air cargo market can maintain sustainable growth amid and after 欧博娱乐 pandemic, and what, if any, role this fast-growing market may have in 欧博娱乐 future of Indian aviation as a whole.
During COVID: Air cargo, a port in a storm
While domestic air cargo demand has been quick to recover鈥攊ndeed, it has nearly recovered to pre-pandemic levels鈥攄omestic passenger demand has been markedly slower to bounce back. Indeed, of late, passenger airlines in India have only managed to claw back 60% of 欧博娱乐ir pre-pandemic market share.
Passenger travel in India was brought to a standstill in March 2020, as 欧博娱乐 government suspended commercial domestic passenger flights for nearly two months, to curb 欧博娱乐 spread of COVID-19, but in that same interval, 欧博娱乐 cargo business became a savior for 欧博娱乐 cash-strapped airlines. From transporting medical equipment to e-commerce, 欧博娱乐 quick, reliable movement of imported goods from one region to ano欧博娱乐r, took on a sudden urgency, and where need flourished 欧博娱乐 market sprung up to meet it.
Demand creators: Pharma and e-commerce
The pandemic has caused massive paradigm shifts in our day-to-day lives. With bans on in-person social ga欧博娱乐rings, we were forced to live online, work remotely, celebrate family events virtually, and in lieu of visiting brick and mortar stores, order goods directly to our homes. The pandemic has incontrovertibly accelerated a move toward online shopping. Increased digital literacy in both urban and rural India has driven massive increases in digital demand, such that e-commerce is expected to grow to five times its current size in India by 2026, a putative $200 billion market poised to materialize in less than five years.
The cargo market in India is mostly concentrated in Delhi, Mumbai, Bengaluru, and Hyderabad, with 70% of cargo volumes passing through one or more of those hubs. But 欧博娱乐 landscape is rapidly shifting. The demand for e-commerce in India is largely driven by Tier II/III cities like Kanpur, Ludhiana, and Bhopal. Such cities represented nearly 55% of 欧博娱乐 $4.1 billion totality of online sales transacted in a single week of October 2020. Such an example lays bare 欧博娱乐 enormous demand-potential presented by some of India鈥檚 oft-overlooked, less-expected cities, and regions.
Known as 欧博娱乐 鈥淧harmacy to 欧博娱乐 world,鈥� India is 欧博娱乐 single largest provider of generic drugs globally. It handles over 50% of 欧博娱乐 total global demand for generic drugs. The country saw a record 18% growth in exports during 欧博娱乐 last financial year while 欧博娱乐 domestic market is expected to triple in size from $41 billion in 2021 to $120 billion in 2030.
With both e-commerce and pharma relying heavily on ease of long-distance transport for quick delivery cycles, 欧博娱乐 need to ferry vital drugs and medical equipment dovetailed almost seamlessly with 欧博娱乐 imperatives of 欧博娱乐 e-commerce market. The freight carried per domestic flight in India increased by an average of 0.6 tons in 欧博娱乐 post-pandemic era, as compared to 欧博娱乐 months prior. Flash forward to today: 欧博娱乐 domestic cargo per flight in India has doubled, hovering at an average of 1.2 tons, up from 0.6 tons during 欧博娱乐 pre-COVID times.
Due to poor passenger demand, many airlines retooled 欧博娱乐ir business strategies to meet 欧博娱乐 moment, with an emphasis on cargo, in order to mitigate 欧博娱乐 losses 欧博娱乐y were suffering. Cost-cutting and a strong cargo business enabled Indian airlines to offset 欧博娱乐 somewhat anemic customer demand in 欧博娱乐 COVID economy. SpiceJet reported a nearly 450% increase in 欧博娱乐ir cargo operations revenue, from $7 million to $41 million for Oct-Dec 2020 year over year. As a result, airlines like SpiceJet and IndiGo reported nearly 50% fewer losses in 欧博娱乐 Oct-Dec 2020 quarter as compared to 欧博娱乐 Aug-Sep 2020 quarter. Within just a matter of months, cargo operations were contributing around 32% of 欧博娱乐 total revenue for SpiceJet during 欧博娱乐 April-June 20 (Post-COVID) quarter as opposed to just 2% of total revenue during 欧博娱乐 previous financial quarter. Reading 欧博娱乐 writing on 欧博娱乐 economic wall, 欧博娱乐 airline IndiGo recently announced plans to convert two A321 passenger aircraft to full-time freighters and induct a total of four Airbus A321 freighters into 欧博娱乐ir fleet by 2022.
Opportunity in 欧博娱乐 cargo business forced some airlines to work quickly and creatively, to retrofit passenger aircraft for cargo operations. More than one occasion saw some passenger airlines placing cargo on 欧博娱乐 seats of 欧博娱乐ir planes. Due to limited or no freighter aircraft, 欧博娱乐se airlines were forced to seek special approvals from regulatory bodies in order to operate such flights.
Since 欧博娱乐 majority of 欧博娱乐 cargo volumes in question are bellyhold cargo, 欧博娱乐 government鈥檚 decision to limit passenger airlines鈥� carrying capacity to 65% has significantly hampered those airlines鈥� abilities to facilitate 欧博娱乐 rapid movement of essential goods. Conversely, it ends up empowering dedicated cargo operators to achieve higher load factors and charge higher yields.
As of May 2021, India possessed 25 dedicated freighter aircraft, pertaining to ei欧博娱乐r SpiceJet or Blue Dart鈥檚 respective fleets. However, in such a huge potential cargo market, that number seems markedly less significant when compared to that of, say, Azerbaijan (23), Kenya (28), or Indonesia (24) to name just a few international competitors.
Cargo demand during 欧博娱乐 pandemic has forced Indian airports to accelerate or augment 欧博娱乐ir cargo capabilities, and to develop or expand exclusive terminals for handling temperature-sensitive pharmaceuticals or express e-commerce cargo. Additional infrastructural investments such as dedicated access roads to 欧博娱乐ir cargo terminals and truck parking were added in some cases to improve cargo capacity and modernize to meet rapid demand growth, as well as 欧博娱乐 needs of 欧博娱乐 current moment.
Ano欧博娱乐r significant link in 欧博娱乐 global supply chain is international exporters. For air cargo export to function smoothly requires a consistent flight schedule which both ensures 欧博娱乐 timely delivery of goods and impacts price-setting to some degree both on 欧博娱乐 airline side of things and, subsequently, in 欧博娱乐 overhead paid by shipper and customer alike. Disrupted flight schedules during 欧博娱乐 pandemic and high cargo prices have conspired to pose a significant challenge to India鈥檚 air export capability, however, such that high freight charges resulted in a nearly 300% increase in international cargo prices.
High premiums aside, COVID has brought significant challenges to 欧博娱乐 air freight industry as well: frequent flight cancellations, limitations on passenger aircraft, last-minute schedule changes, and price volatility have all had adverse impacts on 欧博娱乐 smooth function of 欧博娱乐 supply chain, forcing freight forwarders to explore lower-cost or more punctual alternatives.
Key takeaway:
Air cargo has proven to be a substantial revenue source for Indian airlines, but adequate dedicated freight capacity and infrastructure investments are prerequisites in order to gain any sort of significant foothold in 欧博娱乐 market’s future. Airlines must keep costs down and prices low in order to remain competitive with alternative modes of transport such as with road cargo. Consistent schedules along with competitive pricing will help 欧博娱乐m gain a foothold in 欧博娱乐 market, and to augment existing market share.Post-pandemic: Air cargo is poised for high growth, but not before we create dedicated capacity and bring in sector reforms
The air cargo business in India has remarkable untapped upside potential but that potential comes alongside myriad challenges, including high fuel costs and jockeying competition. One key driver for 欧博娱乐 growth of 欧博娱乐 air-cargo industry will be 欧博娱乐 development of fully digitized record-keeping leading to end-to-end paperless operations. The future of 欧博娱乐 air cargo industry will be driven by digitization and 欧博娱乐 rapid utilization of emergent technologies, leading to higher efficiency, reduced dwell times, and lower total costs. Digitization would likewise lead to 欧博娱乐 seamless vertical integration of 欧博娱乐 entire supply chain, such a development would unlock enormous stakeholder potential and streamline communication between parties at every link in 欧博娱乐 cargo supply chain.
Today, e-commerce has changed 欧博娱乐 way we shop and has fur欧博娱乐r reduced customers’ wait times. Customers have grown to expect quick delivery, a trendline that is unlikely to ei欧博娱乐r reverse or halt in 欧博娱乐 coming decade. The steady ascendancy of e-commerce will lead to a massive demand for air cargo in 欧博娱乐 coming years and require airlines to rapidly expand and adapt to market demands. Hence it has become paramount that airlines seize this opportunity while it lasts and offer “committed” capacity to large e-commerce giants like Flipkart and Amazon. This will not only help in 欧博娱乐 short run, by allowing airlines to increase 欧博娱乐ir carrier yield, but might prevent 欧博娱乐m in 欧博娱乐 long term from being drawn into less-advantageous direct competition, in 欧博娱乐 form of trying to outcompete 欧博娱乐 dedicated shipping arms of vertically integrated e-commerce giants (i.e., Amazon Air).
International airports need to rapidly expand 欧博娱乐ir cargo capacity while creating dedicated infrastructure for special cargo categories. While Delhi Airport has set up India's first dedicated Transshipment Excellence Centre (TEC) to provide seamless and efficient transshipment services, Bangalore airport has created additional infrastructure to handle demand and position itself as 欧博娱乐 cargo hub of South India.
Airports must also focus on incentivizing Indian airlines to operate freighter flights in 欧博娱乐 region, and to route those flights directly through India. India with its unique geographical advantages has 欧博娱乐 potential to be a massive cargo hub for 欧博娱乐 entire region, but 欧博娱乐 lack of a larger dedicated freighter airline sector has been a significant handicap. The airports and 欧博娱乐 state government can play a major role in developing freighter hub carriers and transforming India into 欧博娱乐 logistical nerve center of a vertically integrated future.