Business Today

Flight plan ready, but runway needs work

The industry can grow by over 20 per cent a year-if key infrastructure projects are done in time.

K.R. Balasubramanyam        Print Edition: July 11, 2010

An industry body got a new chairman, a company files its results and an equity stake is taken. These three unrelated events over the past few months, taken together, have lifted hopes in India's air cargo industry.

First the appointment: David Bronczek, President and CEO of FedEx, has taken over as Chairman of the International Air Transport Association (IATA), the airline lobby. As boss of the world's largest air express company with over 600 aircraft in its fleet, Bronczek is expected to bring cargo perspective to a body so far dominated by passenger airlines.

Earlier, Blue Dart, the market leader in air freight, had reported a 24 per cent increase in revenues (Rs 258 crore) and a 103 per cent rise in net profits (Rs 24 crore), year on year. And Mukesh Ambani, Chairman of Reliance Industries Ltd, announced the acquisition of a stake in Deccan 360, the cargo start-up promoted by G.R. Gopinath.

Good indicators for an industry that would rather forget 2008-09, whose hangover continued till last year, when in September 2009, Air India suspended its freighter service connecting Chennai, Bangalore and Mumbai to Europe.

There is greater visibility today. The Airports Authority of India (AAI) sees cargo volumes growing by six per cent this fiscal, with the market increasing to Rs 13,300 crore and 2.6 million tonnes by volume by 2011-12. Between this year and 2017, the growth will be eight per cent on the international sector and six per cent on the domestic sector.

Hot Projects
The Ministry of Civil Aviation is giving a hard push to build an infrastructure that can support a robust air cargo market, although the industry in India is still a fledgling by global standards. (FedEx alone has more aircraft than Air India's 159 aircraft). In January 2008, the government allowed foreign direct investment of up to 74 per cent in cargo airlines, against 49 per cent earlier.

Among the big plans: a multinational international cargo hub at centrally-located Nagpur, and privatelybuilt cargo airports in West Bengal and Madhya Pradesh, and a multimodal logistics hub in Rajasthan. The government is also spending Rs 830 crore to give the existing airports the best infrastructure. Air India and Singapore Airport Terminal Services (SATS) are forming a joint venture to house their three existing ground and cargo handling joint ventures in Bangalore and Hyderabad.

Air India is increasing its cargo capacity, having converted six of its older B737-200 into freighters, and wants to enhance its share in India's international cargo market to over 25-30 per cent. Air India gets Rs 800 crore from cargo operations-that's five per cent of its turnover of Rs 17,000 crore.

At Jet Airways, cargo already fetches 12 per cent of revenues from international operations and four per cent from domestic operations. Jet's aim: raise the foreign cargo's share to 15 per cent and domestic share to six per cent. Kingfisher is also trying to raise cargo revenues.

Headwinds
Cargo operators face plenty of hidden costs. A study by Amarthi, a Hyderabad-based consulting firm, has shown that the adjusted average freight revenue per tonne-km in India was about Rs 3.50 against about 90 paise in the United States and less than Rs 2 in China and Japan. For users, this is bad news. The Amarthi report points out that the challenges in this segment include high airport charges and varying taxes on aviation turbine fuel.

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