India’s Civil Aviation Minister Praful Patel recently promised a blueprint for the air industry’s expansion by 2020, including plans for a series of airport upgrades by 2010. A prime project is a cargo centre at Nagpur due for completion next year, which Patel hopes will boost India’s nascent air cargo market.“We hope to see that Nagpur becomes…something like Memphis, a major hubfor cargo in India,” Patel said Tax incentivesare one tool the Indian governmentis using in its efforts to draw investors,including foreign firms, into airportprojects ranging from upgrades to newairports. But in order to fully exploit theeconomic boom that India is currentlyexperiencing, building just airports willnot solve the problems of an outdatedroad infrastructure, not just around theairports but throughout.
In order to capitalise on India’s economic growth potential, billions of dollars will have to be spent to create an efficient and uninterrupted transportation chain on the ground, which will not only include the much-needed road network, but also state-of-the-art warehousing facilities, cargo terminals fitted with modern materials handling equipment. Only then will all sectors of the air cargo industry flourish. Mukesh Ambani, chairman of India’s largest private sector corporation Reliance Industries concurs with the Minister’s plans to boost aviation in a country where the road infrastructure is lagging and rail connections are inadequate.“Aviation has over the years become anindex of a nation’s prosperity. It is nolonger perceived as a luxury. It is partof daily life. The change is probablymost felt in India where the industryhas undergone a sea change”.
According to a recent media report, Ambani’s new venture into retail may usher in the greatest changes in the air cargo business in India. The food and farm products unit of Reliance retail is all set to launch its in-house cargo freighter service to ferry fruits and vegetables from the northern parts of India to its own retail stores spread across the country. Reliance is reported to be discussing with Boeing the possibility of inducting fifty freighters by end 2007 or early 2008. This one event should change the dynamics of the air cargo business in India. Three other mega business houses have also entered the retail arena.
Telecom czar Sunil Mittal is all set to enter the business with procurement chain back end support from Wal Mart. With a world leader like Wal Mart in tow, Mr Mittal is only too conscious of the need for seamless logistics support to move his products. So is the case with the Aditya Birla Group and the Futures Group. Tatas already have a presence in the retail business and expectedly they also are likely to tie up with an international retailing major. Carrefour, the French giant, is here scouting for partners and one of the business houses they have sounded out for a joint venture is the Wadia group. The Wadia group owns the low cost carrier Go Air. Retail is the flavour of the season and that is what has really given a fillip to the cargo airline business in India. But, apart from the Ambani group no other corporate chief has announced any intention of getting into the cargo airline business. Considering the scale of operations needed to fill up a wide body aircraft it may not be a viable proposition to float an in-house cargo fleet. So one possible outcome could be some sort of a partnership between the retail big wigs and one of the existingairlines.
Airlines line up for cargo venture
Almost every airline has plans to set up an air cargo business as separate from its core passenger airline venture. In fact, till today most airlines have treated cargo as a peripheral activity to fill up the left over hold space after passenger baggages have been loaded. With every big retail business needing cargo aircraft to backward integrate their supply chain logistics, a whole new vista has been opened up for air cargo business. It makes sense for existing airlines to leverage their resources to float a dedicated cargo fleet.
Go Air seems to be in an advanced stage of planning its air cargo venture and this would probably be in partnership with an associate company of Singapore Airlines. Air Deccan, one airline that has consistently tried to work out a deal with corporates for its passenger airline, has also been keen to set up a cargo carrier. The airline would not be averse to an Indian corporate house investing in the airline to set up a cargo venture. The two full service airlines Jet Airways and Kingfisher too have made known their interest in the business.
The national carriers have not been far behind. Air India has converted two A-310s into freighters and it has set up a cargo-handling unit at Bangalore in a joint venture with the Singapore Airport Terminal Services and plans envisage linking up this hub with Paris/Frankfurt in the west and Shanghai/Bangkok in the east.
Indian Airlines, which has traditionally been a significant player in the field, has a more comprehensive business model on the anvil. Indian aims to consolidate its domestic cargo operations with a fleet of five aircraft converted from its present fleet . According to Vishwapathi Trivedi the chairman of the airline, the cargo venture would be pursued notwithstanding the merger of Air India and Indian Airlines, which has now been set in motion. In fact, it is thought that the merged entity would have a separate cargo freighter business.
The Constraints and Limitations
The Indian economy has been growing at a phenomenal rate of 9.2 percent of GDP and is with China one of the fastest growing economies. The acquisition of steel giant Corus by the Tatas and aluminum major Novalis by the A Birla group are pointers to the rapid globalisation of Indian business. The Mittals have been buying up steel units all over the world and so has the Kalyani group in the forging business. Supply chain management on a global scale would require the just in time transportation of equipment, spares and parts. This is hardly possible with about eight transport aircraft currently in operation in India and used almost exclusively for domestic requirements. Compare this with almost 600 aircraft that UPS alone has.
Mr. Mittal of Bharti group bemoans the fact that there are no wide-bodied aircraft that can carry perishables, even though India has a burgeoning export business in perishables including fruits, vegetables, flowers and fresh meat. Cyrus Guzder, chairman of AFL feels that but for gulf-based airlines like Emirates, Gulf Air and Kuwait Airways it would not have been feasible for India to sustain its export business. AFL, once DHL’s business partner in India, is looking at the possibility of setting up its own cargo airline. One of the pioneers of the air cargo business in India AFL has only recently entered into a joint venture with Dascher of Germany to promote the air cargo business. But the foray into freighter operations will be separate from the joint venture.
Interestingly, foreign carriers have been quick to spot the opportunities in India and have intensified their India flights. Cathay Pacific for example has added six freighter flights into India connecting Mumbai and Delhi with Hong Kong. A Milan based cargo carrier sees immense potential in linking up Chennai with Vietnam and China. While Qatar Airways plans to extend its freighter operations to Chennai and Ahmedabad, Finnair has announced its intention to augment the uplift of cargo from India.
Infrastructure Inadequacies
The air cargo business has grown from 500,000 tonnes in 2000-01 to nearly 700,000 tonnes in 2004-05. Presently Blue Dart and Indian Airlines are the only significant players. With Reliance expecting to induct about 50 aircraft by 2008 the peripheral air cargo business should move center stage.
By 2015 the country is expected to have about 165 cargo transportation aircraft. The roadblock, however, is the poor state of the infrastructure. The big requirement is temperature controlled storage devices at airports that can keep perishables fresh and prevent wastage. Aircraft parking spaces are in short supply and airport roads in many cities are in a deplorable state.
Cargo operators can take solace from the fact that according to recent media reports the shape of 35 non-metro airports is likely to improve next year with the Airports Authority of India planning to shell out over INR 4,600 crores (10 ml = I cr) to refurbish smaller city airports. It has been reported that this year may see work begin to develop airstrips at places like Ajmer, Mount Abu, Cooch Behar, Jharsuguda, Malda, Muzaffarpur, Akola, Hassan and Mysore etc.
The ministry of civil aviation is reportedly willing to permit corporates to build airports if they have surplus land available.
Given locational advantages and commercial viability, it seems government may provide critical navigational support. This is a win-win situation for all. Government is saved the hassle of land acquisition, while the carrier can move its operations close to where the demand is.
Challenges Ahead
The airline industry in India has matured. It’s been almost fifteen years since private airlines were allowed to fly, ending the forty-year monopoly of state run Indian Airlines and Air India. There are eight private passenger airlines and a few in the pipeline. But not one dedicated cargo carrier. This despite the fact that civil aviation regulations are obviously much more simple when setting up a cargo airline. Though the impetus for cargo airlines has come from the zooming economy and the growing retail sector, what is holding back the industry is the infrastructureinadequacies.
With about 450 passenger aircraft worth about US$ 1 billion on order in the next five years, and the 100 odd freighters that will be inducted during the same period, questions have been raised about parking and housing. Fortunately freighters will be dispersed and not crowd around the metros and bigger cities. When corporates help develop airports they would also create sufficient parking for those aircraft. Butwhat about the crews?
The big problem – and it has now taken on the proportions of a national concern – is the acute shortage of pilots. India has become the haven for expatriate pilots from all over the world. There is now a scramble to start pilot training schools, but in the immediate future the cargo carriers will be at the mercy of expatriate pilots with the attendant problems of language, higher compensation, hotel accommodation specially in the smaller cities and towns, short-term breaks for home visits and the threat that they can leave at short notice. There is also a dearth of flight operations staff and approved load and trim personnel. The best place to look for candidates is amongst the gulf airlines where Indian airline professionals are just waiting for such opportunities back home. A quick transition is necessary to get them to be Indian Civil Aviation regulations compliant which means they need to be certified by the Indian authorities, even if they hold a valid endorsement in their country of employment. Given these constraints this is still the right time for air cargo airlines to take off, with the booming economy, burgeoning exports and the authorities in the process of framing a civil aviation policy that seeks to liberalise the aviation industry further. It is expected that in airport modernisation, ground handling and air cargo operations, the government may depart from its stringent foreign investment guidelines to provide for a more benign policy that may even permit foreign airlines to invest directly in the organisation– something that passenger airlines havenever been permitted to do.
Trickle down Effects
According to Ambani the airline industry can create at least 5 million jobs in the next ten years. The air cargo industry should be able to make a significant contribution if developed in a planned and regulated manner. But its not just employment in the industry per sé that the air cargo industry will throw up. There’s a huge opportunity awaiting the software industry.
In India, several IT companies have come up to provide specific solutions to air cargo operations. For example, while Unisys, IBS and CargoSpot specialise in reservations, Mercator, Kale Consultants and Sabre have expertise in revenue accounting, EzyCargo and CPS are cargo portal providers, Manugistics’ area is revenue management, Lufthansa IS and Magic are engaged in ground operations and Traxon, Fountainhead and Freight- Data in forwarder solutions.
As IT solutions get increasingly incorporated into the cargo operations, IT companies are working on sector- and operations-specific solutions. Whereas passenger airlines have been heavily into computerisation of reservations, revenue management and departure control systems, e-freight is now poised to optimise cargo airline operations.
Shippers who demand reliable information in the supply chain can now track their shipments on the Internet. Also, the airlines can streamline the process and optimise its revenues by effective use of the capacity and allotment features. The automation of cargo operations of Indian Airlines has already begun. The end-to-end integrated automation process would offer a range of measures to shippers and agents.
For the airline, automation will simplify procedures at the airport, thereby allowing speedy customer service. According to the airline using the bar code system, all consignments will be scanned at every step so that all details pertaining to the consignment are made available to the customer at any point of time.
The Road Ahead
A recent study by Drewry and APL shows that the Indian air cargo business should experience an annualised growth rate of 8-10 percent over the next ten years. This is music for all those preparing to launch their air cargo services. Already the existing players in the business Blue Dart and Indian Airlines are gearing up for the challenge. Blue Dart, a subsidiary of DHL, has re-organised its India set-up and is in the process of acquiring two B757-200 aircraft to augment its capacity.
Freight forwarders too are getting into the act, though not all of it through the air cargo route. Flyington Freighters a Hyderabad based agency has jumped into the fray with orders for six A330-200 freighters that will commence delivery in December 2009. In an interesting development Gati an air express forwarder has tied up with China Railway Express in an unusual link-up that connects the two fastest growing economies.
Indian Airlines will operate its fleet of five freighters from a hub in central India at Nagpur. Chances are the air cargo industry will swivel around a hub and spoke operations with major hubs coming up in strategic parts of the country. But the success of the air cargo industry is not entirely a matter of aircraft, service providers or markets. A great deal would depend on the interrelationships between all the agencies involved.
This includes the Airport Authorities and the Customs Authorities. It is heartening to note that the Customs have resolved in a mission statement that they would establish durable working partnership with airlines, shipping lines, custodians and other agencies and organisations involved in cargo clearance and co-operate with custodians at airports in setting up separate facilities for clearance of express consignment imported/exported through the courier mode.
All of this only goes to emphasise that if the last decade was the decade of the passenger airline, this surely will be the decade of the cargo airline.
The author Sudhakar Nair has been a senior executive with Jet Airways, Spice Jet and GoAir. He has also worked with Indian Airlines andQatar Airways in Doha.
