Mumbai: G.R. Gopinath’s new air cargo venture Deccan 360, his second coming as an aviation entrepreneur, was never an afterthought. Even before he launched low-fare carrier Air Deccan in 2003, helping millions of Indians fly for the first time, he had set his sights on the business.
Gopinath’s plan was to expand Deccan Aviation Pvt. Ltd, then a heli-charter business, to include a no-frills passenger airline that would reach corners untouched by other private airlines. That, he hoped, would also help him tap the vast potential for moving cargo between India’s numerous small-town business hubs.
His aircraft, the former army captain then said, would ideally carry a 60:40 mix of passengers-to-cargo weight. The cargo would act as a buffer for unfilled passenger seats.
Back on board: G.R. Gopinath aboard one of his newly launched cargo service aircraft in Delhi. Ramesh Pathania / Mint
He had envisioned networking with logistics and courier firms to ensure adequate cargo load on the planes, offering to cut the delivery time to hours from days between cities for a modest additional sum. That part of the plan didn’t pan out, though Air Deccan, eventually acquired by Kingfisher Airlines Ltd, would go on to change how Indians travelled.
In May, Gopinath finally launched Deccan Cargo and Express Logistics Pvt. Ltd, flagging off the first cargo flight to Hong Kong from New Delhi, stressing that Deccan 360 is the only Indian cargo airline that is operating on both domestic and international routes.
Gopinath’s entrepreneurial skills would be the biggest asset for Deccan 360, said logistics expert G. Raghuram, a professor at the Indian Institute of Management, Ahmedabad.
“He could convince investors (for funds) and other industry players (for cargo),” Raghuram said. “Deccan could use its smaller planes to fly as feeder to bigger planes. Though there will be some constraints to do financially well initially, financial investors will be interested in Deccan Cargo at a later point.”
Gopinath, known as Capt. Gopi, is aiming for at least 100 franchises across India by 2011. He will use three large Airbus A310 planes for the international hauls and six smaller ATR aircraft on the domestic routes. Many of his employees at Deccan 360 are from international air cargo companies such as United Parcel Service Inc., DHL Express and FedEx Corp.
His chief executive officer (CEO) Jude Fonseka, too, is a former FedEx honcho, having spent some 21 years at the world’s largest logistics firm.
FedEx has been a major inspiration. Deccan 360’s blueprint was largely based on the US cargo airline, which handles all logistics functions including door-to-door pick-up and delivery of cargo.
“That was the right model for the US, where there are fewer small and medium enterprises. But India is a different market with (a) lot of small firms,” said a senior Deccan 360 executive on condition of anonymity.
“We altered the (original) plan to handle total logistics network. Instead, we have decided to assign those functions to several entrepreneurs...who are willing to manage the transport functions for Deccan. We will be picking up (and delivering) cargo from a customer’s doorstep with the help of franchises.”
Bharat J. Thakkar, treasurer of the Air Cargo Agents Association of India, or Acaai, and owner of Zeus Air Services Pvt. Ltd, has also noticed the FedEx influence.
“It (Deccan 360) is the only carrier that has four different chambers with temperature control ranging between 23 and 2 degrees Celsius. He is also planning a hub at Nagpur, which is truly inspired from the hub model of FedEx at Memphis in the US,” said Thakkar, after a briefing session in Mumbai by Gopinath.
When Gopinath launched Air Deccan in August 2003 with much fanfare in a country where the middle-class used to travel long distances by train, his fares competed with the railways’ top-layer tickets.
His Rs500 and Re1 flight tickets became a big hit and jolted rivals. And as investors poured in, he quickly ramped up his initial fleet of six ATR planes. That period was also the start of a phase of rapid growth for India’s then nascent aviation sector.
Several other firms such as Sahara Airlines Ltd, eventually acquired by Jet Airways (India) Ltd, and SpiceJet Ltd, too, started no-frills services though with lean fleets, and struggled in a country that still lacks dedicated infrastructure for low-fare aviation.
What Gopinath hadn’t expected, though, was competition from full-service airlines. Soon enough, established carriers such as Jet Airways, Kingfisher Airlines Ltd and Air India started matching Air Deccan’s fares, and topped it with the usual props of full-fare carriers such as airline food. It was too much for Gopinath to stomach.
As the aviation sector slowed and fuel prices rocketed, Gopinath gave in to a determined Vijay Mallya and sold his airline to Kingfisher Airlines. And as the flashy Mallya remade Air Deccan, now known as Kingfisher Red, Gopinath got busy with plans for Deccan 360.
Will the lessons learnt stand him good now?
Deccan 360 was set to be launched last year, but global trade had slowed. The former soldier didn’t give in. The downturn allowed him more time to polish his air cargo plans and then to pitch a second attempt at public office.
He contested the general election from Bangalore South against heavyweights such as former civil aviation minister H.N. Ananth Kumar, a Bharatiya Janata Party (BJP) nominee who eventually won a fifth consecutive term from the constituency. In 1994, Gopinath, then a farmer, had contested for a seat in the Karnataka assembly on a BJP ticket from Ghandsi, in Hassan, and lost.
That doggedness is evident even now. Gopinath’s latest venture comes at a time when a clutch of potential air cargo rivals have shelved plans due to the meltdown and some existing ones have shut shop.
On 18 March, logistics firm Gati Ltd said it had discontinued its lease agreement with National Aviation Co. of India Ltd, or Nacil, which runs Air India, for five Boeing 737-200 planes because of mounting losses.
Chennai-based Crescent Air Cargo Services Pvt. Ltd and the country’s second largest courier company First Flight Couriers Ltd temporarily suspended operations in 2007 blaming the slowdown and the high cost of using smaller planes on long routes.
Several other firms, too, had lined up plans for air cargo ventures but haven’t taken off yet, including Reliance Industries Ltd, Quikjet Cargo Airlines Pvt. Ltd, in which the Tata group bought a stake, Flyington Freighters Pvt. Ltd, Aryan Cargo Express Pvt. Ltd, Avicore Aviation Pvt. Ltd and Shreyas Shipping and Logistics Ltd.
Cargo volumes down
According to data from the International Air Transport Association, or Iata, international cargo volumes were down 21.7% in April from a year ago. The association said in an emailed statement that air cargo carriers in all regions had posted double-digit declines, with West Asian carriers being the strongest performers, registering an 11.1% fall in volumes.
“Business confidence is improving, but inventories remain high. Until inventories adjust to more normal levels, air freight volumes will likely continue to bounce along the bottom,” Giovanni Bisignani, Iata’s director general and CEO, said in the statement.
Gopinath acknowledges the potential hiccups, but says he has made most of the slowdown by striking bargains with vendors. He did not divulge details.
He claims Deccan 360 will cut logistics costs for businesses by at least 15%, as his venture offers door-to-door pickup and delivery, both in India and abroad. He also claims Deccan 360 is targeting $50-70 million (Rs235.5-329.7 crore) in its first year and expects to break even in 18 months. He says a clutch of investors are keen to pick up a stake, which should help him raise $30 million, in addition to the initial investment of $25 million.
Tall claims? “Deccan 360 is positioned as (a) merchant carrier, unlike its competitor Blue Dart Aviation Ltd that only opens 20% of the space to (the) public for carrying cargo. So, Deccan will be having a huge challenge to fill in the cargo and deliver it across the country. Making profit with (a) small size of fleet would be a tough job,” said a consultant to logistics firms, who didn’t want to be named.
Gopinath gets asked a lot whether Deccan 360 will also be a low-fare operation. He would not disclose the rates, but said prices would be competitive enough to grab market shares.
“I can keep my cost very low primarily because Deccan Cargo outsources several activities. Since we are flying domestic and international routes, I can improve aircraft utilization rate.” Six air cargo forwarders said they have not yet got a rate card from Deccan 360.
“It will be tough for Capt. Gopinath to offer a low-cost product in this market where there are lot of international cargo airlines,” said a senior transport consultant, asking not to be named as he is an adviser for two rival cargo airlines.
“There is no secondary airport or dedicated cargo airport in India unlike abroad. Deccan 360 will have to pay the same infrastructure cost at Indian airports like any other passenger airline. To add, it will have to face tough competition from dedicated cargo airlines from India and abroad.”