Amid slowdown, air cargo business runs into rough weather

Amid slowdown, air cargo business runs into rough weather
Comment E-mail Print Share
First Published: Wed, Feb 11 2009. 10 08 AM IST

In better shape: The Blue Dart unit is less affected, given the business from parent Blue Dart Express. Mint
In better shape: The Blue Dart unit is less affected, given the business from parent Blue Dart Express. Mint
Updated: Sun, Feb 15 2009. 03 16 PM IST
Mumbai: Transporter Gati Ltd’s net profit declined on account of losses incurred in the air freighter business to the tune of Rs16.42 crore between July and December, the company told its investors through a notice to Bombay Stock Exchange on 20 January.
Part of this expense saw net profit at Gati, which runs India’s largest logistics business, dwindle to Rs14 lakh for the quarter to 31 December from Rs12.49 crore a year ago.
In Mumbai, India’s second largest courier company, First Flight Couriers Ltd, dropped its cargo airline plans with mounting losses after making what turned out to be a wrong choice of planes for its operations.
In better shape: The Blue Dart unit is less affected, given the business from parent Blue Dart Express. Mint
First Flight had selected the ATP Freighter version, manufactured by BAe Systems Plc., a plane that could not carry the expected tonnage, a First Flight executive said. Mint could not ascertain if the tonnage requirements of the firm were more or less than the rated capacity of the plane.
Chennai-based cargo airline company Crescent Air Cargo Services Pvt. Ltd, which runs Crescent Air, said it had temporarily suspended operations due to mounting losses. Crescent Air was operating a Fokker 50, a turboprop-powered aircraft, on the Visakhapatnam-Kolkata route, carrying perishable commodities.
Are these troubles at firms with air cargo operations bad investment decisions or are they a casualty of the economic slowdown? In fiscal 2008, the annual international freight movement into and out of India stood at 1.14 million tonnes and in the domestic market, it was at least 0.54 million tonnes, according to the Airports Authority of India, the country’s regulator of airports.
Both international and domestic air freight traffic was compounding at a healthy clip—12.3% for international air cargo and 7.1% in domestic freight for fiscal 2008—in the years gone by. A senior executive at National Aviation Co. of India Ltd, or Nacil, who did not want to be named, said domestic air cargo traffic growing at a compound annual growth rate of 12.8% between 2001-02 and 2006-07 matched international air cargo’s comparable expansion of 13%.
The growth estimate is expected to stay up, going by the estimates of the Planning Commission, India’s apex economic and social planning body. According to the forecast made by the body for India’s 11th plan, which started April 2007, the country’s air cargo movement was to grow at a compound rate of 11.5% between fiscal 2008 and 2012 (that projection has not been updated in the current slowdown). Further, as per International Air Transport Association, or Iata, the total air cargo market is set to grow at an average of 6.1% per year until 2025.
Buoyed by these projections and riding India’s rapidly expanding aviation network, several companies—big and small—made plans for the air cargo market, joining the sole scheduled cargo airline, Blue Dart Aviation Ltd, a unit of logistics firm Blue Dart Express Ltd. The Blue Dart freighter unit says it is less affected given the business from its parent, which in turn is controlled by Bonn, Germany-based, DHL International GmbH.
Reliance Industries Ltd, Quikjet Cargo Airlines Pvt. Ltd (in which Tata group bought a stake), Flyington Freighters Pvt. Ltd, Deccan Cargo and Express Logistics Pvt. Ltd, primed by Air Deccan’s founder G.R. Gopinath, Aryan Cargo Express Pvt. Ltd, Avicore Aviation Pvt. Ltd and Shreyas Shipping and Logistics Ltd were among those who lined up with plans for the market.
Besides these players, airlines such as Nacil, Jet Airways (India) Ltd, Kingfisher Airlines Ltd and Go Airlines (India) Pvt. Ltd, too, had plans to set up dedicated cargo airline businesses. Jet Airways was in talks with Deutsche Lufthansa AG to float a joint venture but it did not take off.
In June 2007, Nacil re-entered its cargo business with two Airbus A310 aircraft, which have been converted to freighters from passenger planes under the brand of Air India Cargo. That October, Air India also leased to Gati a Boeing-made B737, which is currently deployed between Delhi, Mumbai and Bangalore. Air India has plans to add 10 freighters—six B737s and four A310s—converting them into cargo carriers from passenger jets. Air India said its plans were on track, albeit delayed from a 2008 deadline, and conversions to freighters were on.
Still, there is a definite inertia in the plans made for the business triggered by the record crude oil and jet fuel prices last year that made air cargo operations expensive. Global air cargo volumes in December shrank 22.6% year-on-year, according to Iata. Air cargo internationally accounts for 35% of goods traded by value. In India, domestic air freight volumes fell 11.7% in November to 42,950 tonnes from the year ago, and international freight contracted by 1.7% to 89,500 tonnes.
A senior executive at Flyington Freighters said his company, promoted by T. Venkattram Reddy, chairman, Deccan Chronicle Holdings Ltd (which publishes the English daily Deccan Chronicle), had postponed the launch from a July 2007 deadline. The executive did not want to be named.
Others such as Avicore, Aryan and QuikJet, all of which were to launch operations last year, are yet to do so and there’s little visibility on when they will do so.
Vendors, meanwhile, said the long-term projections for the business are intact. Boeing, in its market outlook published last July, stuck to its 2007 forecast of 24 dedicated freighters in the Indian skies by 2027. The company’s senior vice-president of sales for commercial planes, Dinesh Keskar, had then acknowledged that demand for air cargo—and as a result, for freighter planes—would be affected first in an economic slowdown.
But there are at least two companies braving the slowdown. “There is no delay for our project,” Deccan Cargo’s chairman Gopinath told Mint. “Airplanes are arriving in March and we should be launching cargo operations by April-May and integrated end-to-end solutions operations by June-July.” Gopinath, who was earlier chairman and managing director of Deccan Aviation Ltd that ran Air Deccan, is seen as the pioneer of India’s low-cost airline business.
With Nagpur as its hub, Deccan Cargo has plans to operate in 40 cities with 10 Airbus A310 cargo aircraft.
Bangalore-based Quikjet is also preparing for operations. “You will hear from us shortly, some positive news,” is all that a senior executive at the firm would say.
Comment E-mail Print Share
First Published: Wed, Feb 11 2009. 10 08 AM IST