At a time when fewer air passengers are flying, Indian passenger airlines are seeing steady and consistent growth from the cargo segment. While cargo can add to their numbers, it is unlikely to be their revenue mainstay.
As the second wave of coronavirus ripped through the country, businesses began counting their costs. As in the first wave, airlines were among the worst hit. The number of air passengers in April plunged to about 40% of the pre-pandemic normal, according to government data. But another revenue stream for airlines still nearly matched its pre-pandemic normal in April: cargo, or the transportation of goods by air.
During the first wave, cargo traffic recovered better and quicker than passenger traffic in both the domestic and international segments. For instance, in September 2020, cargo volumes were at 89% of pre-pandemic levels, compared to 20% for passenger traffic and 44% for number of flights, according to credit rating agency ICRA. Cargo has also held firm since and nudged airlines into looking at this less-visible part of the aviation business more closely as a revenue stream. For at least one airline, SpiceJet, cargo has gone from 2% of revenues before the pandemic to 20% now, that too profitably.
ICRA attributes the faster recovery in cargo to circumstances brought on by the pandemic. Sectors that are driving volumes include “essential supplies" in pharmaceuticals, medical equipment and agricultural produce, as well as e-commerce. The international segment accounts for 55-65% of total volumes, and its share has not changed. In fact, in terms of recovery, the international segment has led the domestic segment. In March 2021, cargo volumes in the international segment hit a 21-month high. Even in lockdown-affected April, international volumes fell marginally over March, but remained above pre-pandemic levels.
The pandemic has helped airlines optimize the distribution of cargo across their flights. Due to significantly lower passenger demand, there are far fewer flights operating. For instance, in the October to December 2020 quarter, the number of domestic and international flights were only 38% and 28%, respectively, of the corresponding 2019 quarter. At the same time, airlines were moving upwards of 80% of the cargo they were moving before the pandemic.
As a result, in that quarter, airlines ended up carrying roughly twice as much cargo in one flight on international routes and 1.5 times on domestic routes. As the number of flights increases, this number is likely to gravitate towards pre-pandemic levels: 4.7 tonnes per international flight and 0.6 tonnes per domestic flight. But what the numbers over the past 12 months show is that the availability of fewer flights has not deterred clients from taking the air freight route.
Airlines, too, have been adjusting. Both SpiceJet and IndiGo have converted a few passenger planes into cargo-only planes. This can increase a plane’s cargo capacity by up to 10 times. SpiceJet also has smaller aircraft, enabling it to service smaller destinations.
IndiGo does not put out cargo numbers quarterly, but in 2019-20, it did ₹1,044 crore revenues for a 3% share in total revenues. For SpiceJet, in the quarter to March 2020, its cargo revenues of ₹68 crore amounted to just 2% of its total revenues. This has grown sharply since then. In the quarter to December 2020, cargo revenues of SpiceJet were ₹308 crore and amounted to 18% of its revenues. To put this in perspective, the aviation arm of one of India’s leading logistics companies, Blue Dart, recorded revenues of ₹806 crore in 2019-20. SpiceJet also made a ₹21 crore profit in cargo, while losing ₹78 crore on the passenger side.
At present, the air cargo market in India has a metro concentration. The six main metros accounted for 87% of total air cargo volumes in the quarter to March 2021. Among the six, Mumbai and Delhi were the worst-affected by the pandemic. In the quarter to March 2021, their cargo levels are down 19% and 13%, respectively, over their corresponding 2019 levels. Bengaluru is the only one among the six markets to record an increase, growing cargo volumes by 5%.
Given the steep drop in the passenger segment, cargo keeps planes moving, injects cash, and shores up financials. But for airlines, it remains a smaller piece. SpiceJet is pursuing cargo in a significant way. IndiGo, though, is content with it being a natural extension of its passenger side.
“So, cargo has surprised us from the plus side, but we don’t think it is sustainable long-term," IndiGo CEO Ronojoy Dutta said in the December quarter earnings call.
www.howindialives.com is a database and search engine for public data.
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