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How a cargo craze took wing in aviation

IndiGo, the country’s largest domestic airline, transported cargo equivalent to the total load carried in the last fiscal year within just the first five months of this fiscal.  (Photo: Bloomberg)Premium
IndiGo, the country’s largest domestic airline, transported cargo equivalent to the total load carried in the last fiscal year within just the first five months of this fiscal. (Photo: Bloomberg)

  • Devoid of a large chunk of passengers, airlines are making a major pivot toward air cargo. Will it work?
  • Researchers estimate that over 15,000 flights would be needed to ensure the quick global distribution of a covid-19 vaccine. The pandemic-fuelled air cargo boom may have only just begun

NEW DELHI : In early May, as much of the world’s fleet of passenger aircraft remained firmly on the ground desperately in search of a diminishing number of parking slots, a few airlines began exploring opportunities in cargo operations. Initially, it was a matter of expediency. And what got ferried via flights in India in the early days was masks and medical equipment.

But the nature of commodities diversified quickly to include all manner of items—from fruits and shrimp to auto parts and even livestock.

“We carried tonnes and tonnes of lychee and fish seeds from cities like Kolkata and Patna to different parts of the country in May," said a pilot with a no-frill airline, who spoke on the condition of anonymity. “Farm produce probably paid our salaries," the pilot added.

In yet another strange turn to an altogether strange year, shrimp and gadgets are regularly taking flights now that most passengers can’t or won’t board. IndiGo, the country’s largest domestic airline operated by InterGlobe Aviation Ltd, transported cargo equivalent to the total load carried in the last fiscal year (FY 2019-20) within just the first five months of this fiscal. The airline has also converted 10 of its passenger aircraft into full-time freight carriers with a capacity to ferry up to 20 tonnes of cargo.

The reasons behind this hurried pivot are obvious. Globally, air passenger volumes are expected to crash this year to levels last seen in the 1970s. For many airlines, the difference between seeing the year out and going belly up comes down to perhaps just two things: cost savings and cargo revenue.

“Cargo is frequently treated as a minor business by many airline managements, but it is an important factor in our success," said William Boulter, IndiGo’s chief commercial officer. Boulter added that during the pandemic, many of the company’s passenger aircraft have been pressed into carrying “cargo-in-cabin", as the number of flights dropped dramatically.

At least 2,500 such cargo-laden Airbus 320/321’s belonging to IndiGo’s fleet have already taken to the air this year. Other airlines like SpiceJet, Vistara and even the public carrier Air India have veered down a similar path. The big question is: How much of this will last? And can such pivots help one of the pandemic’s worst-hit industries survive?

Pandemic side-effect

On an average day, at least 20 dedicated cargo freighters are flying over Indian skies these days, said Sushil Rathi, chief operating officer of Mahindra Logistics Ltd, a third-party logistics service provider. This is beyond what’s carried alongside passenger luggage within the belly of other aircraft and about 4-5 times the pre-covid level, Rathi said.

Despite this additional supply, air cargo costs have gone up marginally because the total number of regular passenger flights, and the usually available belly space within them, has come down, he added. “Overall, the (cargo) volumes may be similar to pre-covid levels. But we have more (dedicated) freighters now."

The reason behind that uptick in demand for air cargo is a unique pandemic side-effect. While supply chain disruptions over the past few months propped up the air route as a viable option, the two major factors at play in recent months are just-in-time manufacturing and the online retail boom. The lockdown severely disrupted inventory build-up and despite multiple phases of Unlock, auto parts are a major air cargo item these days. It is the only way to quickly ramp-up production, Rathi said.

Secondly, while e-commerce providers had significantly shifted to surface transport to reduce costs over the past few years (even managing to bring down truck travel time between Mumbai and Delhi from four days to 28 hours), nobody was prepared for the pandemic-fuelled online retail boost. As a result, mobile phones and other e-commerce packages are frequently ending up on a flight these days. But this may not last, particularly because, as Rathi points out, air cargo is about five times more expensive than shuttling items on a truck.

Despite doubts about the sustainability of the cargo pivot, airlines across the world are going all in since there aren’t very many options in a bleak year. Major airlines like Lufthansa, Emirates, ANA Group, among others, have seen a rapid rise in cargo operations, which have kept them from reporting steeper losses.

Meanwhile, international air freight costs have spiralled much more than along domestic routes, with rates to North America from Hong Kong up almost 60% compared to last year. Belly cargo freight rates have also increased by 30-60% globally and due diligence suggests that, in India, they have risen by 7-15%, ICICI Securities said in a September research report.

“Globally, the rate increase has been driven by a decline in belly cargo capacity. Under normal circumstances, about 60% of air cargo globally is flown in the belly-hold of passenger flights. With hundreds of those jets parked waiting out the pandemic, air freight costs have spiralled," the ICICI Securities report said.

Ironically, the ancillary businesses which relied on a certain number of aircraft being constantly in the air—from cargo ops to weather data collection—are now facing a moment of reckoning. If the crisis lasts well into next year, innovations may well crop up that could change how or what gets moved via air, which might outlast the pandemic. And it could also redefine air cargo movement within India, where cost has been a major barrier for many years.

The cargo bets

The Gurgaon-headquartered no-frill carrier SpiceJet Ltd, which is controlled by entrepreneur Ajay Singh, has had a dedicated cargo vertical, SpiceXpress, since 2018. The airline’s cargo revenue rose by 144% during the June quarter, despite an overall net loss of about 600 crores.

SpiceJet has recently inducted two additional wide-body aircraft for long-haul cargo operations apart from five Boeing 737s and nine Bombardier Q-400s, taking its dedicated cargo freighter fleet to 16 aircraft.

“There were a lot of doubts and questions about the viability of cargo operations in India when we launched SpiceXpress in September 2018. While our decision may have raised eyebrows then, it was a no-brainer for us. It was a natural progression," a SpiceJet spokesperson said.

“During the lockdown, when most wouldn’t venture out of their homes, we operated thousands of cargo flights. There was not even a single day during the lockdown when SpiceJet’s cargo planes did not take off with vital supplies," the spokesperson added.

Since the beginning of the lockdown in March, SpiceJet has operated close to 10,000 cargo flights, the company claims.

Other airlines like Vistara, a joint venture between Tata Sons and Singapore Airlines, used its wide-body Boeing 787-9 aircraft, which is typically used on long-haul routes, to ply cargo on domestic routes during the lockdown. National carrier Air India too saw its cargo operations grow by over 400% in September, as compared to April 2020, after it introduced all-cargo flights on certain sectors, mostly international.

But all of that may just be a trailer to what’s about to come. Researchers have estimated that over 15,000 flights would be needed to ensure the quick global distribution of a covid-19 vaccine sometime next year. Swift movement of cold storage equipment, medical devices and personnel might require many more flights. Thus, the pandemic-fuelled air cargo boom may have only just begun.

According to media reports, several dedicated freight operators are already actively working with Indian pharmaceutical companies in order to organize the logistics of what will turn out to be the largest vaccination programme in human history.

The way forward

Despite these new opportunities, nothing will be able to offset the severe haemorrhaging underway in passenger revenues in the near future, aviation consultancy CAPA said in a 6 October report, adding that, despite a rise in the volume of air cargo in the next few months, yields (or returns) are likely to ease from the current levels.

“Although the capacity operated by freighters has risen, thanks to higher daily utilization, belly space in passenger aircraft has fallen due to depressed levels of passenger flights. The overall reduction in freight capacity, plus much more robust demand for air cargo versus air passengers, has pushed up cargo yield and load factor," the CAPA report said. But it comes with a warning: This might last only for a few months, beyond which airlines might have to find more medium-term survival strategies.

CAPA India, in a separate report, said that air cargo volumes are expected to reach pre-covid levels in India much earlier than passenger traffic.

As things stand, Indian airlines are currently allowed to operate only up to 60% of their full capacity due to the travel restrictions in place because of the pandemic. Thus, airlines which don’t have a dedicated cargo fleet can carry cargo only on the belly of their scheduled flights or on seats in certain cases. These airlines would need the government to lift capacity restrictions in order to further ramp up their cargo operations.

“The peak season for air cargo will start in the coming weeks, but with severe capacity constraints, shippers may look to alternatives such as ocean and rail to keep the global economy moving," said Alexandre de Juniac, director general and CEO of the International Air Transport Association (IATA), in a recent report.

In the medium-term, some airlines which have been quick to convert a large number of their fleet into cargo-dedicated freighters due to government restriction on scheduled flights will swiftly reconvert these back into passenger planes once an anticipated post-pandemic travel boom gets underway, said a New Delhi-based senior executive in a prominent no-frill carrier, who requested anonymity.

For the aviation industry, a lot hinges on whether and when that long-awaited travel boom materializes. India’s civil aviation minister Hardeep Singh Puri recently said that airlines could be allowed to resume up to 100% of their pre-covid capacity by the January-March 2021 period. However, for travel to revert to normal levels, a lot would depend on the availability of a credible vaccine.

In the meantime, the current surge in cargo operations of airlines, which is mostly due to the pandemic, could last a while, said Mark Martin, chief executive of Martin Consulting Llc, an aviation consultancy.

“We are at the cusp of a historic moment, where (air) cargo transportation will be key to eradicating the pandemic as the vaccine doses will have to be delivered across the planet. According to our estimates, there would be a requirement for at least 15,000 cargo freighters," Martin said.

However, the current boom in air cargo operations is not permanent, Martin said, adding that once passenger demand returns most airlines would go back to focusing on passenger traffic.

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