Air Cargo Market in India-MBA Project Report

Air Cargo Operations Market in India-MBA Project Report on Airlines Industry

 

Analysis of Indian and foreign airlines; success factors and constraints of scheduled commercial airlines in air cargo market

Table 1: Air cargo: Analysis of Indian and foreign airlines

Airlines, 2007-08	Cargo Revenue as % of Total Revenue	Dedicated cargo aircraft	AFTK (billion tonne km)	FTK (billion tonne km)	WLF (%)	Cargo yield (cents/tonne-km)
Lufthansa Airlines	12	19	12.3	8.2	66.7	46
Jet Airways	7	-	3.3	1.9	56.4	29
Singapore Airlines	21	31	12.7	7.9	62.2	27
Korean Air	30	24	3.0	2.1	70.0	23
Note: AFTK: Available freight tonne-km; FTK: Freight tonne-km; n.a: not available
Source: Company reports and CRISIL Research

·         Air cargo revenue forms only 7 per cent of total revenue for FSCs in India as private airlines do not have dedicated freighter aircraft to carry air cargo unlike global airlines. Air cargo revenue forms around 30 per cent of total revenue for Korean Air, which has dedicated 24 freighter aircraft to carry air cargo operations.

·         WLF of Indian carrier is low due to lack of hub airports in India and high competition faced by Indian carriers from foreign airlines and air cargo companies in international operations. WLF of Korean Air and Lufthansa was 70 and 66.7 per cent, respectively, while WLF of Jet Airways was 56.4 per cent in 2007-08.

·         Cargo yields measured in cents/tonne-km of Indian carriers is high due to healthy mix of non-bulk (high margin, low volume) and bulk air cargo (low margin, high volume).

 Success factors for airlines in air cargo market

Adequate frequencies

Airlines, which carry air cargo on passenger aircraft, need to have high frequency operations on high volume air cargo route for additional flexibility and reliability to courier companies and freight forwarders who rely on timely delivery.

Alliances and tie-ups

Airlines need to have long term alliance and tie-ups with freight forwarders and courier companies with strong network within and outside India. This would ensure assured freight carried by airlines resulting in better WLF and revenues from air cargo operations. 

Yield management

Airlines need to have proper mix of non bulk (high margin, low volume) and bulk cargo (low margin, high volume) for high yields in air cargo segment. Accordingly, the pricing strategy should be to achieve an optimum balance of bulk and non-bulk load.

Reliability

Airlines with good on time performance would lead to increased business, better yields, which will help them in charging a premium compared to other airlines due to high realibility and timely delivery, the key factors required in air cargo industry.

 

Constraints of scheduled commercial Indian carriers in air cargo market

Strained financials of Indian carriers

Majority of scheduled commerical airlines in India are highly geared leaving them with limited scope to carry full fledged air cargo operations, including having dedicated cargo fleet, dedicated cargo terminals, distribution, marketing network and warehouse space at airports.

Strong competition from air cargo companies

Indian commercial carriers may face strong competition from well-entrenched air cargo companies in domestic and international segment with dedicated freighter fleet to carry out air cargo operations.

Infrastructure bottlenecks at airports

More than 90 per cent of air cargo, international and domestic operations is handled at metro airports in India, making these airports highly congested and thereby increasing turnaround time for airlines and air cargo companies. High congestion at Indian airports can lead to long time for loading and unloading of freight, which could increase the turnaround time of aircraft and affect their on-time performance.

Analysis of Indian and global integrated cargo companies

Table 2: Cost structure, profitability of Indian and global integrated cargo companies

Air cargo companies	Blue dart	Fedex	UPS		Blue dart	Fedex	UPS
	2007	2007	2007		2006	2006	2006
Operating revenue	x	216x	305x		x	240x	353x
Operating cost	100.0	100.0	100.0		100.0	100.0	100.0
Direct operating cost	71.1	36.6	22.4		72.1	33.4	25.0
Employee	16.6	43.0	64.6		16.3	39.4	59.7
Depreciation and amortisation	3.4	5.5	3.6		3.8	4.9	4.3
Others	8.9	14.9	9.4		7.8	14.0	11.0
EBIT (%)	13.3	9.3	1.2		9.9	9.3	14.0
Interest expense (%)	0.0	0.4	0.5		0.2	0.5	0.4
PBT (%)	13.3	9.1	0.9		9.7	27.2	13.7
Net Profit (%)	8.7	5.7	0.8		6.2	14.4	8.8
Aircraft	7	n.a	268
Note: x = 134 US $ mn in 2006 and 163 US $ mn in 2007
Direct operating cost includes purchased transport vehicles, fuel expenses, maintenance
and repairs of vehicles and aircrafts, leased rentals for warehouses and office spaces and
landing and parking charges at airports
Source: Company reports and CRISIL Research

 

Direct operating expenses of Indian cargo companies is high due to lease expense of aircrafts and low scale operations

Direct operating expense forms 71 per cent of cost structure of integrated Indian cargo players due to high expense incurred on aircraft and vehicles leases. Global air cargo companies have higher proportion of owned aircrafts which help saving on aircraft lease rentals. Also, Indian air cargo companies have small scale of operations compared to global air cargo companies, leaving Indian air cargo companies with high fixed cost. Direct operating cost forms only 22.4 per cent of operating cost structure of UPS in 2007 versus 71.1 per cent for Blue Dart.

Employee costs of Indian companies is much lower vis-à-vis foreign air cargo companies

Several global air cargo companies are saddled with problems of post retirement liabilities and employee unions. Indian companies have ample skilled availability of workforce to carry out air cargo operations resulting in lower employee costs for Indian air cargo companies. Employee cost formed around 43 per cent of operating cost for FedEx in 2007, while only 16.6 per cent of operating cost structure for Blue Dart in 2007. 

If you want the Project Report on Air Cargo Market in India, contact us at +91 9819650213