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Wednesday, December 02, 2020

Silver lining on Covid cloud: Amid fewer passenger flights, cargo ops boost airline revenues

A recent ICICI Securities report noted that capacity reduction has resulted in air freight rates rising by 30-60% on some routes globally, and even in India a rate hike of 7-15% was seen.

Written by Pranav Mukul | New Delhi | November 16, 2020 1:54:14 am
Aviation consultancy firm CAPA India said that in September, international cargo fell just 13.6% year-on-year, as against -87.8% for passenger traffic, while domestic cargo volumes were down 20%, compared with -65.1% for passenger traffic.

Where Covid-19 lockdowns and travel restrictions made 2020 the worst year for airlines in terms of loss of revenues, a forced leaning towards cargo operations for a steady revenue stream meant growth in the segment exceeding expectations for aviation industry stakeholders. Consider the following points:

* SpiceJet, which has a dedicated freighter fleet, saw revenues from cargo operations more than double to Rs 564.93 crore during April-September, from Rs 224.85 crore in the same period last year.

* India’s largest airline IndiGo, which is operating less than half of the capacity it was operating with last year, is carrying more cargo than it did at 100 per cent capacity last year.

* IndiGo, among some other airlines, carried previous financial year’s equivalent of cargo volumes in just the last five months.

* Air India’s cargo operations witnessed a five-fold growth in volumes during September, when compared with April this year.

Globally, 2019 was the worst year for air cargo industry since 2009 during the global financial crisis. According to the International Air Transport Association (IATA), the 3.3 per cent annual decline in cargo demand was the steepest drop since 2009. As the Covid-19 pandemic hit, the sharpest ever year-on-year decline of 27.7 per cent in air cargo demand was met with a 42 per cent reduction in capacity. The fall in capacity, which was mainly on account of suspension of passenger flights that carry cargo aircraft bellies, created a demand-supply skew that led to a rise in yields.

A recent research report by ICICI Securities noted that the capacity reduction has resulted in air freight rates increasing by 30-60 per cent on some routes globally, and even in India a rate increase of 7-15 per cent was observed. This forced Indian airlines to relook their cargo strategy as a key revenue stream at a time when passenger operations were largely constricted.

“We learned valuable lessons about the demand and scope for cargo, which will definitely serve us well for augmenting our cargo operations in the months ahead. If we look at the year-over-year numbers, in July, our cargo revenue was up 9 per cent; in August, our cargo revenue was up 20 per cent; in September, our cargo revenue year-over-year was up 27 per cent — a steadily increasing trend which is obviously very pleasing, especially since our total capacity was sharply reduced in those months. We launched all cargo flights as a stand-alone revenue stream. Somewhat incredibly, we are now carrying more cargo at much lower capacity, than we did at 100 per cent last year,” IndiGo’s chief commercial officer William Boulter told The Indian Express.

IndiGo’s rival SpiceJet, which operates a dedicated freighter service under the SpiceXpress brand, said it has carried 76,500 tonnes of cargo since the lockdown began in late March. The airline currently operates a fleet of 17 cargo aircraft, including three wide-bodied planes that it introduced recently to serve the markets in Europe, Africa and CIS countries. The airline’s revenues from cargo operations during April-September expanded 2.6 times to Rs 564.93 crore, from Rs 224.85 crore a year-ago.

As a result of airlines’ shift in focus towards cargo, in addition to continued restrictions on passenger travel, the post-Covid recovery of cargo operations has also been faster than passenger operations. According to aviation consultancy firm CAPA India, cargo volumes are expected to reach pre-Covid levels much earlier than passenger traffic. In September, international cargo was down just 13.6 per cent year-on-year, compared with -87.8 per cent for passenger traffic, while domestic cargo volumes were down 20.0 per cent, compared with -65.1 per cent for passenger traffic.

“For the air cargo industry, 2020 is the best time in history. Normally, the cargo business is predominantly supported by the belly space of passenger aircraft, which came down to 10-20 per cent. So naturally, the demand for space skyrocketed and the yield became 3-5 times of what it was before. So, in six months of the full year, that is up to June, they (air cargo carriers) have met their full-year target,” said VK Mathews, chairman of IBS Software, a software solutions provider to the travel industry.

The same trend echoed in IndiGo’s cargo volumes as well. Boulter said IndiGo has already transported cargo equivalent to the loads carried in the last financial year within the last five months itself at limited capacity. “The airline has, in fact, earned marginally higher cargo revenue over these months as compared to the earnings over the last financial year, as a result of the combination of our belly space returning to the market and our extensive cargo-in-cabin operations, plus firmer yields,” he said.

Disinvestment-bound Air India, which introduced pure cargo flights on some international sectors, also saw a five-fold growth in its cargo volumes for the month of September, in comparison with the volumes recorded in April this year.

Globally, too, airlines have been taking measures to shift the scales in favour of cargo at least till passenger demand returns to pre-Covid levels. Wednesday, Dubai-based Emirates said it was using the idle Airbus A380 aircraft — the world’s largest passenger jets — in its fleet as “mini-freighters”, in response to the surge in the demand for air cargo capacity required for “the urgent transportation of critical goods, including medical supplies for combatting Covid-19 in regions experiencing a second wave of the pandemic”.

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