Airlines’ cargo biz set for a take-off

While airlines have typically focused on passenger revenues, a surge in demand has led them to pay greater attention to the cargo side of the business.

With Kingfisher Airlines launching Kingfisher Xpress and reports of Jet Airways being in talks with global logistics player FedEx, the cargo business of airlines has become a talk of the town.

“When you look at the cargo segment, there are tremendous opportunities that airlines can tap into. While the belly space of the aircraft still adds to its ancillary revenues, segmenting it as a separate unit can help airlines achieve higher revenues, like in the case of Kingfisher Xpress and Air Cargo,” Rajeev Batra, executive director at consulting firm KPMG, said. 

Currently, cargo operations contribute close to 5-10% of revenues
of the airlines, and the industry expects this number to grow.

According to a February 9 report of International Air Transport Association (IATA), the cargo operations of domestic airlines are set to grow by 7% in 2010.

“We are projecting cargo to grow 7% in 2010, and an average annual growth rate of 5.8% from 2009 to 2013,” said an IATA spokesperson.

The report said there was a particularly sharp improvement in cargo demand, with the majority of airlines switching from reporting declining demand to rising demand during the last year.

“Expectations for improvements in demand in 2010 have risen to levels last seen in 2007, with over 82% of airlines expecting further gains in passenger demand and 72% expecting improved cargo demand,” it said.

M Thiagarajan, managing director, Paramount Airways, said the
business can have high yields, depending upon the kind of cargo transported. “There is more premium in specialised cargo, as it requires additional care. Focusing on the niche segment can help bring in more revenues,” he said.

Though cargo already adds to ancillary revenues, experts say with airlines expanding their networks to smaller cities, there will be increase in it.

“Initially, airlines used to carry cargo primarily to metro areas, and not much of belly capacity was utilised. However, with airlines flying more to smaller cities they are now utilising it, and increasing capacity,” said an analyst with a local broking firm.

A Jet Airways official had told DNA that the airline is expecting to boost cargo’s share in revenues in the domestic segment to 5-6% in the next two years.

Sources at the airline said that one way to do it would be through a tie-up with a global logistics player, who can provide the company with the right ground support.

“While the dialogue is still on with a global firm, we are all set to develop this market and provide end-to-end solutions in the cargo division,” the Jet Airways official said.

Experts say that success in this business will be possible if the airlines have the right ground and infrastructure support.

“Airlines have always been carrying cargo. This business makes sense only when they have the right infrastructure outside the airport to provide services,” Batra said.