Indian air cargo industry: A study

Abstract

he air cargo demand in India is slated to peak and is grew at a CAGR of 12.8% p.a from 2002- 2007. This project aims at looking at the growth and the models of operation in the industry. There are 2 primary modes of operation – the Hub & Spoke and the point to point models. Of the two, the hub & spoke model is seen to have been the most prevalent in highly developed economies such as the US. By measuring the cost and the time factors, the model aims to present a case for the movement of the industry towards one of these models. Currently there are no pure-play cargo players except for Blue-Dart in the industry. This points to the fact that the key driver of routes would be the passenger volumes and not the cargo volumes. And as expected cargo volumes provide for less than 10% of the revenues for the incumbents. However with growing cargo volumes, it would be increasingly necessary & profitable to use cargo as a major revenue stream & either hub & spoke or the P2P models would be dominant. According to our analysis, the hub & spoke model would be more cost effective per tonnage of cargo movement when compared to the point to point model. This is primarily because of trip based costs i.e costs incurred every time a flight plys between two nodes being predominant in the cost calculations. Costs such as fuel & air craft rentals which are calculated based on the flying time increase with increasing volumes carried. Another factor that boosts the cost efficiency of the hub & spoke model is the economies of scale gained by pooling the resources at the hub. Hence the per unit costs are also pared. The key pattern that the report identifies is that the market would gravitate towards the hub & spoke model in the future; the cargo carriers would prefer to have dedicated cargo fleet over the passenger-cum-cargo mode of operation currently followed. However, if a player were to choose to operate in the P2P fashion, he would benefit from using the passenger-cum-cargo mode for operation.