Success factors for airlines in air cargo market

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Success factors for airlines in air cargo market

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. 

 

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

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