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June 13, 2019

Flight plan for freighters

Short-term prospects improve even as pricing pressure and inadequate niche cargo cast a cloud on long-term prospects

CRISIL Opinion l June 2019

Dedicated freighters in India have minuscule share versus global peers


Shorter lead distances compared with global freighters, lack of significant niche cargo, and intense competition from airlines – which also carry cargo in aircraft belly – are expected to continue restricting growth of domestic dedicated freighters.


However, in the immediate term, a sudden drop in capacity expansion of airlines on account of grounding of Jet Airways will aid volumes and pricing for dedicated freighters.


In the long term, increased freight concentration on select routes, integration with global freighters, and in-house logistics requirement will ensure growth.


The dedicated air freight market in India is estimated at Rs 6-7 billion currently.


In terms of revenue tonne kilometre, dedicated freighters have ~15% share of the air freight market in India, compared with 50-55% globally. This is because while their global peers move cargo across countries/ continents, those in India operate on shorter distances and lead times, leading to competition from other modes of transport.


Also, dedicated freighters command higher yields globally. UPS, for instance, earned Rs 130/ tonne km in calendar 2018, compared with Rs 51/ tonne km for Blue Dart in fiscal 2018. Yields for global freighters are based on end-to-end movement of express segment, whereas for domestic freighters it is airport-to-airport movement for the most part.


Also, somewhat tellingly, dedicated freighters in India command just 7 aircraft compared with ~680 in commercial aviation today (including Jet Airways). In comparison, as per Boeing data, the global freighter fleet stood at 1,870 aircraft as of 2017, compared with a commercial fleet of 24,400 aircraft – that’s almost 8 times the fleet share.


Just what is holding back growth of the segment in India? We take a closer look in this report.