Home » There is huge potential for growth in the air cargo market

There is huge potential for growth in the air cargo market

There is huge potential for growth in the air cargo market

The future looks bright for the aviation sector, as the host of measures advocated by the government will definitely help to boost and sustain growth, says Guruprasad Mohapatra, Chairman, Airports Authority of India.

How do you react to the new aviation policy announced by the Union government in 2016?
The reactions are positive and industry is also quite optimistic on the introduction of NCAP 2016. The objective of the government through NCAP is to establish an integrated ecosystem enabling significant growth of the civil aviation sector, which in turn would promote tourism, increase employment and lead to balanced regional growth.

The policy encourages the use of technology, effective monitoring, fiscal support, infrastructure development, deregulation, simplified procedures, and e-governance, thereby promoting the entire aviation sector in a harmonised manner covering cargo, MRO, general aviation, aerospace manufacturing and skill development.

The Regional Connectivity Scheme (RCS) under the policy aims to make flying affordable to the masses in Tier-II and Tier-III cities, thereby providing faster connectivity conducive to growth of business and balanced economic growth in each part of the country.

Low oil prices have contributed to a certain extent to the sector´s growth and helped in bringing down prices. But the future looks bright for the sector as the host of measures advocated by the government will definitely help to boost and sustain the growth.

The regional connectivity scheme for better pan-India flights was scheduled to take off in the second quarter of 2016. Is this a viable business model?
The Ministry of Civil Aviation launched the Regional Connectivity Scheme-UDAN (Ude Desh Ka Aam Nagrik) in October 2016 to facilitate and stimulate regional air connectivity by making it affordable. The scheme envisages supporting the selected airline operators through concessions by the Central government, concerned state governments and airport operators to reduce the cost of airline operation on RCS routes and financial (viability gap funding i.e., VGF) support to meet the gap, if any, between cost of airline operation and expected revenue on such routes. The viability of the model will be known in the times to come. All the stakeholders are quite optimistic, and if need be, the model can be fine-tuned to adjust to the market dynamics. AAI has been designated as the implementing agency and is working on revival of un-served and underserved airports to facilitate the Regional Connectivity Scheme.

Revival of air strips and airports will be demand driven, depending on firm demand from airline operators. Un-served airports will be operationalised at an indicative cost of Rs 50 crore to Rs 100 crore. Further, 51 airports which are ready for operation with no expenditure or expenditure up to around Rs 5 crore have been identified. Other airports may be operationalised with an expenditure up to Rs 100 crore. AAI is gearing up to meet these challenges for success of the scheme.

The response received from operators has been very encouraging. The Airports Authority of India, the implementing agency of UDAN, has received 43 initial proposals from 11 bidders covering 190 UDAN routes.

Is India competent enough to think and execute futuristic airports (future-proofed aviation management and operations) on par with global standards?
Futuristic airports imply enhanced passenger experience through attributes such as on-time flights, efficient passenger flow, efficiency in baggage handling, speed and effectiveness of security clearances, environmentally sustainable energy, lighting and heating systems, efficient maintenance and management of ground-based assets with the least amount of service disruption, leveraging of IT and automation for smooth travel through the airport from the entry to security, boarding and exit in form of e-facilities, and reduced delays or diversions at the airports.

In this respect, India is already on the right track. More than 60 airports have been modernised by AAI in the last 10 years, at par with global standards. All of these airports have world-class large span buildings, runways and aprons equipped with state-of-the-art equipment with special focus on customer satisfaction. AAI is continuously conducting customer satisfaction surveys and airport service quality surveys at airports. Of late, AAI airports at Jaipur, Lucknow, Goa, Trivandrum and Srinagar have been adjudged among the top airports of the world and AAI will strive to replicate the same at other airports.

To reduce delays on ground and in air, AAI is also focusing on upgradation of air navigation services. Central Air Traffic Flow Management (C-ATFM) has been installed, making India only the 7th country in the world to have this capability. The C-ATFM system is primarily meant to address the balancing of capacity against demand to achieve optimum utilisation of the major resources, viz., airport, airspace and aircraft, at every Indian airport where there is a capacity constraint. There are plans to implement GAGAN by 2018-19 in the entire country for en-route and terminal procedures. GAGAN will provide increased operational efficiency, reduced fuel burn and enhanced capacity. CAT-III B ILS is being provided at certain airports where operations get affected due to fog or bad weather conditions. Further, AAI has taken up an ambitious project to declare Vadodara and Vijayawada as completely e-enabled airports.

Is there adequate growth in cargo traffic in the aviation sector? What is the year-on-year outlook for 2017?
The air cargo business has grown almost six-fold in the past decade. The total freight handled in 2006 was a meagre 0.5 MMT which has now increased to about 3 MMT. The business is quite less as compared to other countries, but there is huge potential for growth.

According to the World Air Cargo Forecast by Boeing, international air freight will drive overall world cargo growth through 2033. Over the next 20 years, world air cargo traffic will grow 4.7 per cent per year. IATA also came out with a 5-year plan for international air cargo from 2014 to 2018. According to IATA, international freight volumes are expected to increase at an annual compounded growth rate (CAGR) of 4.1 per cent. The trends for growth in India are pegged higher, at close to 7 per cent.

Indian airports have a combined capacity to cater to 4.63 million tonnes of cargo per annum and keeping this in mind, the government has given special focus on cargo in NCAP-16.

There is a sizeable increase in the tonnage & revenue (for the period April 2016 to December 2016) to the tune of 36.25 per cent in tonnage and 16.11 per cent in revenue against the corresponding period of the previous year.

AAI is in the process of leveraging its cargo business and has chalked out a road map by identifying 24 airports across the country for creation of Common User Domestic Air Cargo Terminals (CUDCTs). The terminals will be capable of accommodating cargo from all over the country including perishable goods, medicine and other high value and express delivery shipments. To give special focus on cargo, AAI has formed a 100 per cent owned subsidiary of AAI, AAI Cargo Logistics & Allied Services Company Ltd (AAICLAS). The company will focus on air cargo handling and allied services, warehousing and contract logistics, and air cargo road feeder and air freight stations. The vision of AAICLAS is to become the foremost integrated logistics network operator in India with primary focus on air cargo handling and allied services, achieving 1.50 million tonnes of air cargo handled, with a turnover of Rs 7,500 million. It will also establish a working Free Trade Warehousing Zone by 2022-23 through brand equity enhancement, trust, professionalism, integrity, respect and teamwork. AAICLAS will undertake:

Establishment of Air Freight Stations (AFS) where Built-Up Pallets (BUPs) carrying export cargo can be handled;
Setting up of regional cargo hubs at Chennai and Delhi;
Establishment of dedicated cargo airports;
Establishment of international cargo handling operations at Pune, Madurai, Aurangabad and Bhubaneswar.

The Centre is set to spend $10 billion to develop airport infrastructure over the next five years. How do you expect industry to react to this investment flow into the sector?
The investment into the sector is good for the industry as the investments are going to provide the requisite infrastructure to meet the growth in these regions. Over the years, growth has been such that the planned capacity is saturated much before the planned period. To address the capacity constraints and requirement of connectivity in Tier-II and Tier-III cities, AAI has plans for investment of Rs 175 billion in the next five years for augmenting airport infrastructure in India. This will be used for development of saturated airports, development of non-metro and regional airports, modernisation of ANS infrastructure, training and HRD. This will be done through internal resources and external borrowings.

However, all of the 400 unused airstrips cannot be operationalised due to various reasons such as availability of land, encroachments, obstacles around the airstrips, non-feasibility from airlines´ perspective, infrastructure available, etc.

In the first phase, efforts are being made to operationalise recently developed un-served airports which do not have any flights. AAI is assessing the number of airports which can be operationalised with a nominal investment of Rs 500 million to Rs 1 billion.

Is the national carrier Air India adequately aggressive in the international and national markets? How can the national asset transform into a profitable proposition for the government?
Airports and airlines, though part of the same industry, have totally different business perspectives. Hence it is difficult to comment on their business strategies. It will be appropriate to address this question directly to them.

How can the aviation sector buck the variables of oil prices in the international markets?
It is a fact that oil pricing has direct impact on operations, ticket pricing and profitability of airlines. The government does try to ease the pressure on airlines through reduced taxation, etc. Airlines also try to reduce the impact through optimum utilisation of the available resources and pricing. However, airlines will be in a better position to give an appropriate response to this question.

The emphasis by airlines to go in for aircraft purchases on a large scale, as is being envisaged, may have an adverse impact on viability. Your thoughts?
Providing capacities ahead of demand is essential for the growth of the economy, failing which the development of the country will be pushed back by a couple of decades. According to forecasts, India is on the cusp of robust growth and is poised to be a global player in the world economy. Further, the aviation industry has a long gestation period and thus requires proper planning to provide the infrastructure well in time.

Thus, the airlines´ emphasis on large-scale aircraft purchase is in line with the passenger growth forecast in India. This is being equally matched by airport operators including us, to provide infrastructure ahead of demand.

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