Can India’s newest and only maindeck carrier SpiceXpress survive?

SpiceJet's SpiceXpress cargo division

Today is the day yet another Indian airline makes history – and in this case, probably in a good way, seeing as it is the start of the country’s only maindeck cargo operation. Granted, it is certainly not the first, nor the last… but for the moment, SpiceXpress, its parent SpiceJet and its owner Ajay Singh can all bask in the warm glow of great opportunity and promise.

They might also do well to turn firmly towards the light, ignoring the clouds of doom that perpetually seem to gather around such cargo ambitions, typically creating enough turbulence to bring down one Indian cargo carrier after another.

To be fair, one home-grown Indian freighter operator has survived the test of time – Blue Dart Aviation, part of the Blue Dart Express company – but its success attracted the attention of global express giant DHL with the German company purchasing first a stake and later full ownership of Blue Dart. So really, it doesn’t count in this part of the equation, but more on that later.

Certainly the question on everyone’s mind is whether SpiceXpress, SpiceJet’s new cargo operation, will make it in the maindeck realm? Can this carrier do what no other has managed? Can it overcome this seemingly mysterious force that leads all domestic Indian maindeck operators to fail, time and again?

With our proven operational capability, this is an extension of our ‘belly cargo’ service to a dedicated freighter with Boeing 737 aircraft. We are very excited about the tremendous potential the logistics industry offers. There is a huge untapped market for air cargo services in India and a player like SpiceJet – with its low cost structure – is best suited to address this need.” – Ajay Singh, chairman and managing director, SpiceJet.

Let’s face it, the track record for Indian carriers is not great and far less so for those with cargo ambitions. One need only look at the numbers. A quick check with Wikipedia shows a very long list of airlines that didn’t make it… a total count of 52 defunct airlines. That’s pretty impressive, although in a not so complementary way. Compare this with currently operating airlines, of which there are now 35 and possibly another three waiting in the wings to get the green light, and we see the odds. They aren’t great to be sure.

Of the now defunct carriers there are no less than six cargo carriers in the mix, some more familiar than others. In brief, they include Elbee Airlines (the country’s first all-cargo carrier in 1994), Crescent Air Cargo, Aryan Cargo Express, Deccan 360, Air India Cargo and Quikjet Airlines (while not defunct and backed by ASL, it appears to be ‘taking a break’ for now).

Financial issues, market conditions, infrastructure problems, maintenance issues, political interference – you name it and the list of reasons for the various cargo failures runs long.

So what is fundamentally different this time that would lead one to believe there is hope for domestic freighter operations? One could argue that fundamentally much has changed in the Indian air cargo market since Air India bowed out in 2012 and even so over a shorter period of three or four years.

For starters, India is growing economically and once it reaches its full potential it will be the China of South Asia and indeed the world. The International Air Transport Association (IATA) in its figures released in early September show that last year international cargo volumes from India hit the million-tonne mark, representing a year-on-year growth of nearly 17 per cent.

Mumbai and Chennai were among the world’s top 10 fastest-growing airports in freight terms, with 18.1 and 17.2 per cent growth respectively, while Delhi and Mumbai are among the top 50 biggest cargo airports.

And according to Indian credit rating agency ICRA, air cargo traffic is expected to grow a whopping 60 per cent over the next five years – and where international tonnage figures hit 1.0 million tonnes last year, domestic tonnage was up 8.0 per cent to a substantial 12 million tonnes.

Another important consideration is the fact much has changed since Prime Minister Narendra Modi has come into power in 2014. From economic reforms and initiatives to reduce bureaucracy and his headline, ‘Make in India’ foreign investment campaign, have all had positive effects on the Indian economy.

Along with this has been substantial focus on infrastructure that has seen roadways improved, as well as airports and related cargo infrastructure, although this is still a major bottleneck in some hubs, like Mumbai especially. Government initiatives to boost logistics efficiency are a key area that the Modi government is focusing on.

E-commerce is also a new key factor. While e-commerce is still in its infancy the vast population of India means this will be an important logistics opportunity going forward and one that has already shown its potential.

Ajay Singh, SpiceJet’s owner, chairman and managing director, has clearly focused on the potential of the booming e-commerce market of India, zooming in on the rising demand for next-day delivery services that e-commerce players like Flipkart and Amazon are offering to customers.

“E-commerce is a big driver behind our foray into the freighter business. With next day delivery services of Amazon, Flipkart delivering high-value goods and equipments, there is a need for a freighter airline, which can offer time-specific services,” Singh poignantly notes. It can’t be overlooked that SpiceJet’s initial network includes Bengaluru – India’s current e-commerce hub.

The carrier is also targeting domestic points like Guwahati and Amritsar which have substantial perishable cargo in high demand elsewhere in the region.

It would be completely remiss to not touch on pharmaceuticals, India being as it is, a major player in the generic pharmaceuticals market. Again, this is an area that Singh has highlighted as a focus and one far more suited to the maindeck than the bellyhold of India’s smaller capacity domestic fleet.

Another plus-point is the choice of freighter – the B737F conversion – which aside from commonality with the SpiceJet fleet, also offers a economical and reliable aircraft with a capacity suited to the domestic market and a range suited to regional operations. It’s also a wise bet adding maindeck operations alongside established passenger operations in a bid to boost ancillary revenue of the core passenger business.

While these are some of the upsides to starting a new cargo-centric airline in the Indian market, there are a number of substantial downsides as well.

Competition, the death knell of many who have come before SpiceXpress cannot be underestimated. The lure of growing volumes may well induce other players – specifically Jet Airways and IndiGo, both of whom have uttered the words ‘freighters’ at least a few time before and with much more sincerity recently.

If we stop for a moment and look at the belly cargo situation, SpiceJet saw a 35 per cent rise in volumes to 43,184 tonnes in the first half of this year, compared with the same period last year.

Similarly, Jet Airways (24 per cent owned by Etihad which is undergoing its own set of problems) saw a 10 per cent rise in its belly cargo volumes but has problems aplenty after posting a loss of USD 188 million for the second quarter this year and Indigo saw a marginal fall to 98,625 tonnes (from around 100,000 a year earlier).

In financial terms Jet Airways saw a 19.2 per cent rise in revenues from cargo and other ancillary revenue while IndiGo was up 14 per cent and SpiceJet was up 28 per cent.

The point being, there is money to be made in cargo… at least in the bellyhold. One thing that hampers all the cargo players is infrastructure, but at least this is a relatively level playing field.

The key issue for SpiceXpress will be pricing. Belly cargo is always an area prone to predatory pricing and this will certainly be a challenge for the new SpiceJet subsidiary. Singh must be credited for his move to ink a deal with the Afghanistan Chamber of Commerce and Industries (ACCI) to run cargo operations between Delhi and Kabul from 15 October.

SpiceJet plans to uplift 1,500 tonnes of cargo a month – including fresh fruits and dry fruits, carpets and other commodities – under the partnership from Kabul to different states of India at competitive prices, which the carrier says will be subsidised by the Afghan Government. Always good to have a solid cornerstone for your business.

But one can also not forget the market dominance of Blue Dart, that not only has years of experience, a mighty big German backer, but also a 49 per cent share of the domestic market.

Having said that, SpiceJet did not get to where it is without some astute navigation and many industry analysts point out that if Singh cannot make the maindeck play work… nobody can.

But then again, the same was said of Capt. Gobi and Deccan 360 only a few years back.

Time will tell, but all the best to SpiceXpress in the meantime.

Can India's newest and only maindeck carrier SpiceXpress survive?
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Can India's newest and only maindeck carrier SpiceXpress survive?
Today is the day yet another Indian airline makes history – and in this case, probably in a good way, seeing as it is the start of the country's only maindeck cargo operation.
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