Livemint: March 18, 2015
Mumbai: Jet Airways (India) Ltd, the country’s second largest airline by passengers carried, will start dedicated cargo operations in April, becoming the first private Indian airline to do so.
The cargo service, with Delhi as its base, will be operated using an Airbus A330-200F aircraft wet-leased from partner Etihad Airways PJSC. A wet lease includes pilots and cabin crew as well as the aircraft, unlike a dry lease in which only the plane is leased.
A person close the development said the freighter operations would be run under the brand Jet Airways Cargo, which would start with one cargo plane and be reviewed later for more.
Jet Airways will fly cargo planes to several destinations, including Bengaluru, Hong Kong, Hanoi and Singapore.
The airline has chosen Delhi as its base because of better connectivity to international and domestic destinations, the person said, requesting anonymity.
In the past, state-run Air India Ltd had launched a dedicated freighter and failed to run it successfully. Several private companies including QuikJet Cargo Airlines Pvt. Ltd (in which Tata Capital had invested), G.R. Gopinath-promoted Deccan Cargo and Express Logistics Pvt. Ltd (in which Reliance Industries Ltd had a stake) and Aryan Cargo Express Pvt. Ltd had launched dedicated freighter operations in India, but failed.
Jet Airways has been in talks with various international airlines and dedicated freighter companies since 2007 to start an all-cargo airline. However, those discussions did not succeed against the backdrop of the global economic slowdown.
The person quoted above pointed to likely demand from manufacturing and e-commerce.
The cargo division was a strong contributor to Jet Airways’ third quarter earnings. Cargo revenue contributed around 7% of the airline’s total revenue that was at Rs.5,436 crore. Cargo revenue rose by 5.23% to Rs.382 crore for the quarter ended 31 December from Rs.363 crore a year earlier.
The launch enables Jet to provide freighter services for customers in India and abroad, said Cramer Ball, chief executive officer (CEO). “India is now the second fastest growing air cargo market in the world and this growth is expected to continue in line with the country’s economy and we look forward to cargo making a strong contribution to the annual revenue of Jet Airways,” he said.
The wet lease agreement for the freighter aircraft is another illustration of the strong partnership between Jet Airways and Etihad Airways, which has enabled the Indian airline to embark upon new activities, such as cargo-only services, which will improve its revenue further, Jet Airways said in a statement. Etihad Airways had acquired a 24% stake in Jet Airways last year.
A senior executive at a domestic brokerage firm, requesting anonymity, said it is a natural progression for Jet Airways with the help of Etihad Airways.
Jet is likely to adopt the strategy of its passenger business—feeding the cargo traffic to Delhi and from there to Abu Dhabi, the hub airport of Eithad Airways.
Air India and others did not have a backup like Etihad Airways and a hub airport in Abu Dhabi.
Rahul Gangal, partner at Roland Berger Strategy Consultants, said this move is an opportunity for Jet Airways to test the business model. “While the move appears to be tied to both the uptick in global business sentiment and the overall anticipated expansion in trade arising from the ‘Make in India’ initiative of the government, the key to success resides in the speed of the transfer of knowledge from Etihad (which runs a successful existing freighter business) to Jet Airways,” he said.
The International Air Transport Association (IATA) released full-year air cargo data for 2014 in February, which showed a 4.5% increase in demand compared with 2013, as measured by freight tonne kilometres (FTKs). That is higher than the 1.4% growth recorded in 2013 over the previous year.
Much of the growth in cargo demand came from the Asia-Pacific and Middle East regions, which respectively contributed 46% and 29% of the expansion in FTKs, IATA said.
“After several years of stagnation, the air cargo business is growing again. This is largely being driven by the uptick in world trade over the second half of 2014. Recent concerns over the health of the global economy and a corresponding fall in business confidence have not yet impacted air cargo. But it is a downside risk that will need to be watched carefully as we move through 2015,” Tony Tyler, IATA’s director general and CEO, said as part of the February data release.
Kevin Knight, chief strategy and planning officer at Etihad Airways, said the move will bring considerable benefits to both the airlines. “Etihad Airways has established a highly successful freighter operation during the last decade, with depth in our fleet, and this has enabled us to wet lease this A330-200F aircraft to Jet Airways and we look forward to working with Jet Airways to make this new operation a success,” he added.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.