The air freight capacity will grow at CAGR of 13-15% outstripping estimated freight demand of 7-9% CAGR by FY 2025
The domestic air freight demand is projected to touch 1.1 million tonnes by FY 2025 at a compounded annual growth rate (CAGR) of 7-9% driven by rapidly growing e-commerce activity, increasing capacity and improving airline connectivity to smaller cities, according to CRISIL.
However, the cargo capacity of airlines is expected to grow at a higher CAGR of 13-15 per cent, given the impending fleet expansions. This will in-turn further shift the market towards airlines, according to the rating agency CRISIL.
The estimated Rs 600-700 crore domestic dedicated air freighter market stood at 0.8 million tonnes in 2019, registering a CAGR of 8% in the last five FY, it said.
Ironically, the domestic dedicated freighters fleet currently stands at just seven planes compared with about 680 passenger aircraft, including of the grounded carrier Jet Airways, said CRISIL.
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. According to CRISIL, 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 the growth of domestic dedicated freighters.
In terms of revenue per tonne-kilometre, dedicated freighters have just about 15 per cent share of the domestic air freight market, compared with 50-55 per cent 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, it added.
However, in the immediate term, a sudden drop in capacity expansion of airlines on account of grounding of Jet Airways is expected to escalate volumes and pricing for dedicated freighters, it said. In the long-term, increased freight concentration on select routes, integration with global freighters, and in- house logistics requirement will ensure the growth of the segment, CRISIL note said.
Observing that the dedicated freighters command higher yields globally, it said that while the yields for global freighters are based on the end-to-end movement of the express segment, for domestic freighters it is airport-to-airport movement for the most part. Noting that the larger part of the cargo FY 2014- 2019 period was transported in aircraft belly, the note said a 14 per cent CAGR spurt in domestic airline capacity provided adequate room to support this growth.
However, the quantum of cargo moved by dedicated freighters hardly increased, bringing down their share of the pie from 23 per cent in fiscal 2014 to 16 per cent in fiscal 2019, it added. According to CRISIL, for dedicated freighters, success hinges on their ability to achieve adequate cargo aggregation in both directions.
In the long term, to improve their return metrics, dedicated freighters need to look at better integration of networks through airlines belly-hold capacity, ground network and global freighters, it added.