INDO-EUROPEAN AIR CARGO ON THE EXPANSION MODE
With the recovery of air cargo market in India, international carriers are bullish on Indian skies and European airlines are no exception. They have been performing very well over the decades with new routes, freighters and services. This has strengthened India-EU air cargo relations. Moreover, better safety norms and FDI relaxation have accelerated the growth.
When International Air Transport Association’s (IATA) freight results were announced for December 2013, it brought a smile to everyone’s face in the air cargo fraternity, saying that air freight markets showed slow and steady improvement throughout 2013, with a more notable pick-up in growth during the second half of the year. And the best part that the majority of the growth in air freight volumes in 2013 was carried by Middle Eastern and European airlines.
Though Middle Eastern carriers experienced a 12.8 per cent increase in FTKs, the strongest of any region, European carriers saw a rebound in air freight demand in Q2, consistent with the region’s first quarter of growth in 18-months, supporting a 1.8 per cent expansion in demand in 2013. While, airlines in Latin America and Africa also recorded FTK growth in 2013, 2.4 per cent and one per cent respectively, these results are both slower than growth in 2012, reflecting sluggishness during parts of the year in some local economies and regional trade volumes. This shows that next to Gulf carriers, European carriers have been performing very well in the Indian market. Those who have tapped the market in a big way are Lufthansa Cargo and Air France-KLM.
Vipan Jain, regional manager – Logistics, Lufthansa Group said, “Lufthansa has been flying to India for over 50 years and has emerged as the number one European carrier in the region. We operate scheduled freighter services to all major Indian cities. Despite all the ups and downs, Lufthansa Cargo has managed to be a significant player in the Indian air cargo market – both in terms of actual performance and also in the sense of driving the entire industry to overcome hurdles and challenge. And the main differentiator for us is our strong presence in the pharma sector.” It was Lufthansa Cargo that helped the Hyderabad airport gain the status of being first to become pharma hub by certified Hyderabad to be one of its key cargo hubs in South Asia for transport of temperature-sensitive pharmaceuticals. “Lufthansa Cargo has also stationed its own fleet of special cooling containers called “Opticoolers” at the airport that maintain a permanent temperature as low as 2 Celsius (35 degrees Fahrenheit).”
“India is a core market for Lufthansa Cargo and we lay on stable capacities into and out of the country. We deliver the high quality which customers expect from the Lufthansa brand; we are a reliable partner contributing to India’s growth story. We are committed to quality, reliability and performance and that gives us an edge over the competition. The pharma industry is assuming growing importance in India and Lufthansa Cargo is the leading carrier in cool chain transportation. This way, we will sustain our premium position in the Indian skies and thus, contribute to the strengthening of Indian-EU air cargo ties,” Jain added.
Another important European carrier operating in the Indian skies is Air France-KLM which has been a part of the Indian air cargo industry for almost a decade. Considering positioning of the carrier in India as historic, Christophe Albert Boucher, Vice President, Asia and Middle East, Air France-KLM –Martinair Cargo, said, “The positioning of Air France- KLM in the Indian air cargo industry is a historic and important chapter. In India, Air France started flying freighters decades ago and KLM has been flying in India for decades as well. In the last few years, they have used the combinations of the group – Air France-KLM – Martinair – to develop a significant and steady freighter project in India.”
One of the recent major steps taken in this direction is that Air France-KLM-Martinair Cargo added one more weekly cargo flight from Chennai to Amsterdam and two more weekly cargo flights from Mumbai to Amsterdam. Boucher said, “Though we have restricted our freighter capacity worldwide, we have expanded our footprints in India in terms of creating freighter capacity simultaneously.” The European group registered a $281 million loss in 2013 giving rise to speculation that the group may completely shut down its full freighter operations globally.
Like Lufthansa, KLM is also bullish on pharma sector in India. “We are one of the main pharmaceutical products carriers in the world and thereby, striving high to grow in the Indian pharma business, both from product and capacity perspective,” said Boucher. The airline started the Mumbai-Amsterdam freighter service that to a large extent is to entertain the pharma business. “If I talk about pharma operations conducted at the airports, I would say that for pharmaceuticals, I am feeling quite comfortable with the CPC in Mumbai, although it will hit its capacity somewhere down the line as well. If you look at Delhi, in fact, both the cargo terminals are being further developed by Cargo Service centre and Celebi,” he added.
COMPETITION IN THE AIR
Competition is in the air as Gulf carriers and Chinese carriers are adding more and more of belly cargo capacity and also expanding their freighter operations. One which is quite visible is from Middle-East carriers. When asked about this, Jain firmly replied, “If you are so worried about competition in business, you’d better close shop. Running a business means adapting to customer needs as well as to the moves of the competition. Middle East carriers have become strong competitors in recent years while some of our ‘historic’ competitors are no longer in the field. Competition drives innovation and ensures that we never relax our efforts to serve the customer better. On the financial side, we also have to do our homework to compete and maintain the bottom line in order to deliver the results which enable us to continue to be successful.”
QUESTION OF SECURITY
Another important move which would lead to safe and secure air cargo movement between India and EU is the new norms which became effective from July 1, 2014. Airlines have to comply with the EU’s new norms for air cargo security or face a ban in transporting cargo or carrying cargo to the region’s airports. Airlines have to ensure cargo bound for the region is screened or comes from a secure supply chain. Airlines, including European ones, will need a security verification certificate for cargo operations at an airport outside the region. This means airlines will need to get their cargo security processes followed at the airports (from where the cargo is shipped) audited by EU-authorised validators. Airports have begun steps to comply with the norms. “The government could have lobbied with EU and secured an exemption from the verification process,” an industry source mentioned to a daily newspaper.
FDI STRENGTHENS RELATIONS
Though there is competition and Middle-East retains the top position, Europe is not far behind in maintaining a healthy relationship with India and one of the big achievements in this area is the EU-India Civil Aviation Cooperation Project, which was launched in 2010 to strengthen the institutional capacity of the civil aviation regulator in India and to promote a safe, secure and sustainable aviation environment.
The Europe India Chamber of Commerce (EICC) and European Business and Technology Centre (EBTC) in active co-operation with the European Business Group (EBG) recently released a special study report in Delhi, highlighting the growing spread of European FDI into India, which stated that European companies had spent $198 billion in the country during the last 10 years. In the same period, Japanese and the US firms channelised $138 billion and $50.7 billion respectively into their India units. This gives EU enterprises the distinction of being the largest inbound investor into India. EU firms have spent $118 billion on 2566 Greenfield projects. EU companies also acquired interests in 1,442 companies for $80 billion.
“Tactical Greenfield investments, landmark acquisitions and steadfast dedication through uncertain economic cycles have been the key ingredients of the success enjoyed by European companies in India,” said Sunil Prasad, Secretary General, Europe India Chamber of Commerce (EICC). “The study finds that despite the challenges facing the Indian economy, EU firms are optimistic about the next five years. The common consensus is that the new government would usher in a fresh round of growth,” Prasad added.
The relaxation on the cap for foreign direct investment (FDI) in aviation is also a good sign for Indian air cargo market because it will positively impact the belly-hold cargo. And this has strengthened the relations with the international carriers, including European ones.
THE SILVER LINING
With the support of the India-EU civil aviation project and the interest of the European carriers like Lufthansa and Air France KLM we could see more freighters coming into Indian skies. The strong ties that India-EU have in different sectors like food processing, defence, etc should enable the aviation sector to achieve premium position, leaving behind middle-east carriers.