Better Roads Decreasing Air Cargo Volumes, Says Mark Sutch IndiGo’s Air Cargo Head

The Red Sea crisis has significantly impacted the logistics industry, causing many cargo shipments to be diverted to air transport. Costs were one of the key factors for this. In India, costs have driven another change, a shift towards road transport.

Mark Sutch, IndiGo’s chief commercial officer - cargo, told The Core in an interview, “I moved to India in 2017 and since then I have noticed a substantial improvement in the road infrastructure and it has likely been a contributing factor to the slowdown of domestic air cargo market growth,” he explained.

According to Statista, during FY2023, scheduled airlines in India carried about 698 thousand metric tonnes of air cargo in the domestic sector, marking an increase from the previous year. Domestic air cargo overall, however, is yet to make a recovery.

The India road freight transport market is projected to be valued at US $140.26 billion in 2024 and is expected to reach US $236.29 billion by 2030. This represents a compound annual growth rate (CAGR) of 9.08% during the forecast period from 2024 to 2030, reports Mordor Intelligence.

With the ongoing development of road infrastructure, air cargo players are concerned about the future of their domestic throughput. In an interview with The Core, Sutch spoke about the dynamics of domestic air cargo transport, the effects of the post-Covid market shift, and IndiGo's strategies to boost cargo capacity.

Edited excerpts:

In India, air cargo faces tough competition from road transportation for domestic transport, as roads offer a robust network, cost efficiency, and flexibility. What are your observations regarding the dynamics of domestic air cargo transport in this context?

There are several factors due to which road and rail transportation pose competition to air transport. One of the reasons for an increase in road and rail transport is the infrastructure. Especially on roads, the government has made investments in developing India's road infrastructure over the past years.

Secondly, price is also a major factor to be considered. Air transport is a significant multiple compared to the price of road transport. Despite this cost disparity, cargo like pharmaceuticals and perishables that are critically time-sensitive and require faster transit will opt for air transport over road and rail.

Additionally, we have observed that there is a demand for express freight services to handle couriers and documents. While I am not overly concerned with the shift, it is important to stay aware of these dynamics.

With India's vast geography, remote regions like the Northeast will heavily rely on air transport due to longer travel times even on good roads. But the impact will vary from region to region; for instance, the Delhi-Mumbai expressway, which is expected to be commissioned this year, might pose future challenges.

How has the growth in the domestic market shifted after Covid? Since when has the movement of cargo shifted to road transportation?

In my observation, the domestic air cargo market has significantly slowed down post-Covid. While I wasn't involved in the domestic air market before the pandemic, I am aware that the domestic air cargo market was growing at 8% to 9% annually pre-Covid while now it is down to 3% to 4%.

Though I do not have specific numbers, it is clear that the volume of goods being shipped around the country has not decreased but instead shifted to road transportation. I moved to India in 2017 and since then I have noticed a substantial improvement in the road infrastructure and it has likely been a contributing factor to the slowdown of domestic air cargo market growth.

You mentioned in an interview that IndiGo utilises only about 60% of its total cargo capacity due to the airline's rapid expansion to 2,000 flights a day, resulting in several routes experiencing low cargo demand. Could you elaborate on this situation?

From an IndiGo perspective, we are growing our domestic tonnage. Last year, we saw around a 20% increase in our domestic market tonnage. Though we have outgrown the market, we are aware of competition and to address this we are increasingly focusing on expanding our connectivity to Tier 2 and Tier 3 cities.

I mentioned at one of the previous conferences that about 60% of our cargo capacity is being utilised. While this may seem low, it is a solid figure given our network make up. We connect to many origins and destinations that are not naturally heavy in terms of cargo demand. Our network is designed around passenger connectivity with some origins and destinations having limited cargo demand. Most of our demand is focused on the metro-to-metro routes.

We are now focusing on building strategies on how to increase air cargo in the Tier 2 and Tier 3 cities through pricing and other adjustments. This will be an incremental revenue opportunity for us. With our plans to double our fleet by the end of the decade, which will cover both domestic and international routes, every additional kilo of cargo that we lift on the domestic routes represents incremental revenue.

Therefore, we are actively exploring growth opportunities outside our core metro to metro and premium markets.

IndiGo has committed to a substantial aircraft order, including 30 A350-900 widebody aircraft, and 500 A320neo family planes from Airbus. This marks Interglobe Aviation Ltd's first foray into ordering wide-body aircraft. What are your plans for deploying this new fleet on domestic and international routes?

We announced a recent order for 500 narrow-body aircraft at the Paris Air Show last year which includes replacements and new additions for growth in domestic and regional markets. While I cannot specify the exact routes we undoubtedly will be increasing our frequencies and adding new routes.

From a cargo perspective, our announcement on the A350-900 aircraft is more exciting. We have 30 firm orders with an option for 70 more which will drive our passenger routes. Wide-body aircraft like the A350-900 make cargo a crucial part of the airline’s core business.

For new domestic routes, our focus will remain on passenger demand with cargo filling in as needed. But with the A350, cargo will be a significant part of fleet deployment discussions, even if not the primary focus which will be around our passenger demand.

While a narrow-body aircraft might carry one tonne of cargo, an A350 with a good passenger load can carry about 15 tonnes, and up to 25 tonnes with a lower passenger load. One A350 equals to at least 15 narrow-body aircraft in terms of cargo capacity and this will be providing immense additional capacity for IndiGo.

We now operate three A321P2F (passenger to freighter) freighters, each with an approximate payload of 23 tonnes. The A350-900 on a good day may, depending on its route, carry 23 tonnes in its belly, so each trip is equivalent to launching a mini freighter.

This upgrade marks a huge step forward for us, as we migrate from mostly narrow-body, regional, and domestic operations to wide-body, international, medium to long-haul, palletised cargo.

At the ACFI’s Annual Conclave 2024, the industry players raised an interesting question as there is cargo that has moved to ocean freight from air freight due to multiple reasons. What can the industry do to bring that cargo back to air freight?

I do not compete with sea freight because we are mostly a regional and domestic carrier. The question posed was why we lost to ocean freight, and it is evident that cost is a factor. However, the larger discussion is about sea-air transshipment and how India's geographical location, many ports, and wide coastline might provide substantial answers if effectively enabled.

Imagine sending products by ship from Southeast Asia or Australia to India, then transshipping them by air to Europe. The procedure of transporting freight from sea to air should be streamlined. Currently, it is rather complicated and bureaucratic.

Regarding the transition from sea to air, I am not too concerned. Observing China over the last 30 years, I have seen it grow into one of the world's greatest air freight markets, owing mostly to the high-tech goods that it produces. Similarly, India is heading on that path.

Currently, the majority of consumer items manufactured in India are sold domestically. However, with many manufacturers adopting the China Plus One strategy, India stands to profit. Mobile phones, laptop computers, medicines, and other high-tech products will be manufactured here increasingly, which will also be air freight friendly.

As a result, I envision India's air cargo industry developing naturally as the Indian economy improves and advances up the value chain, resulting in increased exports that are suitable for air transport.

The industry has been discussing transforming certain airports into transshipment hubs for a while now but there are certain challenges. How can a transshipment hub become successful and where is India lacking?

For a successful transshipment hub, one requires dedicated facilities that allow cargo to be promptly processed and redistributed on aircraft. One of the major issues in India is the implementation of security standards, including the rescreening of all cargo.

Some large transhipment hubs have stringent upstream security protocols that facilitate very easy transfer of cargo, sometimes without requiring rescreening. As a result, a pallet of cargo from point A can transit a hub and be transferred immediately to another flight to point B without rescreening.

In India, all cargo, including domestic transshipment air cargo, must undergo rescreening. This means that when a pallet arrives, it has to be broken down, rescreened, and then rebuilt, which incurs costs. First, there's the cost of breaking down the pallet. Then, there's the cost of rescreening followed by the cost of rebuilding the pallet. Additionally, there is also the time cost which is associated with these processes. This rescreening requirement adds complexity and expense to the transshipment process in India.

In February this year, India liberalised its aviation policy, by renewing the open sky policy, allowing foreign cargo airlines to operate from all international airports for three years. This includes permitting foreign and non-scheduled freighter charter services to facilitate air cargo movements. How do you anticipate this policy impacting the cargo business of Indian airlines?

We embrace all forms of competition. However, operating freighters in smaller areas is quite challenging. Domestic short-haul freight rates provide considerable difficulty because of high operational costs.

Additionally, one of India's biggest concerns is an imbalance in trade flows. There are significant imports from the east and exports to the west, but minimal movement in the opposite direction.

While I am sure that many operators would look into the potential to expand their cargo businesses in non-metro areas, IndiGo currently has reach to all these airports with passenger line flights.

How will non-metro airports such as Goa, Chandigarh, Amritsar, Lucknow, and Baroda benefit from the renewed open sky policy services?

Air cargo connectivity can be a real benefit to local economies. The question will be whether there is a demand to justify and make economic sense for all-cargo (freighter) operations. Freighter profitability is driven by ensuring cargo loads both on the import and export side and getting this balance will be key.