SpiceJet: Now, flying cargo to tap e-com boom
Ajay Singh-owned SpiceJet took a big bet on the country’s booming e-commerce market and dived into the air freighter business on Monday. The airline, which will have a separate division for the freighter business under the brand name SpiceXpress, is betting on the increasing popularity of nextday delivery services that ecommerce players are offering.
“E-commerce was a big driver behind our foray into the freighter business. With nextday services of Amazon, Flipkart delivering high-value goods and equipment, there is a need for a freighter airline that can offer time-specific services,” Ajay Singh, chairman and managing director, said while announcing the freighters would start operations between Delhi and Bengaluru. Airports to be served in the first phase also include Guwahati, Amritsar, Kabul and Hong Kong. SpiceJet would also ship perishables to international destinations.
Singh outlined an aggressive plan to almost double the cargo capacity by inducting 13 aircraft by 2019, which will be done through a mix of the 737-700 and 737-800 variants. “The cargo capacity of the airline is about 500 tonnes per day and with the induction of the freighters it would go up to 900 tonnes per day by March 2019,” he said, while posing with the first Boeing-737-700 freighter converted from a passenger aircraft.
SpiceJet is up against an entrenched Blue Dart, which has a monopoly in the air cargo service space with a share of 49 per cent. Blue Dart, which operates with six Boeing 757s, has a daily capacity of 500 tonnes and is backed by a robust ground support that includes 11,122 vehicles and 610 retail outlets.
The new venture will also face competition from passenger airlines, as they frantically induct new aircraft providing more belly space and, thus, eating into the business of dedicated freighter carriers. “Additional cargo space and express capacity availability is posing a challenge to maintain yields. For instance, the available belly space in passenger aircraft and their express service focus,” Blue Dart said in its annual report. The airline was able to fill only 70 per cent of the freighters in the first six months of 2018.
Analysts, though, said the foray is a calculated bet in boosting ancillary revenue for the core business, as passenger yield doesn’t show any sign of improvement. “The difference between yields of carrying 180 passengers versus 80 live animals is massive. If you had asked me 10 years back of a separate freighter business, I would have said no. But, now, there definitely is a business case,” said Mark Martin, CEO of consultancy firm Martin Consultancy. He said SpiceJet would unleash a price war to take on the incumbents. “This will ultimately benefit the common man and decreased cost of logistics will drive down cost of the item.”
The stock, however, dipped by 0.87 per cent, as analysts became wary of diversion into a new business during a high fuel price environment. Singh, however, said there had been no major capital investment in the project. “The freighters will be acquired on pure operating leases and haven’t incurred any major capital expenditure. The ground operations will be self handled by existing pool of work force or will be outsourced,” he said.