IndiGo eyes air cargo market, in talks with Airbus for freighters

To acquire five A321 planes initially, target China, west Asia

IndiGo, the country’s largest airline, is in talks with Airbus to finalise a deal to acquire up to five A321 converted freighters amid a burgeoning air cargo market.

People aware of the development said that while the airline would test the market with five freighters, it might acquire more in the future depending on their performance.

IndiGo’s bet comes after almost a year of deliberations during which its rival SpiceJet earned the bulk of revenue from cargo as passenger jets remained grounded due to the Covid-19 pandemic.

For the French aerospace manufacturer, the proposed acquisition would be a big boost to its new programme of converting single-aisle narrow-body aircraft like A321 into freighters.

Airbus has faltered in its attempts to challenge the dominance of US’s Boeing in the freighter market. Boeing has an operational programme of converting 737 jets into freighters; SpiceJet has five such planes. The conversion of passenger planes into cargo involves several structural changes, besides seat removal. 

These include the addition of a wide cargo door to allow for loading of pallets on the main deck, a rigid bulkhead to protect against shifting cargo, and a cargo handling system for pulling containers through the hull. “It takes around 15 months to convert a passenger aircraft into a freighter. IndiGo is likely to get their first freighter early next year,” said a source.

“IndiGo is actively studying the freighter market:  however, no firm commitments to acquire pure freighters have been made as yet. In the meantime,  the cargo-in-cabin charter model and the airline’s increasing belly capacity continue to work well and deliver good returns,” said IndiGo’s Chief Commercial Officer Willy Boulter.

In the midst of the worst crisis for the industry ever, air freight has been a lifeline. Since few people are travelling, legacy airlines are planning their networks based on where they can fly goods, and have exploited regulatory exemptions allowing freight to fill passenger seats. Express shipping, which is often reliant on sending goods by air, has expanded rapidly during the pandemic as households turn to home deliveries. Cargo revenue grew 36 per cent against last quarter for SpiceJet cushioning the cash burn the company faced.

On Wednesday, Chilean carrier LATAM Airlines announced a big expansion of cargo operations. E-commerce giant Amazon is growing its freighter fleet.

For IndiGo, which has more than 50 per cent market share of India’s air passenger market, this will foray into a new business front. With 260 aircraft in its fleet, IndiGo also carries the largest amount of cargo in the belly of its passenger aircraft. In the calendar year 2020, it carried 1,68,528 tonnes of cargo- the highest among Indian airlines.

While in the domestic market the airline already carries the highest cargo load, the company sees the opportunity of operating pure freighter jets into the Middle East and China market.

The airline will also develop interline agreements with foreign airlines for the onward ferry of cargo and develop an exclusive partnership with e-commerce companies for their logistics.

“There may not be a business case of more air freight capacity in the domestic market but if we look international, there is a huge opportunity where with some good interline agreements and partnerships, cargo corridors can be established from China to Africa via India or India to Europe via the middle east. This is the opportunity that IndiGo is eyeing,” a person aware of the plans said.

A case in point is African major Ethiopian Airlines which currently operates passenger aircraft converted into freighter between China and Africa transporting primarily industrial and pharmaceutical products

Analysts however remain skeptical on the necessity of exclusive freighter jets saying that once normal air transport resumes and there will be abundant belly capacity, the traditional economics of air cargo may not be that lucrative. “The main reason air-cargo yields have jumped is that 30 per cent of the commercial fleet remains grounded, dramatically reducing belly-hold space in passenger jets, which normally carry two-thirds of air cargo. This is much more a story about reduced supply than increased demand,” said an executive of a freight forwarder company.