Lufthansa Cargo, based out of Frankfurt, serves about 300 destinations worldwide. The company today ranks amongst the world’s biggest cargo carriers with a diverse product portfolio. In an exclusive interaction with The Dollar Business, Veli Polat, Regional Director – South Asia & Middle East, Lufthansa Cargo, talks about the current state of affairs of the air cargo industry in India.

Interview by Sisir Pradhan | February 2016 Issue | The Dollar Business

TDB: How has been Lufthansa’s performance in India, particularly in the cargo segment? Has it lived up to the company’s expectations?

Veli Polat (VP): On the cargo side, we have certainly lived up to our expectation as we are present at five major power production centres covering 88% of the international freight market out of India. While yield development has not been to our expectation, this seems to be a part of a global scenario. On the passenger side, there has been a growth in the seats offered as considerable new capacity has been added.

TDB: And how in your opinion has the Indian air cargo sector fared in recent months? How different is the Indian civil aviation sector, particularly air cargo as compared to those in other markets?

VP: India has a huge potential and its main strength is a balance in tonnage on the import and export sides. India is probably the only country to have a near 1:1 ratio on export and import tonnages, which makes the whole operation viable. This also helps us to connect with manufacturers and consumers – the so-called direct customers.

TDB: The air cargo sector has not kept up with the growth in passenger traffic. What have been the major deterrents to growth of this sector in India?

VP: The development on passenger traffic is mainly in domestic sectors and on tourist destinations when it comes to international passenger traffic. Cargo demand was stable even during 2009 when the whole world economy was shattered. The growth on cargo domestic side was 18% in last financial year, which was phenomenally high. Internationally, India is competing with neighbouring countries i.e. Bangladesh, Sri Lanka, etc., in exports of garment and textiles – an area of strength for India for more than 25 years now. The growth of the market is reflected more in terms of the value of goods exported rather than marked increase in volumes (for instance, products such as gems and jewellery, pharma have been the drivers of growth by value).

TDB: In terms of aviation turbine fuel (ATF) cost, congestion and cargo handling and clearance, how would you rate Indian airports?

VP: ATF is basically a state subject and mainly affects Indian carriers. To promote more flights from individual states, some states have taken major steps to reduce state tax already. The existing fuel cost (mostly high) contributes approximately 35% of the total cost for Indian carriers. The bigger challenge for Indian carriers is to compete with those from the Gulf and other countries that are enjoying a time of low fuel cost. From a cargo handling point of view, Indian airports have seen significant progress in Bengaluru, Delhi, Kolkata and Hyderabad. Mumbai and Chennai are also coming up, but at a slower pace. The dwell time on export has come down to 30-40 hours and that on import is around 100 hours, but 70% cargo is cleared within 72 hours. The main reason for longer dwelling time is that there is negligible operation of customs-bonded warehouses by agents.

TDB: How would you rate our air cargo sector in terms of reliability, speed, global network and reverse logistics?

VP: India is able to serve globally and its geographical location provides an added advantage. In fact, India is the most suitable location to develop hubs for cargo and passengers. India is able to connect east and west for Asian carriers. Barring occasional instances of custom system’s downtime and other IT related issues, reliability is absolutely not an issue across Indian airports.

TDB: In terms of policies, taxation and regulations, what kind of changes would you like to see in the sector ?

VP: Policymaking and decision-making processes should be quicker. However, with the new government in place, a lot of effort is being put in to develop the ‘single window concept’. Taxation-wise, the industry has been demanding exemption of service tax in aviation sector as all export activities were exempted earlier, but they now are a part of tax liability under “airport services”. High royalties being levied by the airport operators is also an issue after privatisation.

TDB: Post the last global financial crisis (GFC), there has been a rush amongst economies to cut down cost across segments – from manufacturing to delivery. There is also a constant pressure to cut down on emissions. In such a scenario how is your airline placed? And what will be the biggest challenge for both other air cargo users and operators?

VP: We, as Lufthansa Group, are ahead of the curve to meet environmental norms and cut down on emissions. The Indian government is also working on it in close cooperation with IATA, ICAO and EU. Logistics cost in India is 13% of the total operations cost. This is much higher in comparison to many developed countries and lot of focus is there to manage it mainly via eCargo development in India.

TDB: How do you see infrastructure at Indian airports when it comes to handling various types of cargo and cargo aircraft of different capacities?

VP: India has made very good progress on the infrastructure front, especially during the last five years. Today, it allows other foreign carriers to make the country a mini-hub. Indian airports are quite capable of meeting requirements of most booming businesses in international and domestic trade. The new centres at main metros, except Chennai, support this growth. Cargo bays are also available with ample capacity. However the slot at Mumbai remains a challenge.

TDB: How prepared are Indian airports to handle future growth? Is there any demand-supply mismatch?

VP: Capacity management is not a major issue, but peak hours clearances are. In general, cargo delivery on exports and imports takes place during a specific time window of the day. At times, a long weekend also creates capacity crunch on the import side. Improvements are required at Chennai and Mumbai. Rest of the airports across the country remain underutilised.

TDB: Will air cargo ever be a real competition to other modes of transports, like road, rail and water, for domestic movement of cargo in India?

VP: India is no different when it comes to comparison with other modes of transport. On average, 1-2% of freight, in terms of international tonnage, is transported by air and the rest by sea. So far, air transport has not been a real competition for road, rail and water transport. So there’s much to be achieved. However, air cargo has been under focussed development for the last one year.

TDB: What is your view on the cargo terminal at Hyderabad Rajiv Gandhi International Airport?

VP: Hyderabad airport is a Code-F airport and has developed significantly in many ways and especially by supporting pharmaceutical industry which has a strong presence in Hyderabad. The certified perishable centre established by us at Hyderabad gives our shippers confidence and quality. In the last fiscal, Hyderabad airport crossed the magic figure of one lakh tonne in domestic and international cargo. It’s one of India’s strengths in international air cargo trade.