While the big three of India’s domestic aviation sector—full service carrier Jet Airways (along with its low cost version Jet Konnect), Air India (Domestic) and low cost IndiGo—fight for market share, another low cost carrier, SpiceJet, has quietly been consolidating its presence in the regional markets. Comprising the Tier-2 and Tier-3 cities of the country, SpiceJet has built up a formidable regional network.
      Launched on September 21 last year, with fares that were at least 10-30 percent lower than those charged by Jet or Air India, SpiceJet uses brand new Bombardier Q400s. Perhaps what is more interesting is that the airline is developing markets where none existed before. As a spin-off, it has been encouraging cargo.

      FlyingTypers talked to SpiceJet’s boyish-looking CEO, Neil Raymond Mills, about the Q400s that are new to the Indian market. Using 7 of the total 30 aircraft on order, Mills described the plane as a “game changer” with the new avenue of revenue that they have opened up: cargo. Commenting on the ancillary sources of revenue, Mills said that while promotions like SpiceJet tours were working out reasonably well, they were not “a huge proportion of our business. It is only a small add-on…what is, however, becoming a bigger and bigger proportion of our business is cargo. Cargo is much larger and is continuing to grow.”
      Never at a loss for words when it comes to the “good” staff at SpiceJet, Mills ascribed the growth of cargo to the “service level.”
      “What we are delivering,” he said, “is really good service to our customers. We don’t have claims on damages because we don’t damage goods. Last month (May) we did 5,500 tonnes of cargo.” He went on to say that cargo, “at the moment contributes four percent to our revenues. For a low-cost carrier that’s quite good.”
SpiceJet’s cargo business has been doing so well that it has a whole bunch of services that it offers to forwarders. “Now we have a relationship with our partners where we do door-to-door service, we do express, mail, courier services, etc. We now move fragile goods, perishables. As a non-containerized, narrow-body, low-cost carrier, we are actually doing a huge amount of cargo,” said Mills.
      The carrier brings perishables into the metros and commodities out of the metros into the Tier II and Tier III cities. “It’s not necessarily one-way traffic. Things like car parts are obviously coming from the metros into the Tier II and Tier III cities,” said Mills, and he has put both the Boeing 737s—these fly on the metro routes and to foreign destinations like Colombo, Kathmandu and shortly to Dubai—and the Q400s into the cargo services. “The Q400s obviously have a lower capacity, but they are starting to carry more and more cargo now because you are building the markets where earlier there weren’t any.”
      The aircraft that was serving these cities in the past—the ATRs—had zero uplift capacity, “while the Q400s can actually carry cargo because it has capability and some power in the engines. So carrying cargo isn’t a challenge,” emphasized Mills.

At the SpiceJet Q400 NextGen delivery ceremony. Kavery Kalanithi, Board Member, SpiceJet; Kalanithi Maran, Chairman, SpiceJet; Neil Mills, Chief Executive Officer, SpiceJet; and Sivasubramanian Natrajhen, Chief Operating Officer, SpiceJet. SpiceJet took delivery of the first two of 15 Bombardier Q400 NextGen turboprops at a ceremony at Bombardier Commercial Aircraft in Toronto, Canada, on August 26, 2011.

      SpiceJet had started carrying cargo soon after it began operations in 2008. While the Q400s have limited capacity, the Boeing 737s can carry between 2 to 3.5 tonnes of cargo on each flight. Aware about the kind of revenues that cargo can generate even in a depressed market, Mills has kick-started the business with vigor in 2011-2012. Sometime ago, for example, SpiceJet launched services to Surat in Gujarat, the diamond city of India. The diamond traders had been demanding cargo services to Dubai and Antwerp. Connecting flights to Dubai from Surat would now be a possibility since the carrier has received permission to fly Delhi-Dubai and Mumbai-Dubai flights beginning the end of June this year. In addition to diamonds, Surat also happens to be a textile hub and the Federation of Surat Textiles Traders Association (FOSTTA) officials have demanded cargo services to almost a dozen cities like Hyderabad, Chennai, and Kolkata.
      With so much happening on the cargo front, had Mills ever thought of starting dedicated freighter services?       “I think we are already into the cargo business,” said Mills. “As for dedicated freighters, no, I am not interested. That is a totally different business altogether. But as an add-on to the business right now, I think we are doing very well.”
Tirthankar Ghosh

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     We had a chat recently with key executives at Ruslan International, which markets the combined fleet of An-124s operated by Antonov Airlines and Volga-Dnepr Airlines. They had some interesting points to make about a variety of topics, from the world economy to aviation fees in Iraq, and from the EU’s new emission taxes to delivering aid to Sudan.

     The An-124 (for any readers not familiar with its dimensions) is basically the largest beast in the commercial cargo aviation jungle—after its big sister the AN-225, of course. The cargo compartment of an An-124 measures 36.5m x 6.4m x 4.4m and the maximum payload is a mighty 120,000 kg. It is similar to the American military Lockheed C-5 Galaxy, but boasts a 25 percent larger payload and can carry almost anything, from railway locomotives to B777 engines.
     Ruslan occupies an enviable marketing position given that it manages 17 of the world’s AN-124 planes, of which only around 25-27 are available for commercial charter at any given time.
     Over the last 12 months, commercial non-defense contracts have accounted for around 40 percent of the company’s total flights. With some parts of Europe already back in recession, business development manager Michael Goodisman said future demand was uncertain, but he expected commercial work to increasingly displace defense contracts, which are forecast to contract.
      “Everyone is closely watching developments,” he added. “We are seeing fluctuating activity in the commercial market with a gradual increase on average.”
     He said the large fleet at Ruslan’s disposal presents opportunities for international connections, and the firm could also offer lower "one-way" prices when scheduling allowed.
     “In terms of yields, these have remained fairly level. The charter rates themselves are mainly driven by fuel prices, which are continually updated in our costing system, so there will always be movements here.”
     One boon for Ruslan of recent vintage was the ending of RUS Aviation’s monopoly on collecting fees for flights to Iraq on behalf of Iraqi Airways. A number of airlines and logistics companies had complained that this was stifling trade, with fees of more than $20,000 per flight imposed on cargo planes and cargo uplift on passenger services restricted. An-124 operators were being charged $100,000 per flight, regardless of payload.
     “Around mid-September 2011, RUS Aviation lost their franchise, and was replaced by a significant number of agencies approved to collect royalties on behalf of Iraqi Airways,” explained Goodisman. “The rates charged appear to be consistent among them, at 25 US cents per kg for a single loaded sector within Iraq and 37.5 US cents per kg for flights with multiple loaded sectors within Iraq.
     “The kilo rates are based on the maximum payload of the aircraft type. So for a An-124 which has 120,000 kg maximum payload, the charges are 25 x 120,000, which equals $30,000 USD for a single loaded sector and $45,000 for multiple loaded sectors.”
     He said Ruslan was continuing to perform commercial and defense flights to and from Iraq. “We need about one week’s lead time to obtain permits.”
     In the last year the strongest commercial markets have been the supply of aviation spares and helicopters, the power generation sector, satellite delivery and the mining industry, especially in Australia.
     The company has also performed a number of Oil & Gas related flights into Africa, South America—especially Brazil—and the Far East. “New opportunities continue to emerge in the Oil & Gas sector for An-124 project work as new discoveries are made,” said Goodisman.
     “For Thailand, we have performed a number of flights carrying vehicle manufacturing equipment, a sector which is expanding there.
     “For Japan, following the tsunami in March 2011, we initially flew pumps there to assist with various flood relief work. This was followed by a significant number of flights carrying power generation equipment to assist following the de-activation of the damaged nuclear power station.”
     Ruslan also takes on humanitarian work in Africa. “We flew a series of 15 flights carrying equipment for the Japan UN peacekeepers in Southern Sudan,” he said. “We landed in Entebbe, and the equipment was sent by smaller aircraft and road into Southern Sudan.”
     One of the biggest obstacles facing all airlines is, of course, the EU’s highly controversial Emissions Trading System. Paul Furlonger, Ruslan sales director, said that while Ruslan supported the aim of controlling carbon emissions with the intention of reducing global warming, the unilateral imposition of the EU ETS was not the best way of achieving that goal.

     “The scheme is ill conceived and ill thought through,” he added. “It is essentially a license to print money for consultants and commodity traders. It will impose a significant cost on the industry which will inevitably be passed on to consumers.”
     He said that although the price of Carbon certificates would fluctuate, the system inevitably ensured there would be a spike around the time of the auctions. “Those with big pockets will be able to use their financial clout to their advantage and the corresponding disadvantage of smaller organizations.
     “Airlines are obliged to use consultants and independent auditors, never mind all the additional man hours of internal work involved. So in addition to the basic cost of the carbon certificates there is the cost of the financial traders and the transactions as well as the cost of the auditors and their audits, not to mention the amendment of internal systems to allow for the new element of cost and its inclusion in sales, purchasing, and accounting systems.
     “For every business in the chain there is a required profit margin. So the overall cost is far more than the cost of the certificates themselves.
     “The variability of the market price for certificates also makes it difficult for airlines to plan because it adds another level of uncertain cost to a business that is already working with the volatility of fuel prices, which make up the largest single element of cost.”
     He argued that a simple tax based on the distance travelled in EU airspace would be fairer, cheaper, and simpler. “This would have been easily calculated and levied based on the executed flight plan and added to the navigation services bills issued by Eurocontrol.
     “This would have favored those who invest in emission reduction technology, would not have required the additional layers of work and administration and would not have left the field open for bankers and commodity traders to make additional markets in certificates, derivatives, etc, all of which serve only to make margins for financial institutions and do nothing—either for carbon reduction or for the cost of aviation.
     “That kind of system would be easily mirrored by other countries avoiding the current inevitability of conflict between the EU system and other systems that may be introduced by other countries. It would have been simpler and quicker to introduce and administer.
     “Failing that, aviation should have been allowed to go the same way as shipping and introduce a system for carbon emission control and reduction only on the basis of global agreement.”
Sky King

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