Cargo on the growth curve

Cargo, Default — By on February 26, 2012 at 4:20 am

Cargo firms, while passenger traffic was sluggish during 2011. Take for example financials for the year ended March 2011. While all airlines posted a 20%-plus growth in revenue, their profits were severely battered. Jet Airways posted net loss of 86 crore, while Kingfisher’s was 1,027 crore. Goods carriers, on the other hand, did a much better job. Container Corporation of India posted 11.35% rise in net profit, Gati’s profit rose 48.42%, while profits at Blue Dart Express jumped 54.8%. Jet earned a margin of 11.24% compared with Container Corp’s 31.15% for that year. The cargo companies also were able to use their capital more effectively. Allcargo’s return on capital employed was 17.5% for the March 2011, compared with SpiceJet’s 13.41%. Blue Dart’s ROCE was much higher at 28.2%. “In passenger-oriented industries like aviation, high competition reduced pricing power, whereas the competition isn’t as much in logistics. It is more of a wholesale market and hence its profitability would accordingly be stronger,” says Sandip Sabharwal, chief investment officer, PMS at Prabhudas Lilladher. Goods carriers also have pricing power as they work on a cost plus basis. For passenger carriers, it is the other way round. Increasing ticket prices invite a backlash in the form lower bookings and lower revenue.

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