Cargo Transportation Beats Passenger Carriers
By siliconindia   |   Tuesday, 17 January 2012, 23:51 IST
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Cargo Transportation Beats Passenger Carriers
Bangalore: Moving cargo is making profits in transportation industry compared to glamorous business of passenger traveling rail, road and air. The economy is lurching from one crisis to another in the last three years, though aviation companies have taken a beating, the good transporters have emerged out as better performer on various parameters, reveals a study. Cargo firms had better margins, better returns on capital and showcased a upright growth in net profit than the passenger transport sector. Goods transport has proved itself to be a better option than service-oriented passengers transport business in terms of profits. In the financial year end in March 2011, airlines had posted a 20 percent plus growth in revenue which resulted in depreciated profits. Jet Airways had a loss of 86 crores, while Kingfisher faced net loss of 1,027 crore. But goods carrier on the contrary did well. Container Corporation of India posted 11.35 percent rise in net profit, Gati's profit rose 48.42 percent, while profits at Blue Dart Express leaped to 54.8 percent. Jet made a margin of 11.24 percent compared with Container Corp's 31.15 percent for that year. Cargo companies used its capital effectively. Allcargo's return on capital employed was 17.5 percent for the March 2011, compared with SpiceJet's 13.41 percent. Blue Dart's ROCE was much higher at 28.2 percent. Sandip Sabharwal, Chief Investment Officer, PMS at Prabhudas Lilladher, said, "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." The cost of transporting passengers from one place is another is expensive. The airlines and road transport calls for a high capital expenditure. The pricing power is very low, and it is limited for a short period such as holiday seasons. And moreover the monopoly in Indian Railways also does not help to make much money from passengers business. The contribution from passenger business to the Railways' turnover has dipped to about 26.97 percent in 2009-10 from 30 percent since six years. Goods transportation has doubled their revenues than that of passenger business. 67 percent of the revenue for railways came from goods traffic while rest was from passenger traffic, for the year ending March 2010. Saurabh Mukherjee, Head of Equities, Ambit Capital, said, "Airlines are a more capital intensive business. These companies have more debt on their balance sheet and they have to pay high interest to service their loans. Fuel is also not subsidised for airline companies. Besides they have to pay tax for the fuel. On the other hand cargo companies are getting subsidised fuel and they have lower debt on their books." AK Prabhakar, Senior VP, Anand Rathi Securities, said, "It is not that logistics carriers are doing anything great in a slowing economy; its just that airlines have done very badly because of high fuel taxes and more government controls. The high debt has compounded the situation for airlines." Working on a cost plus basis gives goods carrier pricing power. But it's not same for passenger carriers. The increase in price of the tickets results in lower booking and lower revenue. Only AllCargo and Patel Integrated managing to keep them consistent, when all cargo companies suffered in the year end March 2010. The share prices of the three listed Airlines Operator, Spicejet, Jet Airways and Kingfisher have declined 71 percent, 66 percent and 55 percent respectively over a year.

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