When Air Deccan began flying, just one per cent of Indians flew. It was 5 per cent by the time Captain G R Gopinath sold out to liquor baron Vijay Mallya. Which is why people take him seriously when, after a year in hibernation, Gopinath says his new venture, Deccan 360, will revolutionise the logistics business — by next year, he claims he will be able to deliver cargo in a day across 75 cities, completely changing the way in which Indian firms will stock inventory. Excerpts from a conversation with Surajeet Das Gupta:
Isn’t this the wrong time to get into the cargo business given how aviation markets are taking a tumble?
I am starting with three Airbus and two ATRs — this will provide me a capacity which is equivalent to the total cargo capacity available from India, capacity that was built in the last 60 years. There are seven dedicated cargo aircraft which have just 120 tonnes of capacity for the entire country — run by companies like Blue Dart and DHL — and this is given to corporate India only when there is some surplus capacity left. I will be the first Indian international cargo company. We have 7 cargo aircraft while China has over 100 dedicated cargo aircraft; the domestic express cargo business in India is only $500 million as compared to $5 billion in China and $35 billion in Europe. So the potential is huge.
But you need to build the market. When I started Deccan just after September 11, when only one per cent of Indians travelled by air, it looked suicidal. But today 4.5 per cent to 5 per cent of Indians fly. By next year, I will be in 75 cities across the country with Nagpur as my hub and I will provide end-to-end logistics support to my customers By that time, I should have nine aircraft — five Airbus and four ATRs — a fleet of over 400-500 trucks connecting the hinterland of our country and warehouses in various locations.
What is your USP? Isn’t delivering goods in smaller cities a harrowing experience?
I will offer delivery deadlines for goods which will be based on service agreements. Today, if I want to sent cargo from Manchester to a small town in south India, it can take around 20 days — I will do it in one day. The flight will come to Nagpur from the UK, from were I can send it to any place in the south either by truck or by aircraft the next day. I should be able to deliver cargo from Bagdogra to Tuticorn in one day via the Nagpur hub. The existing cargo services which are connecting India to the world are not looking at connecting to the smaller cities. Blue Dart operates from only seven cities and it gives the cargo to someone else to deliver if it is not in these cities.
Will you be a price warrior in the cargo market?
Of course I will follow a low-cost model — you have to build a model to meet the purchasing power of your customers. In India warehousing, logistics and transportation comprise around 28 per cent of the total cost of manufacturing, while this is not more than 10-12 per cent globally. By using my service, manufacturers will be able to reduce costs by over 12 percentage points since they will need lower inventory/warehouse costs. My wife has a bakery and she needs one bag of flour every day, but if she gets supply once in 30 days, she has to store 30 bags in a climate-controlled warehouse. If someone assures her that s/he will deliver one bag a day, her savings will surely be better. Britannia informed me they have to wait for three weeks at times before the cargo reaches some markets. I will still be able to offer prices which are 5-10 per cent lower than existing cargo operators.
How will you keep the model low-cost and you obviously need a lot of cash to scale up.
I will follow the same model as I did in Deccan, outsource most of the work. In Deccan, when I opened a new station, I outsourced operations and that is why I could expand my network so fast. Similarly, I will franchise out the trucking and warehousing operations, amongst others, which will reduce costs and help to scale up. What I will control is the Nagpur hub, for which I am looking at a financial investor so that it can be converted into a joint venture. I will control the IT systems, the GPS systems, the brand, the billing and the aircraft. I have invested $25 million and am looking for another $25 million which I will raise by divesting my stake in the company by 26 per cent to 30 per cent. I think I will require an investment of Rs 300-400 crore once I reach 75 cities. The rest of the investment of a similar amount will come from my franchise-partners.
Why are you flying to Dubai and to Hong Kong and Shanghai? Are you planning to tie up with global operators to service India?
A large part of the international cargo trade in the country happens on this route. We have decided to go in for larger aircraft because of lower costs of operation. The operational cost per kilogram is lower by 20 per cent on an Airbus as compared to a smaller aircraft. However, as we have larger aircraft, we need to optimise the use of the aircraft to at least eight hours a day —that’s why we decided to touch some key international routes. However our focus will be domestic cargo.
There are a lot of international cargo companies who are not active in India because they don’t have the network to deliver across cities in the country. That is where we come in. We are in talks with Lufthansa, Singapore Cargo and UBS. We will deliver their international cargoes which will land in our hub in Nagpur to different parts of the country. Our domestic strategy is that, from Nagpur, we should be able to serve 85 per cent of the GDP of the country which is within two and half hours of flying distance from the hub.
Are you working with retail companies who need pan-Indian logistics solutions?
I have met Mukesh Ambani to understand their logistics need. My aim is to provide an integrated supply chain to big corporates like Nokia or Toyota across the country. We will not create our own cold-chain but will franchise it to someone else. I will reserve capacity for small farmers like those growing apples in Himachal or potatoes in Punjab or orchids in Arunachal Pradesh.
