Air Canada reaffirms cargo commitment after 777 freighter cancellation

Air Canada remains committed to growing its startup freighter division despite canceling an order with Boeing last month for two 777 freighters, said CEO Michael Rousseau on Monday.

Air Canada (TO: AC) reported a 24% drop in third-quarter cargo revenue compared to the same period last year, to $155.5 million (CA$215 million), due to lower yields caused by weak market conditions. The air cargo industry writ large is coping with an 18-month contraction from pandemic peaks, exacerbated by excess capacity from the rapid reintroduction of international passenger flights. Cargo revenue of $491.7 million was 30% lower for the nine months through September.

The Canadian flag carrier in September switched an order for two factory-built 777 widebody freighters to 787-10 passenger jets.

“We haven’t changed our strategy. We are still committed and excited about growing the freighter business, and we’ve always run and will continue to run a very strong belly business,” Rousseau said on the earnings call with analysts. “We did cancel two 777 freighters because it was a little bit too early for us to take those into our network, but we are looking to expand our 767 freighter business and build that business over time.”

Air Canada Cargo currently operates six Boeing 767-300 converted cargo aircraft. It is scheduled to receive one more freighter by the end of the year and two more next year. The planes are former passenger jets retired from Air Canada’s fleet that are being retrofitted by aftermarket aerospace firms for carrying large containers in the main cabin area.

Air Canada executives previously acknowledged that freighter investments have crimped cash flow but should start helping top-line growth by mid-decade.

“The market has been soft. We believe we’ve hit the bottom and we’re starting to see some early signs of strengthening demand and yield, and we’ll take full advantage of that with both our bellies and our freighters. Again, the freighters play an important role in providing cargo for our bellies, and so that’s a synergy that we have within our system that adds value,” Rousseau explained.

He noted that the 18 Dreamliners that were reserved have room for two more pallet positions than the 787-9s the airline currently operates, which will enable more cargo shipments per flight.

Adding extra cargo capacity on passenger aircraft will be more profitable than potentially flying two 777 freighters, said Rousseau.

Last year, Air Canada had cargo sales of $935 million after a record $1.2 billion in 2021.

All-cargo pivot

Air Canada executives decided in late 2020 to establish a dedicated freighter operation. The surge in cargo business during the pandemic along with growing shipper concerns about passenger reliability and the rise of e-commerce convinced them there was an opportunity to grow and diversify revenue even after cargo demand cooled.

Air Canada was one of the first airlines at the start of the COVID crisis to quickly repurpose idle passenger aircraft for dedicated cargo service, including seven large aircraft that had seats temporarily removed to make room for light shipments.

Freighters allow the airline to provide more consistent capacity and cargo-focused routes than is possible by simply relying on the passenger network, where routes and frequencies fluctuate by season and often don’t include industrial destinations with large cargo activity.

Air Canada performed better in cargo during the third quarter than most rivals that have released financial results so far. American, Delta, United, IAG Cargo (parent of British Airways) and Air France-KLM Group all suffered revenue declines of 30% to 36%.

Air Canada said increased freighter operations to Central and South America and to Europe partially offset the year-over-year decline in cargo business.

The freighter division’s network in recent months has expanded to San Jose, Costa Rica; Punta Cana, Dominican Republic; Basel, Switzerland; and Liege, Belgium.

North American destinations include Dallas, Atlanta, Miami, Mexico City and Guadalajara, Mexico. Air Canada Cargo flies to Quito, Ecuador; Lima, Peru; and Bogota, Colombia in Latin America. In Europe, the network covers Frankfurt and Cologne, Germany; Barcelona, Spain; and Istanbul.

Air Canada last year expanded its cold storage facility in Toronto and a warehouse at Frankfurt airport. It also is in the midst of a huge remodel of its London Heathrow cargo terminal. An expansion of the terminal in Vancouver, British Columbia, was done with 777 freighters in mind.

Air Canada recently extended passenger service for the full year on several European routes that were previously summer seasonal operations, giving shippers more opportunity to move freight on a consistent basis. Key routes that will remain available to customers throughout the winter include Montreal to Rome, Toronto to Copenhagen, Denmark, and Toronto to Madrid, Air Canada Cargo announced. In addition to the new year-round routes, Air Canada Cargo will benefit from increased frequencies on routes out of either Toronto or Montreal to Barcelona; Casablanca, Morocco; Paris; Lisbon, Portugal; Athens; Rome; and Edinburgh, Scotland.

Air Canada Cargo in September operated its first on-demand horse flights for the annual Spruce Meadows “Masters” in Calgary. Boeing 767 freighters safely transported 48 prized show jumpers, companion dogs and show equipment to and from Toronto Pearson International Airport. The airline relaunched equine service late last year, after a long hiatus.

Overall, Air Canada enjoyed a $1.25 billion profit versus a half-billion-dollar loss in the year-ago period as travel demand continued to spike. Passenger revenues jumped 22%. The airline saw costs increase 5% on 10% more capacity and inflation.

Air Canada is currently in negotiations with its pilots’ union and a new deal is likely to pressure future earnings.

More FreightWaves/American Shipper stories by Eric Kulisch.

Write to Eric Kulisch at ekulisch@freightwaves.com.

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