Air Canada shows big ambitions for cargo startup

Air Canada isn’t just testing the waters for a stand-alone freighter division — it’s jumping in with both feet. 

The carrier was one of the first to harness the revenue opportunity from cargo-only passenger aircraft when the pandemic knocked out regular travel business and discovered there is strong demand for additional cargo lift into the Canadian market. It subsequently launched a cargo airline within an airline to take advantage of the ongoing airlift shortage and e-commerce boom. 

The initial plan was to take eight retired Boeing 767 jets and convert them into cargo jets able to carry heavy containers on the main deck. Air Canada now flies two of those planes under a sale-leaseback agreement with Air Transport Services Group (NASDAQ: ATSG). It retains ownership of the remaining six, which will be redelivered by an Israeli conversion facility over the next 18 months.

Last week, Air Canada (OTCUS: ACDVF) revealed it acquired two factory-built 767 freighters from Boeing, scheduled to enter service in 2023, and ordered two 777 freighters for delivery in 2024. 

The 777s are a step up in size and signal Air Canada’s seriousness in operating on long-haul, Asia trade lanes.

Air Canada’s cargo revenue increased 42% in the second quarter to CA$398 million ($310 million) compared to the same period a year earlier. Robust demand supported by increased capacity led to strong revenue performance for the quarter with yield increasing 30% year-over-year.

Demand for cargo services in the Pacific market represented about 73% of the total cargo revenue improvement.

The company said its ability to self-handle cargo instead of outsourcing work in certain airports contributed to top-line growth by minimizing delays other airlines are experiencing.

Officials say the new cargo investments, including enhanced cold storage facilities, are bringing in more business from freight forwarders, diversifying revenue, and minimizing seasonal downturns associated with passenger schedules.

Air Canada has operated more than 14,000 all-cargo flights since March 2020, including several widebody aircraft with seats temporarily removed to carry light boxes in the cabin. Most aircraft have since been returned to regular passenger service as air travel rebounds.

But Air Canada Cargo announced this month it reintroduced three weekly cargo-only flights between Toronto and Shanghai, China, bringing the total number of cargo flights to seven per week. 

More cargo capacity is also available on increased passenger service to Vienna, Copenhagen, Denmark; and Delhi, India, from Montreal and Toronto.

Air Canada Cargo also recently began selling capacity on digital marketplace CargoAi, enabling freight forwarders to receive dynamic rate quotes and immediately book space without time-consuming manual confirmation. The company also participates in WebCargo, another multiparty booking site.

Second quarter earnings

Overall, Air Canada narrowed its operating loss to $197 million. Earnings before interest, taxes, depreciation and amortization  of $120 million missed analysts’ expectations because of higher expenses associated with higher salaries and wages, aircraft maintenance and airport and navigation fees. 

The company expects passenger capacity to reach 80% of 2019 levels in the third quarter. Management said it is confident about improved financial performance in the second half because of strong passenger demand and willingness to pay higher fares, along with softening fuel prices. 

Toronto Pearson International Airport has been one of the most affected airports in North America when it comes to operational difficulties. Air Canada recently decided to remove 154 daily flights from its schedule as it tries to recover operational stability. 

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Source: freightwaves - Air Canada shows big ambitions for cargo startup
Editor: Eric Kulisch