There has been yet another shuffle in Australia’s highly consolidated airfreight industry. TNT Express awarded what is expected to be a US$575 million, five-year contract to Virgin Australia for domestic cargo transport, a move which has prompted Virgin Australia to ACMI-lease three freighters, according to The Australian.
Beginning in July of this year, Virgin Australia will ferry TNT’s freight on its domestic network, and on newly-leased freighters. Virgin Australia’s network currently extends to 47 destinations within Australia and offers connectivity to 17 international destinations within the Virgin Group’s network. In addition, the airline said it plans to ACMI-lease two BAe 146 aircraft, and an additional 737-300 aircraft, which will be operated on Virgin Australia’s behalf.
This comes as welcome news for the airline, which, in June 2015, lost its lucrative contract with Toll to Qantas – a deal that was the bread-and-butter of its cargo unit. The long-standing contract with Toll, which Virgin Australia had held since 2007, allowed the airline to take a hands-off approach to its freight business. Under the agreement, Toll handled its own cargo and utilized the belly space on Virgin Australia’s domestic narrowbody aircraft for any freight that did not fit on Toll’s own dedicated freighters. Given that Australia Post, Toll and TNT together command an 80 percent share of the freight delivery business in Australia, Virgin Australia relied heavily on Toll and previously saw no need for a stand-alone cargo business.
Following the loss of the Toll contract, Virgin Australia cited the need to work directly with customers and made the conscious decision to in-source its cargo operations with the launch of Virgin Cargo. In a statement given to the AFR Weekend, Merren McArthur, Virgin Australia’s head of freight and regional operations, said, “A lot of customers prefer to deal directly with the airlines. We will obviously do what we always do, which is have competitive pricing.”
McArthur’s division took further steps to ink new deals with ground-handling providers, such as Menzies Aviation and Aerocare, to provide ground-handling services which were in the past performed directly by Toll.
Virgin expects its cargo unit to bring in between US$150 million and $200 million annually by the end of 2017.