After a milestone business deal, Cargojet is planning for an imminent windfall of freight.
In February, the Ontario, Canada-based cargo airline signed an agreement to provide domestic air cargo service for Canada Post, the country’s postal operator, and Purolator, an overnight courier that is part of the Canada Post group of companies.
“When you add that to our existing volumes, it’s a huge growth opportunity for us going forward, so we’re pretty positive in terms of our outlook going forward for the next couple of years,” Jamie Porteous, executive vice president of Cargojet, says. “It’s definitely a game-changer for Cargojet because it effectively doubles the size of our business.”
After the announcement of the deal, Cargojet’s shares soared.
The contract takes effect on April 1, 2015, but Cargojet – who handles all of UPS’s cargo volume in Canada – is already preparing by expanding its fleet. At the end of 2013, the airline operated 14 planes, a mix of 767s, 757s and 727s, Porteous says. By the end of this year, Cargojet will operate 22 planes, primarily 767s and 757s. This includes adding six 767-300s to the fleet.
To accommodate this growth, the airline is growing its workforce over the coming months from 400 employees to 600-700, Porteous says.
The contract is initially for seven years with three 36-month renewal options – a potentially 16-year contract for Cargojet.
Cargojet’s domestic network primarily flies Monday to Thursday. On Fridays, the carrier flies a limited domestic schedule because many customers truck freight over the weekend.
“Aircraft utilization is very low. Even today, our fleet utilization is probably 4.5, five hours on average per day,” Porteous says. “But that gives us a lot of capability to look for other work either during the day or on weekends, and we’ve been able to grow both the ACMI business but also our charter business.”
He says Cargojet has doubled revenues for its ad-hoc charter business every year since 2008. In 2014, the airline will likely make CA$15-20 million (US$13.7-18.3 million) in revenue from ad-hoc charters alone, Porteous says.
The additional planes that Cargojet is taking due to its new deal mean a significant increase in capacity, he says.
“We think this will give us obviously not only tremendous growth on our domestic overnight business, but certainly gives us an opportunity to look for other international opportunities on weekends,” Porteous says.
Until recently, Cargojet operated a Toronto-Warsaw flight on behalf of LOT Polish Airlines for three years. Cargojet is looking into operating from Hamilton, Canada, to Halifax, Canada, to Cologne, Germany, in the fall. And the carrier flies weekly from Toronto to Havana, Cuba, for Cubana, Cuba’s largest airline.
Cargojet is positive about its future.
“The economy seems to have rebounded,” Porteous says. “Our volumes certainly in the last half of last year, continuing into the first half of this year, we’ve seen close to double-digit growth on our core business, which is certainly a good indicator after a couple of years of softness in the industry overall.”
In 2013, the airline moved about 110 million pounds of cargo.
In the months before the contract takes effect in April, Cargojet is getting ready by taking delivery of the necessary aircraft and training flight crews.
“You can’t bring on this many aircraft and have them all start, say we need them March 31, to start flying April 1,” Porteous says. “It’s a long process to go out and acquire the aircraft. We’re converting some ourselves, or having third parties convert them into freighters.”
By the fourth quarter of 2014, all of these planes will be available to fly, he says. The gap between the fourth quarter of 2014 and April 2015 provides some opportunities for Cargojet.
“From the feedback from our customers, everybody’s predicting that the peak shipping period this year, particularly in December, is going to be significantly higher than last year, and last year was pretty good,” he says. “We’re going to have a lot of capacity available in our domestic market but also surplus aircraft that we’ll have available.”
Cargojet has already committed some planes to UPS in December to help relieve the integrator’s capacity constraints between Canada and the U.S., freeing up UPS to fly planes in its domestic market. In December 2013, UPS came under fire in the U.S. for not delivering orders in time for Christmas due to the high volume of air packages.
Cargojet is also considering scheduled opportunities on weekends for these surplus aircraft.