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Ecommerce drives 3Q gains at Canada’s Cargojet

(Photo Credit: Flickr/Heads Up Aviation)

Story updated 11/42019, 2:45 p.m.

Canadian overnight air cargo provider Cargojet [TSE: CGJTF] increased its third-quarter adjusted pretax earnings by 24% to C$39.1 million ($29.7 million) compared to the same period in 2018, consistent with the nine-month growth rate.

Revenues, excluding fuel surcharges, increased 2.4% to $85.4 million, powered by a 5.5% increase in domestic network revenue based on strong e-commerce activity and a 33% gain in turnkey leasing of aircraft and operating services to other airlines, the company reported Monday (Nov. 4).

Cargojet primarily focuses on the domestic Canadian market with a network of 14 cities, which partially insulates it from some headwinds bringing down the international airfreight market this year. A major customer is Amazon.com [NASDAQ: AMZN], which in August struck an agreement to eventually acquire 15% of Cargojet. It is similar to ownership arrangements it has with larger U.S. carriers, Atlas Air Worldwide Holdings and Air Transport Services Group.  Business is usually busiest in the fourth quarter due to holiday retail demand, although a significant portion of domestic network revenues come from guaranteed space and weight allocations.


However, Cargojet also provides aircraft to other airlines, with crew, maintenance and insurance (ACMI) included, between points in North America and flies scheduled charter routes for customers to a handful of international destinations with a fleet of 26 aircraft, all but two of which are Boeing 767s and 757s. Interline traffic from international carriers also helps fill planes on its domestic network.

Earlier this year, the cargo airline suspended routes to Lima, Peru, and Bogata, Colombia, that were unprofitable due to the airfreight downturn, as well as reducing one frequency to Cologne, Germany, and redeployed the planes to more profitable opportunities, which is expected to improve margins.

“Will only enter new charter routes if we can meet our margin targets,” Chief Executive Ajay Virmani told analysts on an earnings call.

During the quarter, Cargojet began operating a new scheduled ACMI route between Mexico and Cincinnati, Ohio, for express carrier DHL that is expected to boost revenue by about $11 million per year. Under the arrangement, Cargojet operates six flights per week with a dedicated Boeing 767-300 aircraft. 


DHL last week said it would spend C$100 million to quadruple the size of its main Canadian gateway near Toronto. Virmani said the decision will likely result in more business for Cargojet, which already provides maintenance and ground handling in Hamilton for the package delivery giant, in addition to flying aircraft for it domestically.

“It solidifies our alliance with DHL in Hamilton where we can do a lot of things together now that they have permanently selected that as a big hub,” rather than relocate to Toronto International Airport, the Cargojet chief said.

The company’s average amount of cargo carried per day grew 2.4% to 1.31 million pounds. Gross sales margin increased 12% to $29.8 million. On a nine-month basis, revenues increased 7.6% to $347 million.

Virmani said that e-commerce is rapidly growing as Canadians warm up to online shopping, especially as e-tailers increase product selection. Cargojet is generating more cargo volume and weekend traffic on its network as online retailers accelerate their direct-to-consumer models and introduce faster delivery standards to keep up with Amazon’s one-day shipping guarantee for Prime members, Virmani said.

Cargojet is helping with 99.3% on-time reliability, Virmani added. It expects to see more volume during this peak season from its domestic network because last year a strike by Canada Post workers led to fewer online purchases and retailers are forecasting double-digit increases in online sales.

Last week, the transport company redeemed a class of junior debt by converting it to shares of common stock in an effort to strengthen its balance sheet.


Eric Kulisch

Eric is the Supply Chain and Air Cargo Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He has won two regional Gold Medals and a Silver Medal from the American Society of Business Publication Editors for government and trade coverage, and news analysis. He was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. He won Environmental Journalist of the Year from the Seahorse Freight Association in 2014 and was the group's 2013 Supply Chain Journalist of the Year. In December 2022, Eric was voted runner up for Air Cargo Journalist by the Seahorse Freight Association. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. He has appeared on Marketplace, ABC News and National Public Radio to talk about logistics issues in the news. Eric is based in Vancouver, Washington. He can be reached for comments and tips at ekulisch@freightwaves.com