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 fell 16.4% in the second quarter to CA$299 million ($234 million) compared to the same period a year earlier. The company attributed the decline to yield normalization and less cargo-only flying in the Pacific market due to COVID lockdowns in China, and to a lesser extent Hong Kong and Japan. Although temporary freighters were redeployed to other regions, higher revenues from Europe, Australia and the Americas didn’t make up for the revenue lost in China.
Cargo revenue was up 9% year over year in the first six months thanks to higher yields.
Air Canada has reinstalled all the seats in seven widebody aircraft that were modified during the pandemic to provide cargo capacity in the passenger cabin, as well as below deck.
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.
(Correction: Cargo revenue figures have been fixed to reflect second quarter, not first quarter, results.)
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