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Canadian creativity

It’s long been argued that finding a niche is the only way forward for freighter-only operators. And Canada’s Cargojet, while buffeted by ill economic winds, has worked to create a sustainable business, writes Ian Putzger

Late last year Canada’s largest all-cargo airline introduced track-and-trace capability on its website. The fact that Cargojet went so long without such functionality – and has now brought it on board – says much about the carrier and a shift in its business model.


In the main, the airline provides linehaul on Canadian trunk routes on a contract basis to the express operators (plus a transborder route from Montreal to Cincinnati, and a Newark-Bermuda run). For this clientele, tracking shipments on the Canadian flights hardly entered the picture.


“They give us the cargo just prior to departure and it gets picked up at the other end after the plane lands. If they need to track a shipment, that means we are late,” says Jamie Porteous, executive vice president of the freighter airline. He adds that the tracking function addresses other clients, reflecting an ongoing diversification of Cargojet’s activities. First and foremost, tracking is for international airlines that interline traffic with the Canadian carrier.


Cargojet is not moving away from its prime clientele, despite challenges for the express operators. “Our core overnight contract flying is 75 to 80% of what we do,” says Gord Johnston, vice president international. The results of Fedex and UPS’s restructuring efforts involving fleet reductions have been a stark reminder that the express sector has struggled in the premium segment, as customers shifted business to cheaper deferred services. These developments prompted Cargojet to revamp its network last year, reducing its linehaul capacity, which freed up aircraft for other activities – notably impromptu charter work.


In the event, the linehaul business recovered after some weakness in the early part of last year, with demand rising markedly towards the year-end. As a result, Cargojet emerged from 2012 ahead of plan. In the fourth quarter, the carrier saw revenues advance 8.2% to C$46.4 million ($46 million), the gross margin went up 23.9% and earnings before interest, taxes, deprecation and amortisation (EBITDA) surged 68.8%. This boost nudged revenues up 2% for the year to C$168.8 million and EBITDA up 11.2%, although the gross margin was down 5% from the previous year.


“Lower costs and greater efficiencies have combined with stronger core overnight and charter revenues, to provide for a strong finish to the year,” declared Cargojet president and chief executive officer Ajay Virmani when he presented the results. “We are encouraged by the volume growth in the last half of the year and will continue to focus on new revenue opportunities and continued prudent cost management as we move forward into 2013.”


Porteus reports that the first quarter of this year continued the positive trend. “We have seen growth – not huge, but good. We have a number of new opportunities,” he says.


Cargojet’s activities in other segments, and their contribution to overall revenues, have also grown. Commercial charters, which only figured as filler flights on weekends a few years ago, have been particularly strong.


“We experienced significant growth in the ad hoc charter segment. We have doubled our revenues every year in the last two or three years,” says Porteus. According to him, one reason for this was the greater availability of aircraft for spur-of-the-moment work due to the network restructure, another the growing recognition of Cargojet in the charter broker community. “We see more repeat business with [these customers],” he says.


ACMI flying has also become a regular money earner for the company since it added Boeing 757 and 767 freighters to its line-up a few years ago. The main tenets of this segment are a weekly 767F service between Canada and Warsaw on behalf of LOT Polish Airlines, which the European carrier uses during the winter schedule to supplement its belly capacity to Canada. Another ACMI deal was originally intended to last for just a limited period of time. Cubana signed with Cargojet because it did not have enough aircraft for a weekly freighter between the two home markets at the time and wanted the Canadian carrier to operate half the flights on its schedule. The agreement has gone through several extensions since the initial contract period came to an end.

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