Cargojet, which calls itself “Canada’s cargo airline,” gave a bullish assessment of its future earnings prospects, even amid major post-pandemic economic and competitive changes.
The company hosted its first-ever investor day event on September 27, insisting that the boom it experienced during the pandemic wasn’t just a momentary anomaly. Canada’s e-commerce, for example, continues to grow rapidly, with online sales penetration still relatively low. Amazon, in fact, one of Cargojet’s customers, ranks Canada as its fastest-growing market in the world. Other major Cargojet customers include UPS, FedEx, Canada Post, and DHL. “Cargojet [was] a Covid-19 pandemic beneficiary,” said chief strategy officer Jamie B. Porteous. “However, they’re not just short-term benefits.”
Asked about FedEx’s recent warning about tougher demand conditions, Porteous did acknowledge some drop-off in freight demand from pandemic-era highs. In the global charter market, specifically, “we’re seeing a little bit of softness.” Yet Cargojet hasn’t changed its financial outlook. “Our expectations for the third quarter and for the balance of the year are similar to what we’ve talked about all year.” Even in the global charter business, pricing is “still well above what it was pre-Covid.” Domestically, meanwhile, revenues have been growing at a roughly 15 percent year-over-year pace this year. The company is now entering its fourth quarter peak season, typically the highest revenue quarter of the year as retailers ship inventories for holiday shopping season.
But what if the cargo market did experience a “hard landing,” in which demand sharply declines in response to a global recession? CEO Ajay Virmani said the airline has the flexibility to cancel or defer aircraft deliveries, albeit in some cases with a financial penalty.
Porteous separately spoke of a structural shift that occurred during the pandemic, when most of the world’s Boeing 747s and Airbus A380s exited service permanently. The loss of their belly capacity means that today, about 70 percent of all global air cargo is carried on dedicated freighter planes, as opposed to within the bellies of passenger planes. Pre-Covid, less than 50 percent of freight moved on dedicated freighters. “Our international business is just beginning to benefit from the shift in global air cargo away from belly cargo to dedicated freighters, and Cargojet will be well positioned to take advantage of that opportunity.”
Cargojet itself operates a fleet of Boeing 767s and 757s, with several 777s arriving soon. It’s currently flying 30 cargo planes in total.
Looking ahead, Cargojet sees dedicated freighters playing an even greater role, as smaller narrowbodies with less cargo capacity—like the future Airbus A321 XLR—handle more international routes. In the meantime, Boeing will stop producing 767s in 2026, contributing to an expected shortage in cargo aircraft. “The production of that aircraft type will end, so there’s going to be a continued imbalance and shortage of freighter aircraft in the next few years,” Porteous said.
Executives downplayed the threat from Air Canada’s decision to expand its cargo operation with dedicated freighters. “That’s one thing I definitely do not lose sleep over because they’ve tried this business twice,” Virmani said. “They’re a great company. They have great resources. They have government money now available to them. But to be honest with you, I think the resilience that we have shown and what we have built is second to none, and it’s hard to compete. So I’m pretty confident that that’s not going to be a factor in our situation.”