News / Canadian airlines throttle back cargo plans for slower growth

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Canada’s leading air cargo carriers have dialled back their freighter fleet expansion plans but still see room for growth.

Cargojet, the nation’s top all-cargo carrier, has put four 757 freighters up for sale. The planes have been surplus after a restructure earlier in the year that saw some route consolidation leveraging its 767 freighters, said chief strategy officer Jamie Porteous.

Since the change, Cargojet has looked to the leasing and charter markets to find work for the excess planes, but it finally decided to look for buyers.

“It’s going to be a challenge to sell them in this market,” Mr Porteous conceded.

Demand for freighters is lacklustre. Air Transport Services Group (ATSG) recently put plans to convert seven 767-300s into all-cargo configuration on hold.

Cargojet has sold three 777-300s that it had acquired to turn into freighters. Air Canada (AC) cancelled an order for two new 777-200 freighters in September. The cancellation was part of a new agreement with Boeing to order 18 787-10 passenger planes, plus options for another 12.

Matthieu Casey, managing director, commercial of AC Cargo, said that the airline may revisit plans for 777 freighters at some future date, perhaps when it retires 777s from passenger service, adding that “we look for sustainable growth, not a big pop”.

Cargojet is going forward with its conversion plans for four 777-200 aircraft, although this process has been held up, mostly for regulatory reasons, Mr Porteous said. Instead of the first quarter of next year, those are now expected to start joining its fleet by the third quarter.

By that time market conditions should be more buoyant than they are at the moment. Input from customers, as well as AC’s own projections, indicate that the first half of 2024 will see little improvement in the market, with an upturn expected in the third or fourth quarter.

For Cargojet, the focus in the coming year is going to be on controlling costs. “We took on a lot of costs during our rapid expansion in the past few years,” Mr Porteous said. “We want to maintain our margins in the mid-30% range, which is what our investors expect.”

The airline’s revenues slipped 8% in the third quarter, partly due to lower fuel surcharges. It also saw a contraction in block hours in the ACMI segment.

According to Mr Porteous, this was largely a result of route changes. Cargojet operates 15 planes for DHL. Last year two of these were flying between Shanghai and Cincinnati, but this has stopped, whereas operations in the Americas have been stepped up, translating into shorter sectors.

The airline has been running two planes for Amazon in Canada and has been operating the e-commerce firm’s new 40,000 sq ft sort facility at Vancouver International airport that opened in the summer.

“They’re still growing at a significant rate with us,” Mr Porteous said.

He is upbeat overall, despite the slower market. “We had two, three years of super-accelerated growth. Our revenues went from C$450m in 2019 to almost C$1bn in 2022, and that’s going to stay,” he commented.

One segment that has gone strong for the airline is charter business, which produced an increase in revenue of about 30%.

“We have no dedicated freighters for charter, so we didn’t pursue that aggressively,” he remarked.

With its freighter fleet up to seven planes, AC has also dipped its toes in the charter market to make use of windows when those aircraft are available. “We couldn’t pursue that with a small number of freighters, but with seven, we can,” Mr Casey said.

Still, this is always going to remain a sideshow, as the freighters play a vital role in AC’s network strategy. This has paid dividends in the challenging transatlantic market, where rates have plummeted this year. Flows in both directions between Europe, the Middle East and Africa on one side and the Americas on the other have been good.

AC’s cargo revenues were down 23.7% in third quarter to C$315m ($229.94m). Mr Casey said that the airline had better growth in cargo than its major European and US peers.

AC is on course to take delivery of the final three converted 767 freighters due to join its fleet in the coming year, unless there is a delay with the conversions, Mr Casey said.