News / Cargojet: the 777 era may have ended before it took off, but life goes on

Photo: Cargojet

Cargojet’s foray into the B777 freighter arena has ended before it had taken off.

A year ago, Canada’s largest all-cargo carrier was on course for a fleet of eight B777 freighters, but the downturn in the market prompted management to sell the aircraft and all but bury aspirations on that front.

However, stronger-than-anticipated business has led to a decision to halve the number of B757Fs earmarked for dry lease or sale.

Management shifted into reverse on the 777 a year ago, selling three of four 777-300s (the fourth was never acquired), but it retained rights on conversion slots with a view to moving ahead in a stronger market. But in January it sold the four 777-200s it had purchased for conversion. Two are now being converted by Mammoth Freighters.

“The economies of scale of operating four or two 777s didn’t make sense,” co-CEO Jamie Porteous told The Loadstar.

Cargojet also sold the 777 simulator it had acquired. It has kept rights to the last conversion slots and is completing the ground work for the certification process, and while this keeps the door ajar for a later move into the 777 arena, the likelihood of this in the next few years was very low, said Mr Porteous.

The move away from 777s, half of which had been earmarked for ACMI customer DHL, is a stark reflection of Cargojet’s shift from rapid expansion to a more defensive stance, in line with market developments.

At the release of the airline’s results for the fourth quarter and full-year, Mr Porteous said: “2023 was a transitional year for us as we moved from managing a period of hyper growth during Covid-19, to focusing on cost management and preparing the business to face the current economic environment.

“We rationalised our capital expenditure plans and managed costs to maintain adjusted ebitda margins,” he added.

Revenue slipped from C$271m (US$189.25m) a year ago to C$254.7m in Q4, and ebitda shrank from C$82.9m to C$81.6m. Overall, it registered a net loss of C$34.9m, following a C$2.9m profit 12 months prior.

While operating costs went up, revenues were under pressure. Surcharges shrank 21.2% to $61.6m. However,  Cargojet’s charter business kept growing over the past year.

“It was one of our strengths in ’23,” said Mr Porteous, adding that weakness in the ACMI segment freed up more capacity than Cargojet would normally have available for this bracket.

One sector particularly buoyant has been traffic to and from Mexico, both in terms of Cargojet’s contract flights for DHL and its own charter operations – while those for the automotive industry being particularly strong, other verticals have also shown increased appetite, Mr Porteous noted.

Despite the slowdown from 2022, the market proved stronger than anticipated, he said. During the peak season, Cargojet deployed three extra aircraft for DHL, which continued operating into the new year, which has been surprisingly strong, according to Mr Porteous. One of these contracts recently ended, but the two have been extended to the summer.

The unexpected resilience in demand has prompted Cargojet to ease pressure on the brakes. Last year, it had earmarked four B757 freighters as surplus, to be either dry-leased or sold. This has been revised to keeping two in operation.

After the rapid expansion of capacity that saw Cargojet’s fleet rise from 34 aircraft in 2022 to 41 last year, Capex spending has been pretty much frozen. The carrier has three more B767s due for conversion into all-cargo configuration slated at one each between 2024 and 2026. And, depending on market conditions, Cargojet may  renew the contract for a leased 767-200F – the first of this type to join its fleet.

The days of rapid fleet expansion are definitely in its rearview mirror, but with then market more resilient than anticipated, Cargojet’s business with Amazon has remained strong – although the internet giant has put the brakes on its US flight network expansion, Mr Porteous reported.

In several stations the carrier has taken over ground handling, warehousing and sorting activities for Amazon, which has boosted revenues and strengthened ties with the internet behemoth, he said.