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Canada’s 3 largest airlines make big push in cargo

Air Canada expands freighter network, Cargojet goes deeper with 777s and DHL, and WestJet prepares for all-cargo service

Canada's three major airlines are moving aggressively to grow their cargo business. (Photo: Jim Allen/FreightWaves)

Domestic e-commerce sales in Canada have more than doubled since the COVID pandemic to more than US$4.7 billion, according to Statistics Canada.

Air cargo business is growing in Canada, and the three biggest carriers there are investing accordingly. Two of them — Air Canada and WestJet — are passenger airlines that are in the process of establishing all-cargo divisions with aircraft dedicated to carrying freight on the main deck. Cargojet, as the name implies, is a cargo operator that also is significantly expanding its fleet and just announced a large contract renewal with DHL Express that involves extra aircraft.

For domestic and international shippers, the growing fleets mean more intra-Canada and cross-border capacity for e-commerce, perishable goods, pharmaceuticals and general products.

The following a compendium of recent stories on FreightWaves and American Shipper, supplemented with recent updates on recent developments.

Air Canada 

The first carrier in North America to return to a combination passenger-and-freighter fleet intends to invest in more all-cargo aircraft as logistics contributes more to long-term profitability.

During an Investor’s Day presentation on March 30, Jason Berry, vice president of cargo, said the airline is ready to go beyond eight cargo jets.  Last Tuesday, Air Canada made its intentions clear: It is acquiring two new, factory-built 767-300 freighters.


Not clear is whether the company is directly buying the planes from Boeing (NYSE: BA) or leasing the aircraft from a third-party. A spokesman declined to elaborate beyond the press release disclosure. Air Canada’s opaqueness suggests the planes are coming from a leasing company that purchased the planes from Boeing because Boeing tends to announce when it makes a sale and has remained silent on the matter.

The new aircraft are to be delivered this year and enter service in 2023, adding to the eight 767-300s that are being converted for cargo operations. They further confirm Air Canada’s commitment to the freighter strategy, which enables the company to provide consistent capacity on key cargo routes as aircraft that were temporarily shifted to dedicated cargo operations during the pandemic return to passenger service.

The 767-300 freighters allow Air Canada Cargo to offer five different main deck configurations, increasing the overall cargo capacity of each aircraft to nearly 64 tons or 15,460 cubic feet, with approximately 75% of this capacity on the main deck.

Air Canada began flying its second Boeing 767-300 converted freighter in late April, enabling it to launch service six times per week between Toronto and Halifax. Flights from Halifax will carry lobster, fish, aerospace parts, pharmaceuticals and other goods. 

Israel Aircraft Industries is remodeling the older Air Canada passenger jets to carry heavy freight. Six more will be produced between now and the end of 2023, according to airline executives.

The airline recently unveiled an expanded schedule for its fledgling freighter network. The European schedule from Toronto starting in May looks like this:

•     To Frankfurt, Germany: Two flights per week

•     To Cologne, Germany: One flight per week

•     To Istanbul: One flight per week

•     To Madrid: Three flights per week from Toronto and Halifax

Air Canada last month completed the first phase of an expanded cold chain facility in its Toronto hub, the only one of its kind for a Canadian airline.

The airline’s first quarter results last week were the latest illustration of the airline’s successful focus on cargo since the pandemic. Cargo revenue increased 42% year-over-year to CA$398 million (US$310.3 million) thanks to strong demand in the Asia-Pacific region, 30% growth in yields and new freighter flying.

Overall, the company pulled in $2 billion of revenue, three times the amount during the same period in 2021, with cargo representing a healthy 15.4% of that amount. Despite a net loss of $754 million that exceeded analysts’ forecasts, Air Canada executives stated the recovery from the pandemic is now in full swing as passenger travel quickly rebounds from a winter lull caused by the omicron variant. Ticket sales in March sprinted to within 10% of their 2019 level and advance bookings are even stronger in the second and third quarters. At the same time, more efficient operations are reducing per-seat costs by 6%.

Air Canada said passenger capacity is 3.5 times higher than a year ago, but is still down 45% from 2019. The company is adding and restoring more international and domestic routes since the government of Canada relaxed COVID travel requirements on April 1. The latest guidance for 2022 is that Air Canada’s capacity will reach 75% and that non-fuel costs will be 13% to 15% above pre-crisis levels.

Asia will play a large role in cargo performance this year with volumes and yields impacted by how long COVID shutdowns in China linger, the overall travel recovery and how much passenger belly capacity returns to the market. Officials said they expects yields to fall back to 2019 levels over the long term as more aircraft supply returns.

(This story includes an abbreviated version of an article that appeared on April 4.)

Cargojet 

Cargojet is investing in eight Boeing 777 passenger planes that will be converted to a pure cargo configuration, quadrupling its original order, according to a recent management document presented to shareholders and industry sources.

Canada’s largest all-cargo airline took a step into larger aircraft in November when it announced an agreement to buy the first two 777-200s converted by Mammoth Freighters, an Orlando, Florida-based startup. But the company has not widely broadcast that it now has eight of the large jets in its fleet plan.

(Read the full Cargojet story here)

In a March 7 letter to shareholders, executives said their fleet expansion includes eight 777 freighters scheduled for delivery between 2023 and 2025. The long-range aircraft will open the door for Cargojet (TSX: CJT) to handle more intercontinental traffic.

A March 29 press release about a long-term strategic partnership with DHL Express included news that the global parcel carrier will be the initial customer for Cargojet’s 777s, which will be deployed in late 2023 or early 2024. In a client note later that day, BMO Capital Markets analyst Fadi Chamoun said Cargojet disclosed in a call with analysts that it will provide DHL with four 777s. The other four 777s already have customer requests but will potentially operate with block space agreements — allocation commitments — for multiple forwarders.

A source close to the situation told FreightWaves that Cargojet has exercised its option for two additional twin-engine 777-200s from Mammoth, for a total of four converted freighters. The contract also includes an option for two Boeing 777-300s.

The information strongly indicates that Cargojet has also ordered four 777-300s from Israel Aircraft Industries, which began engineering a 777 conversion kit at least one and a half years before Mammoth was founded in 2021. IAI aims to deliver its first 777 freighter, dubbed the “Big Twin,” to Kalitta Air in the first half of 2023.

Mammoth has said it will complete its first conversion for Cargojet in the third quarter of 2023 once the Federal Aviation Administration signs off on its conversion design.

Cargojet raised $365 million last year from a stock offering and is using the proceeds to rapidly grow the fleet. The company currently operates 31 dedicated freighters, two-thirds of which are medium widebody 767s. The remainder are Boeing 757s, a large narrowbody aircraft. 

The shareholder letter says Cargojet has purchased six additional 757 aircraft, with five to be delivered this year and one in 2023 following retrofitting by an undisclosed aircraft maintenance company. It also bought six 767-300 aircraft, half of which will be converted in 2022 and the other half next year. By the end of 2022, Cargojet expects to have 39 aircraft in its fleet and grow to 47 by the end of 2024.

Cargojet operates a domestic overnight network among 16 Canadian cities as well as to points in the U.S., South America, Mexico and Europe, providing dedicated aircraft, crew, maintenance and insurance for express customers such as DHL. It also runs scheduled international routes for multiple cargo customers between the U.S. and Bermuda, and between Canada, the U.K. and Germany, as well as ad hoc charters, mostly during the day and on weekends. It flies more than 80 flight legs per night.

Last year, revenues increased 13.3% to CA$758 million (US$597 million), helping boost adjusted operating income to an all-time high of US$231 million. It also joined Amazon Air (NASDAQ: AMZN) as a contract carrier with two 767-300s dedicated to the online retailer. 

DHL Express’ decision late last month to significantly extend its transportation contract with Cargojet and take an ownership stake in its Canadian supplier demonstrates how deeply their partnership has evolved over 15 years.

DHL’s airline, most of which consists of outsourced airlift, has significantly increased its global capacity during the past two years, including by 18% in the Americas for the 2021 peak season in response to strong demand, especially for e-commerce shipments. Since 2018, DHL has purchased 28 new 777 freighters directly from Boeing, with 15 aircraft delivered so far.

WestJet

Calgary-based WestJet expects to have its first two 737-800 standard jets converted for cargo in revenue service by July 1 or sooner, as FreightWaves recently reported.

Operating from a base at Toronto Pearson International Airport, WestJet Cargo intends to start with limited charter work, transition to regular, scheduled flights between major cities within Canada and eventually blend in ad hoc charters and transborder flying to the U.S. and Caribbean, especially on weekends and other off-peak periods.

The carrier is in discussion with many potential customers, including integrated parcel logistics companies.

WestJet officials say they initially will take a conservative approach to utilizing the 737-800 freighters to make sure it can deliver reliable, on-time performance.

WestJet Cargo recently announced an expanded partnership with GTA Group, which will provide ground handling for the freighters at the Toronto hub and help market their capacity. GTA currently processes cargo carried by WestJet passenger aircraft.

Another significant development is the recent selection of Kirstin de Brujin, who has previous experience at Qatar Airways and Emirates, to lead the cargo division. More details about her and the April 5 arrival of the first 737-800 from the Boeing conversion center are in the recent article, “WestJet revs up cargo division with 1st freighter, new chief.”

The 737-800s are well suited for short delivery trips because they can be filled quickly and are more fuel efficient than older aircraft, enabling carriers to make multiple trips economically. The company will try to break into a domestic express market dominated by Cargojet.

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RECOMMENDED READING:

Air Canada sings ‘O Cargo’ with all-time best revenue in 2021

Air Canada expanding refrigeration capability at Toronto cargo hub

Mammoth Freighters to convert first 777s for Cargojet

WestJet revs up cargo division with 1st freighter, new chief

WestJet marks new era with move to cargo jets

Eric Kulisch

Eric is the Supply Chain and Air Cargo Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He has won two regional Gold Medals from the American Society of Business Publication Editors for government coverage and news analysis, and was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. Eric is based in Portland, Oregon. He can be reached for comments and tips at [email protected]