Trans-Pacific market lifts Air Canada cargo results

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Air Canada said Friday that cargo revenue grew 18% to 253 million Canadian dollars ($181.8 million) in the third quarter on the back of higher yields and shipment volume carried on large passenger aircraft operating in the trans-Pacific market.

“The overall cargo environment is quite favorable. I would say it’s quite favorable in Asia-Pacific. We see similar trends in India,” said Mark Galardo, president of cargo, during a call-in briefing with analysts about the company’s earnings. “And those really kind of stand out in terms of weakness or any areas of concern, none at this time. And we think this cargo tailwind continues into Q4 and the early part of next year.”

His comments echo the head of DHL Global Forwarding in the Americas, who said last month that air exports from Asia to North America are expected to remain strong into the first quarter.

Higher revenues from six Boeing 767-300 converted freighters on North and South American routes also contributed to the higher cargo revenue, which was partly offset by lower revenue in the trans-Atlantic market, according to Air Canada’s (TSX: AC) earnings report.

“Our right-sized network and freighter-to-belly commercial model are producing solid financial results that we believe are sustainable in the long run. We’re confident that cargo will continue to perform well,” Galardo said, referring to Air Canada’s ability to reach more customers by using the passenger network to feed cargo jets in Toronto; Vancouver, British Columbia; and other main hubs.

Earlier this year, Air Canada Cargo removed two newly purchased Boeing 767-300 freighters from its fleet to align operations with market demand and reduce negative cash flow. In May, Canada’s flag carrier canceled orders with an aerospace firm to convert two 767 aircraft to freighters, citing the drop in demand as the primary reason. The move followed last September’s cancellation of an order with Boeing for two production 777 cargo jets, which are much larger than the 767.

Air Canada is likely to pick up more cargo business over the Pacific Ocean with the resumption of daily service from Vancouver to Shanghai and Beijing on Dec. 7. An announcement this week said the flights will be operated with Boeing 787 Dreamliners. The new flights were made possible after Canada and China recently lifted traffic limits.

Airlines and logistics companies are riding a strong demand wave for air transport this year, with volumes about 11% higher for the first nine months of the year compared to 2023. E-commerce, perishable and other shipments have been filling aircraft on trunk routes out of China and other parts of Asia to Europe and North America. Airlines also benefited from shippers diverting some goods from ocean to air to avoid delays related to Red Sea rerouting.

Cargo revenue growth at Air Canada fell between that of other airlines reporting results so far. Delta Air Lines recorded a 27% bump in cargo revenue ($196 million), while United Airlines was up 25% to $415 million. American Airlines’ cargo revenue in the third quarter increased 5% to $202 million, while Lufthansa Cargo posted a 16% revenue gain. Japan Airlines on Friday said international cargo revenue increased 28.6%.

Lufthansa Cargo is the only one among the group, besides Air Canada, that operates widebody freighter aircraft.

Last month, Air Canada Cargo opened a new cold-chain facility at London Heathrow Airport, its largest European hub. The upgraded facility has larger temperature-controlled areas than before.

Results companywide were better than analysts predicted. Revenue was down 4% to $4.4 billion, and adjusted operating income declined $220 million to $1 billion, largely due to excess capacity in the domestic passenger market.

Air Canada dodged a major revenue hit in mid-September when the company reached an agreement with the pilots union on a new labor contract, forestalling a threatened strike. Pilots ratified the contract on Oct. 18.