Can Cargojet Maintain the Covid Effect?

Cargojet is Canada’s leading air cargo airline and a time-sensitive cargo handler. The company serves 16 major airports in Canada from coast to coast. Its network stretches across North America transporting over 1.8 million pounds of time-sensitive cargo each day.

Cargojet serves three key market segments:

  • domestic markets (53% of revenue by cargo services),
  • ACMI (13% – aircraft, crew, maintenance, and insurance), and
  • All-in Charter (34%) which comprises adhoc business.

It is strategically located at airports in each city center to meet customer’s needs and requirements. The company owns a fuel-efficient fleet and operates over 60 flight legs each business night using a combination of B767-300F; B767-200F and B757-200F aircraft. It also provides domestic air cargo services to many international airlines between several points in Canada.

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Revenue Growth & Market Exposure

Over the years, Cargojet has formed strong customer relationships and is known for its prompt services.

Most customers pre-purchase a guaranteed space and weight allocation on the company’s network and pay a daily price to the company. A few of its domestic business customers are FedEx, DHL, UPS, Purolator, Sameday, etc.

The company has earned the reputation of Canada’s No.1 cargo airline and the only national overnight air cargo consolidator, in the last two decades. Cargojet is also growing its domestic business alliances and also has fifty-four partnerships with the world’s leading carriers such as Air China, Air Canada, British Airways, Jet Airways, Lufthansa, Etihad, KLM, etc currently. The company operates nine dedicated ACMI routes for DHL. 

Cargojet’s adhoc business also provides opportunities for growth as its fixed costs are already covered by its Domestic and ACMI businesses and it utilizes the same aircraft for Adhoc charters.

The company is experiencing an increase in e-commerce and healthcare-related volumes but a decline in its business-to-business volumes in the pandemic. E-commerce as a percentage of total retail is also expected to grow in the future.

As passenger traffic declined due to the pandemic, international air cargo demand increased dramatically and Cargojet benefitted from this trend. The company’s quarterly revenues have increased on a year-on-year basis and are expected to increase further in the next quarter due to the holiday season.


Cargojet sports a modest dividend yield of 0.43% and a high payout ratio. The company declared a cash dividend of $0.2340 per common share and has grown it at more than 13% CAGR in the last three years.

Revenues and shipping volumes from Cargojet’s domestic network air cargo service are seasonal and customer demand is highest in the fourth quarter of each year due to the holiday season.

Cargojet benefits from long-term customer contracts containing cost passthrough provisions for variable cost increases. The company caters to a unique mix of customers and cargo. Moreover, nearly 75% of domestic revenues are under long-term contracts with renewal options.

The contracts guarantee minimum volume and CPI-based automatic annual price increases. Cargojet also has a strong track record of revenue and EBITDA growth, cash flow generation, and cost management. It is focusing on improving efficiencies and cost controls and grow business organically as well as through accretive acquisitions.

The company expects a strong charter demand on international routes until passenger service is restored. It is further working upon network and fleet optimization and pursuing high growth opportunities.

Cargojet is positioning itself to capture new cross-border and international opportunities. The company’s new ACMI routes between Canada, Europe, the US, and Mexico should also drive revenue growth. It is also well-positioned to gain from its adhoc business opportunities as demand has surged due to the lack of air cargo capacity.

Cargojet will play a key role in promoting e-commerce growth across North America by working closely with leading e-commerce and logistics players.

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Cargojet faces competition from a mix of air cargo providers and motor carriers, express companies, and passenger airlines. Its nearest competitor is Morningstar Air Express Inc.

Cargojet accounts for more than  90% of the domestic overnight air cargo lift available in Canada. There are strong barriers to entry with state-of-the-art aircraft and GSE equipment and a vast network of airports.

It is the only national network that offers next day service for the courier industry to over 90% of the Canadian population. However, Cargojet’s sales are heavily dependent on overall customer volume.

Bottom Line

The Covid pandemic has resulted in a sharp increase in adhoc charter and ACMI demand. The growth of e-commerce should drive Cargojet’s domestic volume and revenue growth.

The company should also benefit from the upcoming holiday shopping season. Cargojet continues to improve the quality of air cargo services and increase the range of these services.

Moreover, the company should also witness a surge in the demand for its services from drug makers and the government, given a successful vaccine rollout.

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