What persuaded Air Canada Cargo to return to the all-cargo business this year, and how is it working out? Will Waters asks its vice president, Lise-Marie Turpin
Air Canada Cargo in June returned to the freighter business, launching dedicated all-cargo services between Canada and Latin America, with plans also for services to and from Europe.
But unlike past adventures in the freighter business when Air Canada had deployed its own freighter assets, this time it is doing it in partnership, using Boeing 767-300ER freighter aircraft operated by Cargojet. Services include Toronto to Bogota, Colombia and Lima, Peru via Atlanta, GA, and Toronto to Mexico City via Dallas/Fort Worth, TX, and more recently between Toronto and Buenos Aires via Santiago.
Announcing the network expansion in April ahead of the launch in June, Lise-Marie Turpin, vice president of Air Canada Cargo, said that working with Cargojet would enable Air Canada to leverage and build upon its extensive North American and international networks, highlighting that the launch would offer customers the only dedicated freighter service between Canada and Latin America.
Cargojet is Canada’s leading provider of time-sensitive overnight air cargo services, serving 14 major cities across North America and carrying more than 500 tonnes of cargo each business night via a fleet of 22 aircraft consisting of B767-300ER, B767-200ER, B757-200ER and B727-200AF long-range freighter aircraft.
Partnerships between bellyhold carriers and freighter airlines that operate mainly overnight services for postal firms and integrators are not new and allow the partners to sweat the freighter assets by deploying them during daytime hours when they may be otherwise idle. IAG Cargo has had an arrangement of this sort in Europe for several years with DHL, for example.
Nevertheless, the move raises a number of questions, particularly amid reports this year of European air cargo carriers offering increasingly competitive rates to transport cargo between Canada and Latin America via Europe.
So, what triggered the initiative and why does it now make commercial sense?
What challenges were overcome leading up to the launch, and how well has the new partnership performed, in terms of demand and operational quality? What are the next steps, and what are the indications in terms of its long-term sustainability?
Lise-Marie Turpin, vice president of Air Canada Cargo, tells Cargo Airports & Airline Services (CAAS) that what triggered the initiative was the growth of the parent airline’s passenger services:
With Air Canada’s expansion in international markets, it became clear that Cargo would require more feeder traffic to flow over its growing network. The destinations that we launched with the freighter service allow us to seize new opportunities from which we were deprived in the past given limited capacity.
What were the demand dynamics that persuaded you that a freighter service on these routes would be viable?
Air Canada’s capacity into South American destinations fluctuates from season to season. Meanwhile, our cargo customers are looking for consistent lift year round. Operating a freighter with Cargojet enables us to offer regular and consistent lift on peak demand days and flowing it over our entire network.”
Does the demand come from any specific commodities or sectors or customers?
Northbound demand from South America comes largely from the perishable market while northbound demand from Mexico is a mix of both perishable and dry goods. Southbound freight to all areas is very mixed ranging from dry goods, to pharmaceuticals, to perishables and live animals.
Are customers prepared to pay a premium for direct freight services on these markets, or is it more a case of simply needing to provide extra capacity on a capacity-restricted market?
The demand is for capacity.
How were the needs of these customers previously being served?
We offer regular service with our mainline flights, but given capacity constraints at certain times of the year, we were unable to fulfill all of our customers’ expectations.
How does the situation now compare with previous situations in which Air Canada has operated main-deck capacity?
The arrangement with Cargojet allows us to have much more flexibility in the operation and to be more agile in responding to volatile market conditions.
What previous or existing partnerships or relationship has Air Canada Cargo had with Cargojet?
Air Canada Cargo and Cargojet have a longstanding relationship through a number of interline agreements.
What are the arrangements for cargo handling, eg in Latin America?
Cargo warehouse handling is performed by Air Canada in Canada and by our third party providers in the international stations. These third parties handle all of the traffic currently carried on Air Canada flights and are experienced and knowledgeable of our expectations. The freighter operation consists of an extension of these services.
What challenges were overcome leading up to the launch?
Our main challenge was to obtain the required regulatory authorization from a number of parties both in Canada and in foreign jurisdictions within a very short time frame.
How well has the new partnership performed, in terms of demand and operational quality?
Commercially, this network is performing as planned, i.e. to generate additional feed to Air Canada’s growing network. Operationally, we are experiencing some challenges as one would with any change; however, we are seeing operational improvements week over week as our teams adapt.
Has competition increased since the announcement of the partnership, for example from European carriers competing for Canada-Latin America traffic, flying it via Europe?
We have not observed any changes to date.
What are the next steps, eg for the launch of Europe freighter services? And when?
We continue to evaluate new opportunities. As mentioned earlier, the market is ever changing and business cases must be updated prior to adding any new destinations.
What indications do you have in terms of the long-term sustainability of the new freighter services?
We are pleased with the results to date and are optimistic that we will continue with this service over the longer term.
How would you characterise and assess the current market conditions on these lanes, and on your other main markets? How have the dynamics changed this year?
The air cargo industry in general is challenged by a soft global economy, increased belly carrier capacity leading to a situation of overcapacity. Inevitably, this puts pressure on yields. This situation appears to have intensified in 2016. As such, carriers must continuously evaluate their strategy to ensure that they are able to operate profitably. The situation is no different for the lanes that we have launched versus any other in our network.
What are your expectations of these dynamics for the remainder of this year? What do you expect to be the main factors behind this?
Traffic seems to be improving in the second half of this year. The US economy appears stronger, generating more imports into that region. We are guardedly optimistic that this will continue, barring any unforeseen events beyond our control. nnn