Cargojet cutting costs amid lower profits
Cargojet Inc.’s chief executive said Monday the air cargo company is cutting back on the “overspending” it incurred to meet a demand influx during the COVID-19 pandemic as it reported a decline in profit in its latest quarter.
To prepare Cargojet to ride the current economic cycle, president and CEO Ajay Virmani said the company, which provides air cargo services to major cities across North America with a fleet of 40 aircraft, has shifted its focus to cost management and rightsizing its network.
He said all potential cost-cutting areas are on the table aside from those that affect service.
“We’re looking at every expense, whether we are cutting back on temporary labour, whether we are shipping our parts overnight or whether we are using ground services more, you name it,” Virmani told analysts on a conference call Monday morning.
“The past three years, because of the COVID growth and COVID demand, it was basically getting the job done at any cost because we didn’t have the time. So now we are sitting back and reflecting that all these things can be fine tuned.”
The air cargo company reported net income of $31.1 million in its latest quarter, down from $160.9 million in the same quarter last year as its revenue moved lower. Its profit amounted to $1.68 per diluted share for the quarter ended June 30, down from $8.20 per diluted share a year earlier.
On an adjusted basis, Cargojet earned 91 cents per share, down from an adjusted profit of $1.51 per share in the same quarter last year.
Revenue for the quarter totalled $209.7 million, down from $246.7 million a year earlier. Revenue excluding fuel surcharges and other revenue was $171.6 million compared with $177.2 million a year ago.
In a note, RBC analyst Walter Spracklin called the company’s cost-cutting measures “impressive” as he said those reductions offset lower-than-expected revenues.
Virmani said Cargojet achieved a 99.6 per cent on-time performance in the quarter as the company continued to hire pilots and maintained the size of its maintenance personnel team.
“Where we are gaining efficiencies is cost management, better negotiations with our suppliers, getting better credit terms,” he said.
“I hate to use the word, but we’re getting rid of overspending that was done to meet the COVID demands, which would be considered in today’s terms a waste.”
Chief financial officer Scott Calver said the company saw a reduction in its head count by not filling vacant positions and decreased its reliance on temporary employees.
He noted pilots are trained to fly both its Boeing 757 and wider Boeing 767 planes, allowing the company to substitute aircraft to optimize costs if volume is reduced.
Also in the second quarter, Cargojet replaced a direct flight with a triangulated route by adding an additional stop — a temporary change that Calver said would be reversed once demand picks up.
He said other cost reduction measures are in the early stages of implementation and would be reflected in the company’s third quarter results.
“The combination of our business model and the cost optimization initiatives will allow us to continue and maintain margins and profitability,” he said.
“With all these initiatives, Cargojet will be better positioned to come out of the other end of this economic cycle.”
Cargojet’s stock closed Monday up $6.77, or 7.24 per cent, at $100.22.