Cargojet CEO says softening market forcing cost assessment

Cargojet saw a relatively stable first quarter of 2023, but CEO Ajay Virmani says the company is “realigning” its cost structure to meet current market declines.

“Cargojet is not immune to the softening industry trends as well as the macro factors of slower economic growth, higher interest rates and persistent inflation. Therefore, our team is focused on realigning every aspect of our cost structure with the current demand levels, including realigning our network, significantly improving productivity in our maintenance and operational areas and cutting all discretionary expenditures while maintaining industry best on-time-performance,”  Virmani said in a statement.

Revenues for the quarter were down compared to last year. Revenue in Q1c2023 was $231.9 million compared to first quarter 2022 revenues of $233.6 million.

Gross Margin for the quarter was $45.5 million compared to first quarter 2022 gross margin of $66.9 million. Adjusted EBITDA for the quarter was  $75.0 million compared to the first quarter 2022 adjusted EBITDA of $83.0 million.

Net income for the quarter was $30.5 million (net income of $6.0 million excluding warrant valuation gain) compared to net loss of $56.4 million in 2022 (net income of $30.4 million excluding warrant valuation loss).

“Consumers shifted from buying goods to spending on services during the post-pandemic period, prioritizing travel and leisure over the past year. With the re-opening of the economy, there was also a pent-up demand to visit physical stores and experience outdoors,” said Virmani.

“We expect these consumption behaviors to normalize during the latter part of this year, setting the stage for a more balanced mix of spending between goods and services. Our strategy to build a strong ACMI business, on top of our flagship domestic network, has allowed us the stability to ride these volatilities including the current softer economic conditions.”

Virmani said the long term macro trends that drive the air cargo business remain. E-commerce, the continued demise of shopping malls, and further pressure on business district shopping stores driven by remote work and passenger airlines shifting to narrow body aircraft, will continue to lead to increased air-cargo volumes.

“Cargojet is well positioned with a strong balance sheet and a solid liquidity position to ride this volatile economic environment. With some of the world’s biggest package delivery companies as our customers, we expect to resume growth as the economic cycle turns the corner,” he concluded.