Hampered by strict government border restrictions, Air Canada disappointed investors with a US$918.3 million loss in the second quarter, but the cargo division did better than expected with a record $274 million in revenue.

Cargo sales for the period ending June 30 were 33% greater than in 2020 and double the amount in 2019, before the pandemic.

Air Canada (OTCUS: ACDVF) was one of the most aggressive passenger carriers to shift to dedicated cargo operations when global cargo capacity plummeted 16 months ago and rates shot up with normal passenger services scuttled by the pandemic. And it was one of the first carriers to modify passenger aircraft for carrying extra freight by removing seats from the cabin

Since the start of the pandemic, Air Canada has operated more than 10,000 cargo-only flights. Scheduled and on-demand cargo services are available to more than 30 cities worldwide on Boeing 777 and 787-9 widebody jets, as well as Airbus A300s. Seven aircraft have had seats removed and can hold boxes on the main deck.

A total of 3,257 all-cargo flights were operated in the second quarter of 2021 with all-cargo revenue representing 67% of total cargo revenues for the quarter.

First-half cargo revenue grew 53% to $489 million compared to the same period a year ago and 80% versus 2019. And sequentially, Air Canada’s cargo revenue increased $59 million from the first quarter. Gains over 2020 were due to increased traffic because yields were down 26%. Yield comparisons are unfavorable due to a short abnormal spike in rates a year ago when there was global panic buying of personal protective equipment and other COVID-related supplies.

The strong showing of Air Canada Cargo, combined with hypergrowth in e-commerce and forecasts for 4% to 6% compound annual growth rates for air cargo overall, motivated management late last year to change its business model and operate a pure freighter fleet in parallel with passenger services.

Air Canada is planning an all-cargo fleet of eight aircraft and plans to have two 767 freighters in service during the fourth quarter. The company is using 767s from its own fleet that have outlived their usefulness hauling passengers. It has already identified preliminary destinations they will serve, including Miami, Mexico and South America.

“We’re tremendously proud of the strongest quarterly results Air Canada Cargo has ever seen, which are a testament to our continued efforts to maintain stable and consistent capacity flows for our customers across the globe through cargo-only flying,” said Matthieu Casey, who was promoted in May to senior director of cargo global sales and revenue optimization, in a statement. 

Overall, Air Canada’s operating revenue ($640.5 million) was down 82% from 2019 levels, with capacity down 86%. The company said it was still burning $9 million per day. The airline was handcuffed by government bans on nonessential travel and foreign nationals entering the country, as well as a 14-day quarantine requirement for returning Canadians.

The results are in stark contrast to the major U.S. airlines that have seen leisure travel rebound to near-2019 levels, are at — or near — breakeven and expect to have positive operating income in the third quarter thanks to the world’s most rapid COVID immunization campaign, a huge domestic market and fewer cross-border restrictions.

With Canada starting to reopen its economy, Air Canada executives are projecting a better third quarter.

Vaccination rates in Canada are increasing and the government’s loosening of travel restrictions in June, including the elimination of the quarantine period for fully vaccinated Canadians, has led to a significant increase in bookings. Further increases are anticipated once restrictions on travel between the U.S. and Canada go into effect Aug. 9.

Air Canada’s guidance for the third quarter calls for capacity to improve to 65% below 2019 and daily cash burn to decrease to between $3.4 million and $4.5 million.

Last week’s announcement of an enhanced summer schedule coincides with the loosening of restrictions and includes 55 routes and 34 destinations in the U.S.

“We’re relieved to see our passenger network starting to rebuild and continue to provide cargo-only flying in markets where capacity is still constrained. With the arrival of our first 767 freighters in Q4, the combination of these, our continued cargo-only flying and passenger flights resuming paints a strong portrait for the rest of the year,” Casey said.

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