Air Canada has again scaled back growth plans for its startup freighter division, announcing Thursday it has canceled orders with a vendor to convert two Boeing 767-300 passenger jets into freighters.

The airline took a one-time charge of US$14.5 million for backing out of reservations for production slots at Israel Aircraft Industries, it said in its earnings report for the first quarter.

Air Canada’s freighter airline division is nearly two and a half years old and now consists of eight Boeing 767-300 freighters — six converted passenger jets and two factory models. It had seven aircraft at the end of 2023. The feedstock for cargo conversions came from 767s that were retired from Air Canada’s passenger fleet.

Air Canada (TO: AC) in late September canceled an order with Boeing for two 777-200 production freighters because of the reversal in airfreight demand following the pandemic-fueled boom for air transport that lasted until early 2022.

Management said 18 Boeing 787-10 widebody jets scheduled for delivery beginning in late 2025 will have more cargo capacity than many existing aircraft and allow the airline to pick up new demand.

All-cargo operators have adjusted investment strategies in the past year in response to the freight recession that gripped the industry until last fall. Canadian airline Cargojet, for example, scrapped plans to acquire eight used Boeing 777s and convert them to freighters. Miami-based charter operator Global Crossing Airlines recently paused plans to add Airbus A321 narrowbody freighters to concentrate on the passenger business. And Amerijet, another cargo airline in Miami, this year returned six newly leased Boeing 757-200 freighters.

Positive revenue signs

Air Canada outperformed most of its peers in the cargo segment during the first quarter as improvement in overall market conditions helped slow the rate of decline in cargo revenue.

The company said Thursday that cargo revenue declined 9% year over year to $156.2 million, despite higher volumes due to softer yields. The primary culprit was the Atlantic market, which saw lower unit pricing and volumes. The decline in European trade was partially offset by increased volumes in other markets, especially in the Pacific as more passenger flights increased cargo capacity y/y.

Air Canada Cargo’s negative revenue growth is actually moving in a positive direction. Cargo revenue fell 15% y/y in the fourth quarter. Full-year 2023 cargo revenue was down 27% to $682 million. That mirrors the air cargo market’s recovery since last fall, with 11% growth for the first four months of the year compared to the same period a year ago.

Air Canada also did a better job than many competitors in stemming the revenue reductions for cargo. In North America, American Airlines and Delta Air Lines saw cargo revenues retreat 15% and 16%, respectively, during the quarter. In Europe, Air France-KLM and Lufthansa said proceeds from cargo declined 16.5% and 17%, respectively. Avianca, a major South American carrier, said its cargo revenue was 8% lower y/y. United Airlines is the only passenger airline that outdid Air Canada, with cargo revenue of $391 million only off 1.8% from a year ago.

Air Canada differs from its U.S. counterparts in that it has a fleet of cargo jets that supplement the cargo capacity of its passenger aircraft. The other airlines only carry cargo in the bellyhold of passenger jets, not including occasional charter deals with outside freighter companies.

The cargo division recently added Chicago O’Hare International Airport to its freighter network, with service scheduled to start June 2. The service will operate three times per week, connecting the airline’s global hub in Toronto with its warehouse operation in Chicago.

Overall, Air Canada posted a $60 million loss for the first quarter on a 7% gain in operating revenue. Adjusted earnings before interest, taxes, depreciation and amortization was $329 million, an improvement of $30 million but below expectations as higher labor and maintenance expenses weighed on margins and passenger demand waned.

Click here for more FreightWaves stories by Eric Kulisch.

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