Cargojet soars as e-commerce shipments get a lift from COVID-19 lockdowns

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As the COVID-19 pandemic continues to squeeze corporate Canada, Cargojet Inc. has emerged as an outlier: Business is strong, the cargo airline is hiring and it is paying $100-a-day raises to staff.

Headquartered in Mississauga, Cargojet controls more than 80 per cent of Canada’s priority air cargo market. In contrast to hard-hit passenger airlines, Cargojet is capitalizing on a surge in e-commerce demand as families turn to online shopping while hunkering down at home.

Investors have taken notice: Cargojet’s shares have rebounded beyond their prepandemic peak and closed Thursday at a record $129.74 apiece, giving the company a stock market value of about $2-billion. Since hitting a recent bottom on March 18, when equity markets broadly sold off as the novel coronavirus spread in North America and Europe, Cargojet’s stock has rallied 72 per cent.

“People who are in the e-commerce business are certainly trending upwards right now,” chief executive Ajay Virmani said. “That’s the intent, because we don’t want people going out to stores” during the pandemic, he added.

For years, investors have viewed Cargojet as a unique Canadian play on the rise of e-commerce. With its main hub at the John C. Munro Hamilton International Airport, most of the airline’s revenue is derived from a domestic network of overnight cargo shipments between 14 Canadian cities. Its largest clients include Amazon.com Inc., Canada Post Corp. and United Parcel Service Inc.

E-commerce was expanding before the COVID-19 pandemic, but there was plenty of evidence to suggest Canadians have been slow to embrace digital shopping.

In 2019, e-commerce spending in Canada increased by 32 per cent to $2.6-billion, yet still accounted for less than 5 per cent of total retail sales, according to Statistics Canada data. The Statscan figures are incomplete – for instance, they don’t include common digital transactions such as flight bookings. Even so, analysts say Canada lagged the United States and China.

“We have a lot of catching up to do,” Mr. Virmani said.

As physical-distancing measures drag on, there are mounting signs the pandemic is accelerating the shift to e-commerce. Statscan recently noted that online retailing was one of the few areas where economic activity is expanding.

Cargojet has been a big beneficiary. In a client note last week, Canaccord Genuity analysts said Cargojet had seen a 15 per cent to 20 per cent “spike” in business-to-consumer volumes since mid-March, “driven by increased use of Amazon and other e-commerce traffic.”

Mr. Virmani said higher consumer shipments have more than offset declines in business-to-business traffic. "The overall trend is up,” he said.

“Cargojet is unique amongst Canadian aerospace names in that the impact of COVID-19 has positive implications that are offsetting the broader economic slowdown,” the Canaccord analysts wrote.

“We do not see anything about the current environment that is likely to impact Cargojet’s enviable competitive positioning, virtual monopoly of the overnight air cargo market, and exposure to secular e-commerce trends that will continue to support growth in the years ahead.”

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Mr. Virmani said total volumes have slowed in recent days, but that could be because households stocked up during the initial weeks of the pandemic, and because online retailers are either struggling to fill orders or placing a higher priority on essential goods.

But he said Cargojet has added about 100 employees – including roughly 40 pilots recently laid off by other airlines – to ensure operations run smoothly. And the company is doling out the temporary $100 daily raises to its entire work force.

It would be difficult to disrupt Cargojet’s dominance of Canadian air freight, analysts say, given the substantial investments needed to build a competing network, and foreign-ownership restrictions that prevent big global players from invading the market.

“Canada isn’t a dense enough market for everyone to efficiently run their own freight operation,” said Chris Murray, an AltaCorp Capital analyst who covers the company. “So what’s happened over time is everyone’s found the best and most efficient way to do it is to actually give their business, or do a contract, with Cargojet.”

Mr. Virmani acknowledged the company is not insulated from broader forces weighing on Canada’s economy.

“We can only be good as long as there is buying power and people have money to spend,” Mr. Virmani said. “We’re not immune to the recession or depression – whatever you want to call it – but I think we have quite a better chance of survival than a lot of other companies.”

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