Virmani’s crusade at Cargojet

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By Mark Pilling

Business opportunities often arise from the woes of others. In the case of Ajay Virmani, the bankruptcy and subsequent demise of Canada 3000 in late 2001, although painful at the time, provided the springboard for this determined Indian immigrant to launch Cargojet, which has risen in just four years to become Canada’s largest cargo airline.

Virmani and his partners had invested some C$6 million ($5.3 million) for a 50% stake in Canada 3000 Cargo in August 2001. But the passenger side of the carrier was faltering, and it declared bankruptcy in November of that year. Virmani had two options: walk away or invest further and try to salvage and grow the business.

An injection of C$8 million more, mostly from Virmani himself – who since arriving in Canada in 1975 had forged a successful career in the transportation field – saw the creation of Cargojet Canada in February 2002. He was confident that the Canadian market was ripe for a dedicated overnight air cargo operator. “I knew the need was there for a consistent service and I cashed in on that,” he says.

His first decision was whether to continue using its existing capacity provider to fly its cargo network or whether to acquire its own jets. Following 9/11, aircraft values had plummeted and the prices of Boeing 727-200s in particular had fallen steeply. The decision was taken to launch its own services and three 727s entered service in June 2002.

Cargojet nows operates 12 727 freighters and will add another one or two over the next year, says Virmani. The carrier’s network spans all of Canada’s major cities, and is also beginning to take in some international points too. In 2005 its revenues grew by over 16% to nearly C$118 million with operating profits standing at C$14 million. In May 2005 Virmani took Cargojet public, raising C$59.5 million in the process.

Virmani attributes Cargojet’s success to its singular focus on cargo. “Nobody provided the service we are providing,” he says. Many saw cargo as an add-on to their main business and treated it accordingly, he notes. Furthermore, one of his main competitors, Air Canada, has downgraded the size of its aircraft serving the domestic market which has reduced its cargo-carrying capacity.

Today, Virmani says Cargojet now has over half of the overnight and time sensitive cargo market in the country, with customers ranging from Fedex, UPS and DHL to freight forwarders. This market is growing.

Another area of expansion is overseas, and in November the carrier began operating a daily Toronto-New York Newark-Bermuda routing. “We are the only freight-only carrier flying from North America into Bermuda at the moment,” says Virmani, with horses, livestock and seafood popular cargo on this service. Again the express players are regular customers.

Cargojet is looking at services to islands in the Caribbean and is working on the business case with the express companies, says Virmani. At present carriers like DHL or Fedex operate smaller turboprops to destinations like Barbados from Miami, but they are not often full. “There is no sense in them flying planes that are a third empty. We can bring them together as a natural party and consolidate the cargo in one bigger aircraft,” he explains. Costs can be reduced by 30-40%, he believes.

Virmani has also studied services further afield. “The only reason we have not done Europe and China yet is the availability of aircraft – it is very difficult to find widebody aircraft at decent prices.” For example, Boeing MD-11s use to cost US$400,000 per month in lease rates not so long ago. Today’s rates are double this. The market is also tough, with yields depressed. This all means Virmani is happy to wait. “If I could get the right price aircraft we could serve China from Toronto and Vancouver, but the timing is not right to enter the market.”

When the time is right, Virmani will look to acquire widebodies. “When new 777s and 787s hit the marketplace in the next 24 months there will be a lot of 767s available for cargo conversions,” he says.

However the workhorse of its operation – the 727 – still has plenty of years left. Its 727s could remain in service for another 10-15 years, says Virmani, despite being less efficient than more modern types. They were only converted to cargo a few years ago and have low hours and cycles. And although fuel prices have risen these hikes are passed on to customers.

An interesting growth area for Cargojet is with international carriers that want to distribute cargo from their passenger flights into cities like Toronto and Vancouver around Canada, says Virmani, but not with Air Canada.

He has signed 25 deals with overseas carriers, such as Air-India, British Airways and Swiss, to “codeshare” on Cargojet’s domestic operations in this manner. “We started developing this just over a year ago. It is all incremental business for Cargojet with the revenues all falling to the bottomline,” he says. Although modest, this area is now worth over C$3 million annually to the carrier.

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