Introduction
In an interview with the Financial Post’s Larysa Harapyn, Cargojet Inc. chief executive Ajay Virmani expressed concerns about the state of the economy, citing fuel prices and labour challenges as indicators that a recession may be looming.
Cargojet’s Strong Growth Amidst Economic Challenges
Despite beating earnings expectations, Virmani noted that business has levelled off since 2021. "That was a bit of a different story," he said. "We’ve had to adapt to the changing landscape."
Cargojet has been expanding its international market presence as part of its growth strategy in the post-pandemic world. The airline used to be primarily domestic, with 80-90% of its business focused on Canada. However, this has since evolved, and domestic orders now account for only 50% of the company’s business.
International Expansion and Competition
Air Canada recently expanded its fleet with new freighter aircrafts, but Virmani said it has done little to change the playing field for Cargojet. "International is a big market," he stated. "We’ve got a business plan, and we’re going to execute it."
Cargojet’s network in the Canadian market has taken over 20 years to build, giving the company an advantage over competitors who have been slower to establish themselves.
Passing on Inflationary Costs
Passing on inflationary costs to customers has been tricky for Cargojet because many of its clients have locked-in contracts. "You’re not able to pass on 100% of those charges," said Virmani. "It’s kind of hard to jam through every area of increase to your customers because there’s no ability for them to pass it on either."
Labour Shortages and Inflation
Labour shortages and inflation are significant concerns for Cargojet, with Virmani noting that jet fuel prices have increased significantly.
"We’ve had some challenges in terms of fuel costs," he said. "We’re not able to pass on all the increases to our customers because they can’t absorb it either."
Conclusion
Cargojet’s expansion into the international market and its established network in Canada make it well-positioned for growth despite economic challenges. However, Virmani’s concerns about labour shortages and inflation suggest that the company is taking a cautious approach as it navigates these issues.
Recommendations
- Diversify operations to mitigate risks associated with domestic market fluctuations
- Invest in resources and infrastructure to support international expansion
- Develop strategies for passing on inflationary costs to customers
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