Q1 2022 Cargojet Inc Earnings Call
Ladies and gentlemen, who are currently on hold for the cargo Chad Conference call replay information This conference whether it be starting shortly thank you for your patience and please continue to hold it.
[music].
Good day and welcome to the cargo Jet Conference call. Today's conference is being recalled that at this time I would like to turn the conference over to Pauline Dhillon. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining us on this call today with me on the call today are H, everybody, our president and Chief Executive Officer, Jamie Porteous, Our Chief strategy Officer incentive Manny our interim Chief Financial Officer. After opening remarks about the quarter, we will open the lines for questions I would like to.
Point out that certain statements made on this call such as those relating to our forecasted revenues costs and strategic plans are forward looking within the meaning of the applicable securities laws. This call also includes references to non-GAAP measures like adjusted EBITDA and adjusted EBITA. Please refer to our most recent press release and M. D N a four <unk>.
[noise] assumptions and cautionary statements relating to forward looking information and for reconciliations of non-GAAP measures to GAAP income I would now like to turn the call over to a J.
Thank you Pauline and thank you everybody for joining us this morning.
It has been a really busy quarter for us, but we are very excited about these developments mean part of our future.
As you know the following.
First on March 29, we announced new strategic partnership with DHL.
This 2.3 billion deal over seven years.
It's one of the largest single transaction in our history so far.
Very excited about the opportunity because it allows us to scale up our business to the next level.
And as we scale up their economies.
Of larger scale will benefit all of our customers.
Number two we are excited to announce a share purchase program and CIB.
Number three we are also announcing a dividend increase of 10% effective of a usual cycle starting June 'twenty, 'twenty, two where all of our shareholders.
Number four.
We are also very pleased with our Q1 performance, which I will talk about later.
Before I talk about Q1 results I would like to share a few thoughts on how carpet debt position for the current environment.
We are fully aware that there are a lot of uncertainties on the horizon.
Inflation high oil prices rising interest rates.
Laboring lingering effects of Covid.
However, at the same time global supply chains remain on.
Yeah very disrupted.
In the future.
Passenger air travel and belly capacity on the international Lane remains uncertain.
These factors on the other hand have created a tailwind and opportunities for cargo jet.
We have prudently de once you're part of a business that does not rely on a single line of business.
If you buy an all in charter business are performing stronger.
And of our domestic network continues to support Canadian E. Commerce group, while there may be short term volatility in the E. Commerce trends, we believe the structural shift towards Digitization will continue to be a tailwind for e-commerce and the longer term.
Traditionally the number one headwind for the airline industry has been the cost of servicing debt.
Airlines are a highly capital intensive business. So that is part of the business model.
But.
Anticipating that inflationary pressures and the interest rate risk, we took a proactive step in January 'twenty, 'twenty, one and made a strategic decision.
Derisk our balance sheet.
We did an equity raise and use the proceeds to pay down majority of Florida.
As a result, we have been maintaining a very low leverage and no better protected against the cost of raising interest rates.
Cargo jet owns 93% of its fleet that has a fair market value.
Off over $1 billion. These are an encumbered assets that are highly sought after given today's <unk>.
Fly chain demands.
Even though were previously announced Capex program, we do not expect our leverage debt to EBIDTA ratio to exceed 2.5 times.
This business continues to generate strong cash flows which are using to invest in our growth.
We continue to manage our business prudently and they're very aware of the uncertain future ahead.
We're ensuring that all capex and Opex is justified and well supported with real opportunities.
Our ability to react to the changing environment was tested at the start of pandemic in early 2020, and as a nimble entrepreneurial company, we will continue to adapt to the changing environment.
I make this point, because we believe that in order to be competitive.
Have a strong balance sheet.
In the long run only stronger companies will be able to maintain their leadership position.
Now I will turn.
The meeting over to Jamie Porteous, our Chief strategy Officer to talk about Q1 results.
Yes.
Good good morning, everybody and thanks, a J.
We're starting the year with yet another strong quarter with revenue growth of 45, 7% compared to the prior year.
While we are pleased with the double digit growth in all lines of our business. We benefited from very strong demand in our all in charter business that grew 298% versus the prior year.
This was primarily driven by strong demand for transportation from China.
Our diversification strategy continues to allow us to leverage our various offerings that are meeting a diverse set of customer requirements.
The adjusted EBITDA for the quarter came in strong at $83 million compared to $64 2 million for the same period in 2021, an increase of 29, 3%. This also reflected tighter cost management for both direct as well as indirect expenses.
We are starting to make progress in bringing the crew costs down but more work is needed to bring it back to our expected run rate.
With our continued focus on finding efficiencies our SG&A cost was down 32, 5% for the quarter compared to the prior year.
The strong top and bottom line performance reflect the resiliency of our business model that is taking advantage of growth opportunities as supply chains remain disrupted and unpredictable.
On the operational side.
<unk> growth remains very strong average daily volume is up 21% in Q1 versus the prior year.
As planned we grew our fleet to 32 aircraft at the end of Q1, 2022 and our on time performance range remains in excess of 98%.
This is a critical deliverable given the importance placed on this target by our customers.
As we continue to grow our focus is shifting to building a strong management team in each of our growth segments. We previously announced the formation of our international cargo team that will aggressively pursue opportunities to build complementary complementary international business around our domestic network.
We're also continuing to invest in talent to further strengthen our domestic network business. Our human resources team is very skilled that attracting and retaining talent at all of our key airport locations. This is allowing us to maintain high customer satisfaction levels. Despite strong volumes being carried.
We have significantly enhanced our investments in technology, cyber security and business analytics to support the next phase of our growth.
Cargo jet has always believed in the power of great people working together.
To achieve strong results quarter after quarter requires a discipline that can be repeated over and over again.
Can only be achieved with a talented workforce. We are very proud of the cargo jet team for delivering yet another strong quarter for cargo Joe.
This concludes our opening remarks, and we will now open the call to questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please sigma by pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Again, please star one to ask a question.
They did pause for just a moment to allow everyone an opportunity to take another question.
Okay.
Our first question today comes from Fatih Salmon of BMO. Please go ahead.
Yes. Good morning, Thank you.
Okay.
I don't want to kind of minimize your performance in Q1 on the growth side year on year was quite spectacular obviously.
<unk>.
Just wanted to get your thoughts on kind of how you're seeing the demand going forward a number of your customers.
Hi.
Reported slowing volume in the first quarter and a little bit more cautious on the volume growth story going into the second quarter and the rest of the year.
And I noticed in your own volume in the domestic network or gone up quarter over quarter. The performance in Q1 versus Q4 was quite weaker than we would typically see on a quarter over quarter basis. So maybe you can just give us some thoughts what are your customers.
Providing you in terms of forecast going forward.
Well I'll take it and Jeremy can tweak my answer.
Answer.
We have.
<unk> been in touch with most of our customers are that chip large volumes with us today.
We have not.
Any forecast that we have seen from them for the for the rest of the year.
They have not certainly Sean.
Slowdowns.
That people are talking about it now.
Now, even if we were to take their volumes and their forecast and take.
You know.
The market factors in advance, we still believe that over or will have tremendous growth going forward, but that's one of the reasons that.
Company has always.
For the past three years had a target of diversifying of our business. So we're not just dependent on one line of business.
If there is a bit of a slowness in the E. Commerce. We also have the <unk>.
Program and the charter program going and now we're also expanding today international not to be dependent on one line of business. Yes. We are aware of certain slowness in the e-commerce sector that are.
That are being forecasted, but keep in mind, Canada, especially was 5% to 10% behind on E Commerce growth.
Compared to the U S and compared to Europe and Asia.
So theres still a lot of catching up and we still remain behind.
In terms of growth in e-commerce, so even some of our U S based customers.
Who do a lot of shipping and in Canada have pointed that out that although they have seen some slowdown in U S. Canada E. Commerce has not slowed down to the level what <unk> has.
Jamie you want to add to that.
Okay.
Yeah. Thanks, a J good morning, yes.
No I would concur with AJ I think in all three segments of our business, we're seeing strong year over year demand continuing into Q2, our Q1 results overall with one of our strongest quarters ever year over year and almost equivalent in total revenue to Q4, which is significant obviously driven by the tremendous demand for all of the charter.
We did a number of.
Charters from China, bringing rapid test kits back into Canada, the demand for that has somewhat slowed but.
The rapid test kits that demand out of China hasn't slowed at all it was somewhat muted.
Muted in the latter part of Q1 and the first part of Q2, only because of shutdowns because of Covid outbreaks in Shanghai, but the demand for AD hoc charters remains extremely strong and so does pricing as I just said our.
DIC business, we continue to see strong demand going into Q2, we've also seen.
In Q1, some shift of some traditional ground volumes, particularly with Canada posted moved some volume because of lack of ground transportation either trucks are drivers in the shortages that are there we're seeing an uptick in volumes and then of course as we add more a CMI flying we see tremendous growth opportunities for the balance of the year.
Okay. Thanks.
Very helpful. The charter revenue that we saw in the first quarter were quite strong in <unk>.
You mentioned, some some kind of slower.
Demand now from from China, maybe because of this.
Cut down would see whats kind of.
Is the right range for the charterer going into Q2.
Based on what you're now expecting yeah. So.
So I think it's not the demand that slow out of China at the logistics because of the Shanghai factor.
For the first six weeks there was no.
Actually the first four weeks, probably we just started operating back into into Shanghai. So as a matter of fact, the demand from there if we could do three flights a day into China, we would be able to sell all of those so actually for the four weeks that the shipping didn't happen out of Shanghai, especially.
There is even more tremendous demand.
Which obviously not one carrier or not ourselves can fulfill so factories are just busting out it seems right now.
Shortage.
We are left and shortage of people agenda airport, it's it's not a matter of how much.
Demand there is a matter of how much we can handle.
We believe that quarter, two would would have strong.
International charters are all our charters, but obviously the China part.
Was slow for the first four weeks.
Thanks I appreciate it.
Okay.
We will now take a question from David Ocampo of Comex acuity. Please go ahead.
Hi, Thanks, good morning, everyone.
Good morning.
I guess in your MD&A, you guys talked about strategic initiatives, particularly in the outlook section.
<unk> was also flagged in there.
Can you walk us through how that how we should be thinking about those initiatives in light of your big Big Capex plan and the corresponding increase in leverage.
Yeah go ahead Jamie.
Okay.
Yes, good morning, David.
In terms of the outlook I think we indicated that continued very strong demand in all business segments. Both of our domestic business driven by higher E. Commerce demand certainly are all in all in the international business continuing to.
Just articulated.
Very strong demand, we just don't have enough aircraft to meet the demand that exists globally.
As well as other international expansion projects and then of course, the previously announced initiatives with.
Our Asia business, particularly with DHL that those aircraft come in this year and next year, we may have talked a little bit in the outlook I don't have it in front of me about our continued investment in 'twenty, one there and we continue to try as we've said in previous quarters, we continue to try to download it and still some of the operational and financial financial excellence.
We brought to cargo jet in 'twenty, one are and certainly leverage our relationship with our customers, particularly DHL to help grow that side of the business.
So I guess JV should I be thinking about the growth Capex that you guys laid out there could be some incremental to that or is or are you guys kind of fully out lay out all your plans here.
No I think we're pretty comfortable with the growth capex that we've already articulated.
<unk>.
Okay.
Yes.
Follow on to that and the loss of <unk> <unk>.
Do you guys have any update on your Capex plans I know as you guys provided some pretty wide ranges that would be for 'twenty three 'twenty four.
Zeroed in on what that looks like today.
Uh huh.
So it will be same as what we had projected earlier at present days no additions to our plan.
We're still on target for what we have cleared.
In our Q4.
Outlook.
Okay. Thanks, guys. That's it for me.
Okay.
We will now take a question from Chris Murray of ATB capital markets. Please go ahead.
Yes, thanks folks good morning.
My first question is just on the on the domestic network.
And the addition of the 7% to Kevin's.
Just wondering if you have any additional color or commentary to talk about how those have been working into the into the into the network.
And your expectations as you bring in the additional 157 million into the network later this year and if you could maybe give us an idea how are you thinking about releasing some of the 760 sevens.
We haven't started the program yet because we don't have the aircraft are available, but we plan to start probably earliest would be end of Q2.
This would be a phased in approach it's not just like you take all of a sudden change the whole thing it'll be.
Three major routes that would see those changes and those changes would happen in quarter two.
And beginning of quarter, one next year, and then quarter two next.
Next year as well so.
Yes, it will free up some 760 sevens, which are highly in demand.
There will be.
Some rejigging of the network, we are in continuous discussion with our customers as to <unk>.
<unk> for those.
You know if for example.
767 is flying at certain drought.
The stop and let's say when it back.
<unk> thousand 767 could go directly serve it.
Serving that city, let's say to Edmonton, we could go fly directly Hamilton, Edmonton and avoiding the stop in Winnipeg for one of the 757, which improves the service tremendously.
And also eliminates the risk of stopping respect for all of your freight so all of those things initiatives are under discussion with the customer. So you know we don't.
Make changes.
All of our major customers are on board and they can see that we have actually improved the surface. So.
So that's a phased in approach and it'll be about 12 months before.
Do that strategy because all the aircraft 750 sevens are being converted right now.
And out of the seven we're expecting we only have one so far so it's going to be a bit of road, but it's a promising road for sure.
Okay. That's helpful.
And then just on cost a couple of different questions here I mean first of all on fuel can.
Can you just remind us.
How the pass through mechanisms work I mean, certainly fuel prices are up pretty substantially and I'm. Just wondering if there's any concern about.
Timing differences that could impact you.
And then you talked a little bit about labor costs, how much more do you think is available too.
To be able to be gained.
Just with your labor efficiencies.
Well the few basically you know our policy has always been we don't make money on fuel, we don't like to lose money on fuel.
But having said that you know we also have to look at competitive factors in the marketplace.
That being the goal.
We always pass on but there is a bit of a lag which is about a month.
I would say before we get to previous.
Uh huh.
Our current month's price that would go into effect next month. So it's not a huge lag, but there is at least a month's lag of that but we had to cover the following month.
And.
This is how the mechanism has worked for the past 20 years for us.
Every customer has.
Contractually a fuel escalation formula that.
That we supply to them some are based on cancer mandate based on market pricing.
So depending on the contract they are applied a month and the lag and that's how.
The fuel Formula works.
As far as the labor efficiencies concern.
B R. Every company is facing headwinds today in terms of jobs.
Labor.
Sure.
I don't think the labor costs.
<unk> are coming down anytime soon as a matter of fact, we are on the rise.
We all read the papers, we all know that.
It's hard to find people.
The workforce, especially today.
They not only.
Are used to the hybrid model of working out of the house, but there has also been.
Certain increases in wages throughout.
Throughout the country throughout the.
North America I would say.
So what do we do to counter that.
Is absolute efficiencies like we have established a department.
Transformation and operational excellence and you know this is where the key comes in that how do we fine tune.
Get the best utilization and best utilization of labor and all resources. So.
I wouldn't have any expectation that the wage rates will come down, but certainly hard to get his position and positioning itself to operate more efficiently and not lose anything.
You know not lose any loose ends or anything on the table that we can gain efficiencies on so this department, especially established to make sure that we are effectively and efficiently using all of our resources.
Okay. That's helpful. Thank you.
We will now move to questions.
Brooklyn, with RBC capital markets.
Yes, thanks, very much operator, good morning, everyone.
Yeah well.
First starting with the competitive landscape.
Obviously international is the only one area, where you do have real competition and Air Canada has now started deploying it.
It's dedicated freighters Westjet has announced a new partnership with GTA anything that has come from the unexpected to you a J in terms of how they're where they're deploying that aircraft in the matter they are doing it.
Actually not really I mean, they are.
They have you know from what we have seen in the marketplace.
And our own market a.
Survey and intelligence with the customers.
The routes that they have deployed on do not interfere with our Lloyd's our our routes and any any which way you.
You know I'm I'm I going to lose 1000, or 2000 pound shipment here and there probably we do but also keep in mind with our expanding network. We'd also gained some shipments.
We have.
You know obviously, we provide service to 16 domestic cities between the hours of trial at night and five in the morning and that network is our key network that performs at 98% so.
They announced a flight into Halifax at I think around three in the morning.
Getting into Halifax, 536 o'clock.
But just keep in mind some of these things go to Toronto.
Toronto Airport, which you know.
If you are the icing you could be half an hour more than that even the requirements of tendering freight or an hour or two hours before where in our case you could bring it in 20 minutes before the flight and that'll get on so there's a lot of competitive advantages and cargo pedigree and discipline that card we get has.
No we don't anticipate from the present announcement there there is anything that we're concerned about.
You know that would affect us.
Today, but again this is where our operational excellence department is looking at how do we keep our performance up over 90, 899%.
Introduction of the new $75 seven program direct services into every major city I mean within 12 months, we will have every major city out of Ontario, and Quebec service directly.
Without nonstop. So these are some of the advantages that our competitive edge is that we have and we are focusing on those to fine tune more so not at the moment, we don't see any impact on.
On our service.
Fly twice a week into Cologne for example, they've applied for Reits with one flight into Cologne.
So much business out of Germany and to be honest with you Kirk Jets announced.
And seeking rights into into Frankfurt. So there is there is a lot of international backlog, there's a lot of international business. There's a lot of carriers flying it yields are still very high and we are confident that.
We can pull through this.
Great, Okay, and moving on to the.
The e-commerce discussion about potential downturns and even if your customers are saying strong demand, let's let's use the hypothetical that it turns the other way unexpected to them can you describe how that would affect your contracts given that there was a lot of.
Pre purchase space by those customers or.
Can you talk a bit about how much of that space as youre backstop space that they are required to purchase even if we do see a downturn this year.
Well, if we see a bit of a downturn there is probably I would say we returned three nights out.
Five we operate or react to the operating seven nights oldies, but skeleton scheduled on Saturday and Sunday, but let's say you know the prime demand days Monday to Thursday, we probably turned away a fair bit of business everyday that we can accommodate.
So even if there was a bit of a slowdown.
Anticipate.
That we would carry volumes we are carrying today, yes, there will be some flow and understand the customers.
And to be honest with you we with the new network that we are planning domestically would give us the flexibility that we can scale up to a 767 300, if the need requires on a route we can scale down to the middle which is a 767 200, we have bad asset and we also have 75 seven.
Which is a further downgrade. So you know if your costs are going to go up.
Volumes are up great, but if your volumes are down we also have the ability.
As we take delivery to have more flexibility.
To divert the aircraft either.
Where there is higher volume higher a higher gauge aircraft and lower lower.
And also again as you talk about E Commerce and this is exactly what our strategy was to diversify so we're not.
You know, 80% or 90% of our business is dependent on the domestic E. Commerce. So this is where the.
Strong in CMI charters international would kick in as well.
Okay and then a final question here is on the CMI and you've talked about diversification just curious if you've got a lot in with DHL right now or are there other kind of other customers that you continue to look at art in Asia My basis, or do you feel like DHL encompasses the largest amount of what you want to.
Fortunately CMI and looking at block hour for any other capacity that you're bringing on that has not been dedicated to deal yeah. So yeah.
Yeah. So DHL, although it was a very strong customer of ours and one of the biggest users of.
<unk> services for us.
But keep in mind.
We have a distinct advantage with DHL rich.
A lot of other operators don't we're the only company in the first company DHL has given a long term five year, but the two year option deal too. So we believe that we have a strong.
<unk> for Spain.
What do you tell is using today, but also we have a couple of other customers.
For with Amazon re fly to CMI aircraft and there is two other customers that.
We are in discussion with some <unk> business as well, which obviously we can't reveal at this stage, but yes, we are trying to expand that <unk> business overall.
And not just be reliant on DHL. Although it did you tell is one of the strongest partners rehab.
So yes, there are discussions with other <unk>.
Well, so states stay tuned cost.
Okay, well, that's all my questions congratulations on the great quarter.
Thank you Walter.
Our next question will come from Kona Gupta of Deutsche Bank. Please go ahead.
Thanks, and good morning.
So we're feeling.
And then just just echoing my congrats on the quarter and then last question is on fleet.
Fleet.
I kind of noticed.
And the lead table you provided versus the last quarter.
Like change I think it seems like all the aircraft that might have pushed to the right.
Just wanted to understand things like the high level.
The fleet plan remains intact over the next three or four years, but what's causing that shift.
Like a quarter or two shift between 'twenty to 'twenty two 'twenty three 'twenty four if you can provide any color.
Jamie.
Yeah, Good morning Connor.
Part of the cause has just been the lead.
Some delays in the conversion of the aircrafts are either COVID-19 related delays at the facilities that are converting the aircrafts that we experienced in 2021 uncertainty and continued to experience a little bit of that in 2022, and then combined with supply chain.
Delays in parts that are used with the conversion of the aircraft. That's really the only reasons that have pushed any of the deliveries to the right.
Okay makes sense and I think that's expected does that.
Does that change the Capex cadence you provided last quarter century.
No that will stay the same only thing is.
Capex will get moved from one quarter to other cash.
Cash outflow will be still the same.
Okay. Thanks, and then last one for me.
He talked about the international airline wide body capacity of belly capacity.
How it's structurally impaired maybe perhaps are not going to come back to the levels that we have.
<unk>.
It's pretty high level discussion I guess, but just wanted to understand like in terms of your own kind of thought process on that.
Are you seeing like Reno, obviously like the airlines are all wrapping up capacity back to where they want it to be obviously still back to normal.
In Europe set up analysis do you see major Airlines International Airlines across the Trans Atlantic.
Are they not deploying the wide body aircraft that they were once deploying or are they not getting as much cargo in the belly capacity I mean, what are you seeing out there because obviously the airlines are telling us that they are ramping up capacity in most of the airlines the thing going back to pre pandemic levels of revenues.
So let me just try to kind of connect the dots here.
So qunar number of opinions on that or what have you seen out there, saying that number one the belly capacity is not fully back. So we all agree with that.
We also know that you know the 740 sevens and creating that used to fly in a globally.
Internationally, a lot of them have been taken out of service.
So the biggest aircraft right now that is serving as either a $3 50 330, Airbus our triple seven aircraft, but we are seeing a lot of.
Less frequency.
As.
You, probably know and read that.
You know most of these airlines have been relying on business travel business travel is not coming back anytime soon and is not picking up the way leisure travelers. So when leisure travel happens there is a lot of people on a flight and Theres a lot of baggage the room for cargo declines. So we are seeing that trend.
We're also saying.
That the frequency of these flights is a lot less than they used to be eight or 10 play today in London than there probably half of them now.
We are also seeing that.
Down gauges of aircraft.
And when you when you talk about downgrades. This it's not just.
737 can do.
You know Toronto, New York. These days. So we are seeing some of that trend in the market.
But also the downgrades are done sometimes.
Bob.
At the spur of the moment when you've been airlines realize they don't have a certain capacity or certain load factor down gauge aircrafts consistently and went down gauges happened. It also reduces the reliability of that carrier.
So these.
These downgrades is certainly.
Being done because of the passenger demand so.
All the cargo operators of the cargo freight forwarders cannot live with that kind of uncertain environment, but in the long term what the last two years have done is that carriers like DHL relied heavily on.
Passenger belly capacity are now used to a different method of operating they have adjusted their hubs and networks.
To a very different model because you know, let's say for example, if a shipment came in from London true Toronto on four different flights now it's coming on one flight. So they have adjusted their hubs in network with that better service and they can be more competitive with integrators.
That are out there in the market. So it's there has been a market shift in some of the shifts are very permanent.
That.
The belly capacity, even if it came back and these ships are not just going to say, okay. We are gonna change of our business model that has made them a competitive and more effective and more efficient that they will just go back to the old value model. So I'm not disagreeing that the belly will come back to some degree but to be honest with you.
You look at a lot of companies today that are.
We are getting into the airfreight business I mean, just because they feel the demand a lot of people are now shifting towards airfreight from surface transport.
Challenges of the truck drivers are our trucks the challenges in the ocean freight business.
Ocean freight rates are about three times, what they used to be the differential is not that much with with.
The airfreight now so companies even like more scarce.
First our ocean lines have now bought three airplanes to go into there Eric.
Their cargo business, so we anticipate some.
Capacity coming back at some point as life normalizes.
Some shifts are permanent and some shifts we feel.
Our stronger for us and we will continue to be stronger.
That's great Thanks, and congrats again.
Thank you.
We will now move to a question from Tim James with TD Securities.
Thanks, very much good morning, congratulations on good morning quarter here.
I'm just trying to jam a return just sort of the domestic network and to the 10% plus year over year growth there.
It's a tough question to answer but can you tell if that now represents kind of a normalized and I say normalized meaning next year or two years growth in E Commerce.
You know what.
Or do you think theres still a residual benefit from kind of the pandemic, maybe some of the lockdowns of the restrictions that were still fairly significantly in Q Q1.
Or do you think that's kind of getting back to a more normalized kind of growth rate that reflects what you were talking about earlier AJ about Canada being behind the U S et cetera.
Well you know what we are seeing is that in the e-commerce.
You know people are flocking to the stores definitely right. So we've seen announcements by Amazon and others, saying you know, they're finding certain slowness.
But we're also seeing that people are not locked into the stores can buy dealing supplies like I always use the word.
Toothpaste and toothbrushes going in an e-commerce, because people are yes, they're going to the stores. They want to go a fresh in the open air and bring some are that they're not being used to but the habits of.
The customers that we are seeing is that they are buying the daily essentials and supplies more on e-commerce than they were then.
They're used to and that trend I think will continue on.
Is the domestic is going to continue at 10% every year.
If canada needs to catch up with U S and Europe and.
In Asia and in Commerce, and and also as the shift towards E Commerce, where daily essentials.
Rises our continues we.
We can certainly see that.
That trend to be continuing on but you know there could be some impact on the buying power of the people as interest rates goes up as inflation goes up so there could be certain slow nemesis and we recognize that and that's why you know we can upscale downscale down gauge we can adjust over cost.
Quarter every quarter or.
Going into the next quarter, if you find the slowness, we can also redirect aircraft into other.
The segments that have a high demand.
So you know the e-commerce is a interesting.
As you ask this question about the 10% growth.
I can assure you that if I look at my.
Top three e-commerce customers, they tell us they're going to grow by 30 40, 50% in the next couple of years, they don't but again we.
You know we are well equipped if that growth doesn't materialize.
To shift assets around where there is demand.
That's all I can tell you right now but.
Our customers have not told us that they have any and any plans.
Scaling down anytime soon on the ecommerce side.
Okay. That's helpful. Thank you.
My second question, just returning to the charter business and the charter opportunity you provided some great detail on the demand environment, there and kind of the moving parts and how strong demand is.
I'm wondering does your fleet plan and your capacity.
Allow you to keep 40 million, it's a great problem to have but does your capacity and claims coming in and out of the fleet or being moved around allow you to kind of keep this.
Run rate of charter revenue going forward at least in the in the short term or are you going to lose access to some of those aircraft because they have to be deployed into other other commitments or maybe it's depending on sort of the the timing the weekly timing of those charters, maybe you can just kind of fit in that type of revenue.
New run rate based on on on the low demand periods for the aircraft.
So actually of her charter revenue what we see is obviously been handled with every very carefully and that and especially with a shortage of aircraft. So if we had three more aircrafts today and I can assure you that we will not be there, but they won't be chartered or they won't be flying a CMI.
So with actually the new aircraft coming in.
You know it will free up some 760 sevens for that kind of charter work and he said my word but also I think we had also mentioned in the previous conference calls.
We'll be using at least two to three aircraft as spear and backup aircraft those backup and spare aircraft also have the charter capability in non peak and Nonpeak data non peak hours. So with the addition of the capital plan, we announced we will increase over charter capabilities. Many Forbes.
As opposed to shrinking the balance.
Okay. That's that's helpful. Thank you very much.
Yeah.
Our next question today comes from Kevin Chiang CIBC. Please go ahead.
Hey, Thanks for taking my question a question everybody.
We don't want to touch on Oh Asia, you mentioned.
We're kind of in a unique position maybe versus some other companies because you know.
You have a demand situation that outstrips, our capacity put into the market so that.
Air Pocket provides us with a buffer here.
India event.
No.
The economy turns are some people that theory.
I'm wondering is there a way to measure that that dislocation, whether it's volume or block I was like if you were to.
Ill take advantage of all the demand in front of you do you have a sense of what that would mean.
In terms of Knoxville block hours, you'd have to put into the market or whatever metric you want to.
Use and then maybe what that look like.
Ago.
At the height of a lot of this online shopping like how much of that dislocation would've looked like let's say.
Yeah.
Yes.
It's nine to 12 months ago.
Well Kevin.
The key thing is that it's kind of hard to.
Hard to look at what you know what the demand will be and what the block hours would be in <unk>.
But you know the greatest strength, we have is the flexibility I mean I'll give you an example.
You know we were contracted by DHL to fly six flights a week into China as of April one and because China closed down. They said, okay take this aircraft and go to Europe .
So you know we didn't Miss a beat and and this is where we.
We talked about the flexibility of the whole organization that we can quickly ramp up to any challenge that's thrown at us and you know.
We then did flying to China, but we did six flights a week into Europe . So.
I mean, those are the kind of examples that we have and we also at this stage. If we had three or four more aircraft believe me, we can't get them fast enough as a matter of fact, you know the next piece of her four or five aircrafts that are coming in are all committed.
And you know they're running a few months late because of the conversion.
Factors, so I mean, it's hard to quantify but all we know is that look if he if he noticed a trend, but you know for a week or two weeks or three weeks that.
You know and after consultation with the customers that we are not seeing the volumes on a certain lane.
We can quickly down gauge those aircraft and and we can even rejiggered network to avoid certain stops or eliminate certain routes at certain point that will bring and the cost efficiencies, which will be sort of matching capacity with demand.
So you know we've been doing this for 20 years, Kevin and you know there's not a day goes by there.
You know our whole team.
Jamie, especially in terms of.
The capacity management and our fleet management, we don't look at those things. So you know we make decisions sometimes on a daily basis.
Oh, yes, today's Thursday, we are not expecting much from the customers. So let's try.
Try this out and we ended up saving block hours you land all the costs associated with it. So this is a key thing for us that that that has been a key factor for our success and will continue to match.
<unk> capacity and demand together.
That makes sense.
You mentioned some of the supply chain issues that were that were obviously acting as a tailwind for the air cargo market and you've obviously been a beneficiary of that so I'm just wondering just given.
I guess the spike we have seen in fuel costs at the margin are you seeing any.
No.
I guess any modal shift back to cheaper mode.
Or is that maybe manage.
The broader inflation.
Air cargo was more expensive than other multi transportation are you seeing the rise in fuel costs potentially or is that having any impact on kind of how some of your shippers or are.
Looking at you think air cargo versus other modes of transportation.
Well you know the fuel is always a factor that people look at it long term right.
Fuel impacts not only cargo backs passenger travel when you're looking at an airline ticket where when the fuel surcharges more than the airfare.
There's obviously a concern.
At this stage.
Have not seen or heard of any concerns because everybody is hoping that.
You know this field phenomena is going to be a bit of a.
Short term or medium term and nobody anticipated this to be a long term because this is a longer term I guess everybody is in trouble with that.
But generally we at this stage, we have not had any any sort of pushback. Yes people are conscious about it and people not only are conscious about just you know and the freight costs, but there are conscious about putting a few of them in their cars or you know as well. So so far we have not seen it.
But generally the fuel is a big factor.
The other modes of transportation you asked are have also gone up relatively much higher in case of trucking. It's not just the fuel cost is the availability of trucks I mean, a trailer that was at 35000 dollar trailer now costs $120000. If you can just get it.
You know theres no, they're hardly truck drivers and so.
The other costs are also relatively higher the ocean.
Our container that used to cost $10000 from China, if you're lucky you can get it for $50000. So the other costs are relatively gone up much higher than the airfreight costs.
So yes, there will be some adjustment of air freight cost and the pricing will at <unk>.
Eventually come down to some level, but I think again, it's all a matter of what the relative costs that are out there.
Okay.
It's helpful. And then just last one for me.
We announced an NCI data supporting four.
455000 shares I guess under the automatic share purchase plan.
To interpret that.
Thank.
Youre committed to buying.
All those shares so kind of a 0.89% of the shares outstanding and Youll kind of buyback equally.
Over the next over the next year and maybe just broadly speaking how you think about it in CIB.
In the broader context of your of your cash flow.
Cash flow priorities.
Yeah. So that's an opportunity if the market wants to go down yet the NCI be kicks in and you know we heard from a whole bunch of investors and shareholders are institutional and others.
That that would be a good strategy after consultation with over you.
You know capital markets teams in various banks, we deal with.
We obviously feel that if certain prices are.
The share price remains certain.
At certain times down there that there's an opportunity to take that Dan CIB for sure. So.
This is something that we feel we feel over equity and the stock is undervalued. So it's certainly one way of rewarding the shareholders is to buy that back right. So.
Right.
That's helpful. That's it for me, thanks, and congrats there could start to the year here.
Yeah. Thank you.
We will now take a question from Nam and Saatchi Art Laurentian Bank. Please go ahead.
Hi, good morning, everyone.
This morning, just going back to the domestic network I know you don't specifically see the <unk> volumes or B to C. But just wondering with your conversations with your customers has anything changed.
Is there anything underlying within that business that you could share any additional color or is that.
Pretty much similar to what you've been seeing in the last few quarters.
So what we are seeing in whatever customers are saying that you know during the past few years. There was a tremendous increase a b to C business delivery.
But they're seeing slowly return of b to b, as well and less b to C. As the pandemic is.
Winding down.
Slowing down or at least not being impacted the way clause.
There's more increase of B to B business.
For us it doesn't matter, whether it's b to B, a b to C.
You know, we don't kind of distinguish between the two in our sort of container.
So for us it's a matter of freight whether it's b to b or B to C. Redo airport to airport. So.
But our customers do tell us that they're seeing less of them to see for sure.
Okay and is that a right way to think that <unk>. When it was down from pre pandemic levels, if that sort of comes back to the same levels, let's say pre pandemic and b to C is sort of the incremental revenue. So that's where the growth would come in is that the right way to think about it or it's just that the.
It is moving between the two segments and overall growth would be a little less than that.
It is somewhat right to think about it I wouldn't I wouldn't just like to say that we need to be and whatever you see is entirely incremental so some of the BDC that we will see has come out of the b to b sort of bucket right, but.
We do see that used a traditional trucks or traditional modes of transportation.
<unk> are now being flown so I think there'll be net incremental but I I might say that there's not incremental all the way, but yes, you're thinking it's definitely in the right direction.
Okay, that's great and just on the cost side.
Last year I know you guys had sort of put in some costs relating to COVID-19 has all of those cost sort of fallen off or is there something that you can still take out of the system on the cost side.
Well there is a there was a lot of cost for let's say testing PPE precautions and some of the things we.
Make sure that there were employees were safe.
Yes, those costs the cost of some of fallen off but being the place with some of the after effects of Covid. For example, some of the higher labor costs are you know our cost of landings and cost of navigation. So some of them some of those costs triggered by certain third parties.
You know so obviously the the COVID-19 related costs are are a bit less but COVID-19 affected costs are a bit higher so there's a balance there.
Okay, that's great and maybe just one last one I look at your average head count on a sequential basis. Its up about 65 or 64, just wondering if how much more of recruitment you still need to do on the pilots front or has it sort of stabilized I know some people leave and some come in.
But how is that looking.
Guys getting at a normalized level or are there is more to be done there.
Well, you know with the kind of business business plan, we have.
We are running courses and have been running courses for pilots every month and this month and next month is not going to be any different.
I think we had about 330 pilots right now.
Anticipate the year end with all the flying we are committed to doing and and the demand out there. We are committed to anywhere between 75 to 125 pilots in the next 12 months.
Adding in and we're continuously doing that every month.
Okay.
Thanks, a lot.
Not 75 to 100 every month, but a total count increase.
330 by at least 100 I would say.
And if I remember correctly correctly, you said, it's 25 a quarter previously right.
Yeah about that.
We target about eight to 10 or 12.
Every every every month.
Okay. Thanks for taking my question and congrats on a good quarter.
Thank you. Thank you appreciate it.
We will now take a question from Cameron toxin of National Bank Financial. Please go ahead.
Yeah. Thanks. Good morning, most of my questions have been have been asked and answered already but just I wanted to get a better idea on the <unk> sort of the ramp up there specifically with the DHL contract can you just remind us I guess, how the incremental aircraft to that contract are coming in through <unk> through the balance of this.
Year and into a into 2023, I mean, I know you've got your your aircraft deliveries.
As shown in your MD&A here, but just wondering if you know how quickly they go actually on the contract with DHL once they've been delivered to you.
So typically our we get an aircraft.
For example, we have a 757 that was gonna go into domestic service.
But you know we need a couple more aircrafts.
Fleet the loop. So we'll have that aircraft early so that aircraft arrived this weekend and Hamilton from converting being converted in China and it is going to be placed in service within 15 days of arrival. So it takes about a week to 10 days to do the paperwork with D that just took from the old country, where it came from.
So reregistered, Canada, and and there is a maintenance bridging gap likely takes about eight to 10 days to make sure that the.
<unk>.
Is brought up to date and also compliance with transport, Canada regulation, So I would say that once the aircraft lands.
And it's already landed with at least eight to 10 days into paint it comes in here.
And about 15 days after you put it in service so there's not much of a lag.
Because there's a lot of advance preparation done.
So it's fairly quick process months the aircraft to get soon.
Okay. So if I if I read the I guess the delivery schedule then for this 760 sevens that are coming in this year I think there's one in Q2 one in Q4. So we should assume that those basically go on to contract with with the DHL in the ACI in in Q2 and Q4.
Yeah, Yeah, and we also as I said in discussion with other customers as well so.
Right.
I don't or don't don't have exactly in front of me what aircraft is going where.
But keep.
Keep in mind by the time some of the aircraft come in will have some peak requirements as well. So they don't necessarily mean that July 1st an aircraft is coming.
July 15, it could be in DHL scheduled.
All I can tell you there'll began fully employed by July 15th.
And it might be DHL, it might be another customer might be just a.
Covering for a C check for maintenance. So this is a complex fleet planning that we go through every year.
And you know with.
With all the extra flying we did during COVID-19.
The airplanes do need some resting and some when plc. So.
We have a strong plan for this year.
Because.
Two things happened if the maintenance.
It's good.
Is number one is your on time performance and number two is safety so.
Both of these things are critical and sometimes.
It might take a month before we released aircraft or exchange it with another crap aircrafts rotated its a complex job that Jamie and his people do.
As I said almost on a daily basis to ensure that we get the maximum utilization keeping safety and on time performance in mind.
No absolutely makes sense.
Thanks very much.
Thank you Cameron.
Yeah.
We will now take a question from Amit <unk> of Beacon Securities.
Hey, guys, just a quick housekeeping cleaning item here on <unk>.
Remind us of the.
Price escalation related to inflation and the car side. So I think it's no is that all the time, but he is a pass through so maybe a little bit of a discussion there given the unprecedented times.
Should any pushback.
On those and how are they fairing against your cost increases.
Excuse me or B any lurching, because some of the cost increases you guys have it.
Well look I mean, we do have cost Escalations annual CPI.
And.
Either CPI plus ones you'd be X minus CPI, depending on the customer and the volumes.
We also have the ability to pass through fuel. We also have the ability to pass through certain government surcharges and all of that unexpected increases that we have to take.
You know nobody's happy to take any increases as you know.
But you know we have very strong customer relationships and we do we're not short term thinkers in terms of rate.
Sometimes we do end up absorbing some of the charges, but not all of it for a period of time. So they can ramp up with customers and this is technically how we built the relationship with our customers.
You know sometimes you do.
Give them a little bit of a break for a period of time, because they can recover from the customers. So there are some lag like that.
Special circumstances.
You usually are.
The lack catches up and we do get a.
What what whatever actual cost increases.
But certainly you know cause like a general labor and labor cost and free.
You know they can't be addressed at this time, but you know next time around or the contract opening we do address those issues.
Those are some of the stuff that.
The general stuff, we are seeing in the marketplace.
It's not easy to recover right off the bat, but its somewhere along the line.
Catch up with it.
That's great. Thanks, that's it for me.
Yeah.
Yes.
Thank you.
There are currently no further questions into Q.
Yeah.
Okay. Thank you very much everybody that concludes cargo jets Q1.
Quarterly call.
Thank you.
Thank you. Thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
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Okay.
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