Virgin Cargo takes first half hit amid tough competition


The company remains optimistic about reaching its 2017 target despite a weak start to the year

Virgin Cargo takes first half hit amid tough competition
Virgin Australia Cargo says it has signed up to 90 freight accounts since July 2015.

 

A relatively slow start to the financial year has done nothing to affect Virgin Australia’s hopes of trebling its revenue to between $150 million and $200 million by June 2017.

CEO John Borghetti says the company was prepared for an initial slump but remained confident that in the long run it will profit and reach its 2017 goal.

Virgin Australia Cargo, which was launched in July last year, offers more than 3,400 flights per week through access to the Virgin Group’s flight network of 47 domestic and 16 international destinations.

The company says it has signed up to 90 freight accounts since the launch, including a heads of agreement for an exclusive five-year deal with one of Australia’s biggest air freight contracts, TNT.

If finalised, the TNT account would be a big coup for Virgin after having lost two other major freight accounts – Toll Holdings and Australia Post – to Qantas Freight last year.

Together, TNT, Toll and Australia Post account for more than 80 per cent of the domestic air cargo volume.

Virgin recently replaced Toll with third-party providers like Menzies Aviation, Aerocare and Dnata to handle ground services.

Currently, Qantas’ cargo division outbalances Virgin in both the size and the number of contracts; however, the latter company indicates that it has not ruled out leasing or buying dedicated freighter aircrafts in the future.

Virgin remains optimistic about its growth in the long term despite reporting a $253 million negative free cash flow in the first half of the financial year.

Globally, the air cargo market is weaker as compared to a few years before, with the International Air Transport Association (IATA) predicting that market conditions in 2016 will be more difficult than last year and even carriers like Qantas, which reported a record $114 million earning before interest and tax in 2015, will find it hard to match those figures this year.

"In 2011 air cargo revenue peaked at US$67 billion," IATA CEO Tony Tyler says.

"In 2016 we are not expecting revenue to exceed $US51 billion."

Moreover, demand in the Adia-Pacific region had slowed down on account of a weaker Chinese economy, with more and more Asian businesses focussing on domestic consumption over international trade.

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