TNT Express awarded what is expected to be a US$575 million, five-year contract to Virgin Australia for domestic cargo transport which has prompted Virgin Australia to wet lease three freighters for the job.
Beginning in July of this year, Virgin Australia will uplift TNT’s freight on its domestic network, as well as on the newly-leased freighters. Virgin Australia’s network currently extends to 47 destinations within Australia and offers connectivity to 17 international destinations within the Virgin Group’s network.
Virgin launched its cargo division on in July last year after its long-time freight manager Toll Holdings said Qantas would carry its freight, which had gone in the belly of Virgin aircraft since 2007. At the time, Qantas also re-signed with Australia Post for a five-year deal that, when combined with Toll, was expected to contribute more than $100 million of annual revenue.
“We always knew we were going to take a hit in revenue in the short term,” Virgin Australia chief executive John Borghetti told The Australian Financial Review of the decision to manage the cargo itself rather than through Toll. “We were confident in the long term we’d be further ahead. I am still confident of our ability to do A$150 million (US$113.8 million) by the end of the 2017 financial year.”
Virgin set a target in August 2014 of tripling annual freight revenue to $150 million to $200 million by the end of the 2017 financial year.
Qantas Freight reported a record $114 million of underlying earnings before interest and tax in 2015 from $1.067 billion of revenue. However, Qantas warned earnings in 2016 were not expected to match 2015’s figure, amid aggressive competition in a flat domestic market.