Menzies soars amid ‘robust’ air cargo market

Shares of John Menzies plc, the Edinburgh-based global aviation logistics specialist, rose about 6% on Tuesday after it published an update on current trading that showed “a record £73m net sales win” amid a “robust” air cargo services market.

The board expects trading for the full year to be at least in line with market expectations after stronger than expected trading in recent months,” said Menzies.

The company’s financial position remains solid with liquidity standing at £150m on 31 October 2021.

“Net debt is in line with our expectations and is currently expected to be around £200m at the year end.

Globally the air cargo services market remains robust, and we are seeing a steady increase in aircraft movements in all regions, supporting the continued recovery in our ground and fuelling services businesses.

Commercial momentum has continued with some excellent new contract wins and retention of key contracts.

“Year to date we report a record £73m net sales win in annualised revenue.”

Menzies added: “The global cargo services market has generally remained robust throughout the pandemic, with increased volume from new business driving higher returns.

“Our cargo forwarding business is having a record year as we embrace the continuing expansion of the e-commerce market.

“Excellent contract wins over the last two years have driven our absolute volumes handled in 2021 to 115% of 2019 levels.

In ground and fuel services the continued recovery in aircraft movements is evident across all regions.

“In ground services, the returning volume has attracted a significantly higher margin as our supporting cost base is already in place.

“We expect this will continue until volumes reach an inflection point in 2022.

“For the year to date ground services turns are currently 45% and fuelling events are 60% of 2019 levels although volumes in Q4 to date are significantly above these levels.

“Whilst regional variations exist, domestic and regional markets are generally stronger, particularly in the Americas.

In some markets, particularly North America, labour availability is currently challenging.

“This issue is more prevalent within the ground services business, with our air cargo and fuelling businesses less affected. In terms of general inflation, most customer contracts contain cost inflation clauses.

“However, we do at times discuss pass through price increases with customers to ensure service delivery is maintained and airline on time performance is protected …

Commercially we are having a record year, driven by our reinvigorated commercial focus and customer centric approach.

“Our successes have been across the network but importantly predominately focussed in target markets where we believe there are strong growth prospects and the ability to generate higher than average margins.

In Mexico, we recently secured a multi station deal to provide a range of ground services at 15 airports to Aeromexico, the country’s flag ship carrier, which will see us handle over 23,000 turns per annum.

“In the same region we have secured the business of Ultr Air, a new low-cost carrier, in Colombia at four airports with very strong growth projections.

“In Oceania, we renewed our existing business and secured significant new business with Virgin Australia, Menzies will now handle c8,000 flights and over 68,000 tonnes of cargo per annum at a total of 10 locations across Australia and New Zealand.

A key part of our strategy is to build customer relationships rather than just contract wins, and this was recently evidenced with a new customer, Avianca.

“In May 2021 we won Avianca’s cargo handling business at their Miami hub; after delivering significantly improved service levels in Miami we have now added three new locations, Los Angeles, Toronto and Amsterdam, and we look forward to expanding further with Avianca in the future.

Renewing our existing business is an important part of our success and we were delighted to recently announce the renewal of all our existing business with one of our major customers, easyJet.

“The renewals covered 21 locations across Europe for a further five years.

Our business development pipeline continues to be strong, and we are confident of announcing further expansion before the year end.

“Of the investments made during the year we are pleased with the progress made.

“Operations in China at Guangzhou Airport have been delayed due to Covid-19 but will start soon.

“Our recent acquisition in Costa Rica is performing well and we have developed a clear plan of how we can grow its range of services across the Latin American region.”

In its outlook, John Menzies said: “The delivery of our strategic priorities is firmly on track and our pipeline of opportunities remains full.

Our vision of growing our portfolio to produce a more balanced and resilient mix of revenue is well underway and our recent expansions are delivering strong returns.

“We expect this growth to continue into 2022 and beyond with cargo volumes already ahead of 2019 levels.

Volume recovery in ground and fuelling services continues to gain traction, although impacted from time to time by local Covid-19 related travel restrictions, but we expect the recovery to continue and currently forecast 2022 flight volumes to be at around 80% of 2019 volumes.

Overall, we forecast a strong end to the year, particularly in air cargo services and we are confident that the growth ambitions we have for future years can be met and exceeded.”

John Menzies plc chairman and CEO Philipp Joeinig said: “Despite current news on travel restrictions, we have proved time and again that we are a resilient business due to our product mix, geographical diversity and the fact that less than 10% of our business relates to long haul passenger flights.

Our increased focus on air cargo services and emerging markets is delivering great results and enhanced returns.

“We will continue to pursue our strategic priorities, and this will drive our business forward and allow us to deliver our growth ambitions.”