News Content

Virgin Australia enters air freight after terminating Toll contract

VIRGIN Australia has ended an exclusive contract for transport and logistics company with Toll Holdings to carry its cargo, which now means the airline will carry cargo.

The end of the contract will intensify competition with Virgin competing directly against Toll and Qantas in the air freight market.

This comes just a month after Japan Post completed its A$6.5 million (US$5 million) takeover of the Australian transport company. The deal with Virgin was due to expire on June 30, according to the Sydney Morning Herald.

Virgin CEO John Borghetti said the move was part of a strategy to reshape the airline as a rival to Qantas, sparking speculation it would operate freighters.

Freight becomes the responsibility of Virgin Australia Regional Airlines boss Merryn Macarthur, who said the airline would compete for short-haul international cargo market.

While ending its deal with Toll, Virgin will continue its contract with Richard Branson's British airline, Virgin Atlantic for cargo on long haul international services.

Qantas' freight division reported an underlying pre-tax profit of A$54 million in the first half of 2014-15 as it benefited from an improvement in international air cargo markets, especially on key routes such as China-US and US-Australia.

The airline's freight unit has a 13-strong fleet including three Boeing 747s, one B767 used on the trans-Tasman route, and four B737 freighters. A large portion of freight is also carried in the bellies of Qantas and Jetstar passenger jets.

The Australian Financial Review reaction was harsh: "There are just three real players - Australia Post, Toll and TNT - in the Australian market, accounting for more than 80 per cent of domestic air cargo volume.

"Qantas has just extended its contract with Ahmed Fahour out to 2020. This week, Qantas won Toll's business from Virgin. And Qantas already has the TNT contract, which will go to market again next year.

"And with Virgin claiming the Toll loss as a victory (now free of the shackles of an exclusive arrangement, etc), it begs the question: then why did they tender for it?" said the Financial Review commentary.