- By Region
John Menzies, the airline baggage handler and newspaper distribution group, will end its cargo operations at four regional airports as overcapacity squeezes margins in the cargo sector.
The Edinburgh-based group will close its cargo business operations in Manchester, Glasgow, Birmingham and East Midlands airports by the end of next month, triggering an exceptional write-off of up to £3m.
The company would not comment on job losses, although any redundancies are expected to be “single digits”, as rival companies pick up Menzies’ remaining contracts.
Like-for-like cargo volumes at Menzies fell 7 per cent in the first quarter of 2012, while overcapacity at airports such as Manchester and Glasgow had squeezed margins further.
Although overall cargo accounted for around a quarter of the aviation division’s underlying earnings, cargo operations at Manchester, Glasgow, East Midlands and Birmingham airports suffered losses of almost £2m last year, according to analysts at Numis.
Menzies, which started as a chain of newsagents in Edinburgh in 1833, will instead focus on its remaining profitable UK cargo operations, which include London Heathrow as well as Aberdeen and Belfast.
The move to reduce its exposure to the cargo sector comes as Menzies has become increasingly reliant on its aviation division. The division accounted for over half of the group’s total underlying earnings, overtaking the group’s newspaper distribution division for the first time last year.
Increasing revenues from its aviation division had cushioned the blow from its stagnant newspaper distribution business, sending pre-tax profits up almost a third to £48.5m in 2011.
Although the move reduces the group’s exposure to cargo operations at UK airports, Menzies said it remains committed to the aviation sector. Only a quarter of non-cargo baggage handling is outsourced, with analysts expecting this figure to increase as budget carriers to look to cut costs and improve turnround times.
Shares in the group edged up 1 per cent to 612p following the announcement. They are up more than 15 per cent since the start of the year.
Commenting on the move Mike Murphy, an analyst at Numis, said: “[Menzies are] only getting rid of a few lossmaking sheds that they had. Menzies had persevered and done as much as they can, but decided that the best way forward was to concentrate on the profitable sheds in the UK, such as Heathrow.”