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While its third-quarter net loss of $640 million isn’t looking much better than that of 2020, Air Canada is definitely back in recovery mode, it said on November 2. This is translated into favorable revenues and traffic trends as Canada re-opened for vaccinated international travelers and domestic travel restrictions were relaxed. At the same time, the carrier is aggressively growing its capacity. Air Canada back in full recovery mode.
The $640 million net loss compares to $-685 million in Q3 2020. However, it includes a $136 million foreign exchange loss, $88 million higher than in 2020. The EBITDA excluding special items improved to $-67 million from $-554 million as August and September produced a positive result. Air Canada became cash positive again in Q3 (at $153 million) instead of the projected cash burn of $280-460 million. The operating loss of $364 million also improved over last year’s $-785 million.
Another indicator for the improved situation is operating revenues, which in Q3 almost tripled from $757 million to $2.103 million thanks to strong advanced ticket sales. Cargo revenues were $366 million in Q3 and have now surpassed $1.0 billion this year for the first time in the airline’s history. The Pacific was the strongest cargo market, ahead of the Atlantic.
Cargo capacity will grow as Air Canada Cargo will soon take delivery of the first of eight converted Boeing 767 freighters. By early 2022, six Boeing 777-300ER and four Airbus A330-300 passenger aircraft that have been used for cargo-only services will return to the passenger fleet, where they will contribute to cargo with their belly capacity.
Results for the first nine months are: a net loss of $3.109 billion versus $-3.486 billion, an operating loss of $2.546 billion ($-2.773 billion), and revenues of $3.669 billion ($5.006 billion). In July, the airline reported a $2.469 billion HY1-loss.
The carrier’s financial position also improved thanks to the completion of various financial transactions, which included raising gross proceeds of $7.1 billion, lowering the costs of borrowings, and extending maturities of its debt. It repaid $200 million of a revolving credit facility.
Air Canada ended September with $9.5 billion in cash and cash equivalents plus $4.9 billion in undrawn facilities. CFO Amos Kazzaz says that it is still too early to say if the carrier will opt out of the government’s $4.0 billion standby credit, which it views as “an added layer of insurance” if it needs it to repay for non-refundable tickets. Net debt stands at $7.2 billion, up from $4.9 billion in December.
No shortage of staff
After reducing staff by 20.000 last year, Air Canada has recalled over 10.000 employees since the start of the year and is adequately staffed to prevent any issues. “We continue into Q4 to bring more employees in and we are also hiring new employees to come into the company as fresh employees as well”, said CCO Craig Landry. “We haven’t observed any challenges that you have seen at other airlines with their struggle to meet their schedule demands. In fact, we have been able to successfully operate well into the ninety percent of our flights as planned in the schedule.” CEO Michael Rousseau added that there is no shortage of pilots, “full stop.”
Air Canada increased its capacity in available seat miles (ASM) by 87 percent in Q3 compared to 2020 as it resumed services on seventeen international routes, reopened transborder routes to the US with 220 daily flights, and ramped up domestic capacity on fifty destinations. One of the new routes was that to Cairo while the carrier also returned to India and South America (with Rouge), with more destinations in South America offered from December. ASM capacity for Q4 will be up by 135 percent but still only 63 percent of 2019 levels, with cross-border and transatlantic traffic set to be the biggest pushers for growth.
For next summer, Europe, India, Africa, and the Middle East feature prominently on the network. Although most bookings are close-in, they look strong for Q4 and look even promising for next summer, giving Air Canada the confidence that the recovery will continue and that, by then, demand will be back at 2019 levels.
“We are witnessing a strong demand in VFR (visiting friends and relatives) and leisure traffic remains strong, specifically in North America, across the Atlantic, and to sun destinations”, said Chief Commercial Officer, Lucie Guillemette. “In contrast, the recovery of the Pacific is lagging, given ongoing border closures and strict restrictions still in place in many countries we fly to. We continue to believe we can offset this with opportunities in other geographies.”
Business travel is still lagging behind compared to corporate in the US, but Guillemette is optimistic about a strong recovery in 2022 as corporate Canada resumes flying. She added that premium cabins are seeing good bookings as more leisure travelers select to fly premium, a trend also seen with other airlines.
Two more A220s and MAX 9s ordered
Air Canada has revised its fleet plans and has ordered two more Airbus A220-300s. The two were originally part of the order for twelve that was canceled in November 2020. This brings the total number of A220 firm orders to 35, with three deliveries scheduled until December. Kazzaz said that the A220 is proving to be an excellent aircraft for the airline’s domestic network. With more options on the type, the airline will view all opportunities if the recovery justifies a business case for more aircraft purchases.
The airline has also advanced deliveries of four Boeing MAX 8s this year after reaching an agreement with Boeing in October. This leaves nine MAX up for delivery by the end of Q2 next year, when the fleet will have grown to forty MAX 8s. It exercised options for three MAX 9s for delivery in 2022 and 2023. The aircraft to be delivered this year will be purchased with available cash.
The total fleet will grow from 167 now to 189 by December 2022 while Air Canada Rouge’s fleet will remain static at 39. The retirement of seventeen De Havilland Canada Dash 8-300s will reduce the fleet of Air Canada Express from 131 to 114 by the end of next year.
Air Canada ready for faster recovery
On the long-term recovery, Michael Rousseau said that “there is no doubt that we are encouraged by what we see. There is no doubt too that the length of the recovery has moved in from consensus in 2025 to at least 2024 and maybe 2023. Are we ready for a faster recovery? For the most part, yes. We provided ourselves options to grow quickly, as was demonstrated in Q3. So we believe we can get almost back to 2019 capacity by 2023 with what we have today and with some of the options that we have.”
Air Canada isn’t too worried yet about fuel prices, as it sees the curve coming down again in recent weeks and also has an advantage of a strong Canadian Dollar against the US Dollar. That makes it reluctant to hedge fuel as this comes at a price too. Instead, the carrier prefers to optimize cabin revenues to compensate for any increases in fuel prices.
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