When the world around you starts turning again but yours is at a standstill, you are left behind. That’s the world of Air Canada in the first six months of 2021. Continued travel restrictions to and from the country have weighed heavily on the airline and it shows. The carrier reported a CS$1.165 billion net loss for Q2 and a CS$2.469 billion HY1-loss, only a bit lower than last year. But now, Air Canada’s fortunes start turning around.
Looking closer at Q2, the CS$1.165 billion compares to CS$1.7752 billion last year. The operating loss was CS1.133 billion versus CS$1.555 billion. Total revenues improved to CS$837 million from CS$527 million, the most significant positive note. Net cash suffered from CS$997 million in ticket refunds.
The HY1-loss of CS2.469 billion compares to last year’s CS$2.801 billion, the CS$2.182 billion operating loss was even higher compared to CS$1.988 billion in 2020, which already was a year of woe. Total revenues were at CS$1.566 billion, down from CS$ 4.249 billion. Passenger revenues accounted for CS$821 million and saw some slight improvements in the second quarter.
Per day, Air Canada burned CS$8 million, which actually is better than the projected CS$13-15 million. President and CEO Michael Rousseau attributes this to “significantly increased bookings” since June when the government lifted the fourteen-day quarantine for fully-vaccinated Canadians that returned home. The announcement on July 19 that travel restrictions for Canadians will be further relaxed from August 9 and for international travelers from September 7 is seen as a huge boost for better times. Winter bookings are even ahead.
Q3 capacity back to 65 percent of 2019
As Air Canada’s fortunes start turning around, the carrier expects to increase capacity in Q3 by 85 percent over Q2, which translates into 65 percent of 2019 levels. Net cash burn should improve better to CS$3-5 million per day, including CAPEX and lease and debt services costs.
Canadians are offered fifty new or re-started domestic destinations during this summer season, plus 55 transborder routes/220 daily flights to the US. While the rest of the international network remains at low levels and consists of seventeen routes/eleven destinations, Air Canada did add new routes to the schedule like Montreal-Cairo and will up frequencies to Hawaii coming winter. Transatlantic traffic has been coming back to France, Italy, and Greece. Asia-Pacific remains weak.
To man all these services, the carrier recalled 2.900 employees in various roles in June and July to bring total staff numbers to 16.800 FTE, a third from the 24.700 in last June. In HY1, the airline benefitted from CS$326 million in emergency wage subsidy to help employees to retain their positions.
The carrier ended June with CS$9.75 billion in unrestricted cash, thanks to CS$5.879 billion in debt and equity arrangements that were secured in April under the Large Employer Emergency Financing Facility. As reported, the government took an equity investment of CS$500 million.
Air Canada will use a senior secured revolving facility loan that was launched on July 19 valued at CS$5.35 billion to refinance previous notes and loans as well as using it for working capital. The closing of the facility is expected in August. The airline repaid CS$400 million of unsecured notes as they matured last April. Long-term debt and lease liabilities stand at CS$11.7 billion with net debt at CS$7.1 billion.
Cargo to become an important part of the future
On June 30, Air Canada’s mainline fleet consisted of 168 aircraft (one fewer compared to December), Air Canada Rouge had 39 narrow bodies, and Air Canada Express 129 regional aircraft (136). The carrier is converting the first two Boeing 767-300ERs to full-freighter configuration for Air Canada Cargo, which are to be followed by six more aircraft that are retired from the passenger fleet. Two converted 777-300ERs and two A330s will be retired from cargo services and return to pax services.
Cargo remains to be a significant factor in Air Canada’s operations, with revenues up by 33 percent in Q2 to CS$358 million and by even 53 percent in HY1 to CS$418 million. “Cargo will be a more important part of our future, but I think I will safe until our Investor’s Day next year what our expectations are”, said Rousseau. “But certainly, we see the growth rate in cargo well exceeding what our passenger rate might be. Still, we are going to be a passenger airline.”
Air Canada will take delivery of three more Boeing MAX this year to bring the fleet to 27. Another three Airbus A220-300s are also scheduled for delivery this year, bringing the total fleet to 172 aircraft by the end of December. The carrier has forty MAX and 33 A220s on order but completion of this order remains subject to terms and conditions of the applicable purchase agreements. It will retire two 777-300ERs, two A319s, and one A320 from the mainline fleet while fifteen Mitsubishi Dash 8-300s will be retired at Air Canada Express. With the new deliveries coming in, the carrier will have the fleet flexibility to add capacity if needed. Unless something very dramatic happens, it is unlikely it will reintroduce some of the 79 aircraft again that were retired last year.