Happy faces not just in Norway today, but also in Canada, where Air Canada reported “an impressive first quarter”, to quote CEO Michael Rousseau. The airline produced a tiny net profit but succeeded in turning around a big loss last year, thanks to strong demand in most of its markets. Air Canada’s Q1 exceeds its own expectations.
Let’s go through the numbers. Passenger revenues increased to CS$ 4.088 billion from CS$ 1.917 billion, with other/ancillary revenues up to CS$ 561 million from CS$ 258 million. Cargo revenues were lower at CS$ 238 million from CS$ 398 million, resulting in total revenues of CS$ 4.887 billion versus CS$ 2.573 billion in Q1 2022.
Expenses were also up for Air Canada, reaching CS$ 4.904 billion compared to CS$ 3.123 billion. Fuel costs were up to CS$ 1.375 from CS$ 750 million, but this not just reflects higher prices but above all an increase of 53 percent in operated capacity year on year. Compared to Q1 2019, capacity was still at 84 percent. Wages and salaries also increased significantly to CS$ 914 million from CS$ 737 million.
Income minus expenses makes an operating loss of CS$- 17 million, up from CS$ -550 million last year. Add to that finance, other costs plus taxes, and the net result is a CS$ 4 million profit versus a CS$- 974 million loss. Air Canada already returned to profit in Q4.
Demand is strong across all regions
The trend is that Air Canada benefitted from a huge increase in demand. Remember that in Q1 2022, Canada was still confronted with travel restrictions that made flying unattractive. With Omicron more or less gone, demand soared. Domestic travel generated the most income at CS$1.064 billion, up from CS$648 million. The next best was transborder traffic to the US, which produced CS$ 966 million in revenues versus CS$ 425 million a year earlier.
The Atlantic has also produced good revenues, which grew to CS$ 924 million from CS$ 464 million. “More than eighty percent of the year-over-year gains came from traffic between Canada and Atlantic markets. Traffic and yield increased from the same period in 2022 in nearly all major Atlantic services, but most notably in Western Europe,” the airline says in its management analysis.
Also recovering strongly was Asia and the Pacific, which saw revenues jump to CS$492 million from CS$98 million a year earlier. “Pacific passenger revenues increased about five times from the first quarter of 2022 largely as a result of the restoration of services to Japan, Australia, South Korea and, to a lower extent, Hong Kong, following the easing of restrictions in Canada and in the previously mentioned countries. More than eighty percent of the year-over-year gains came from traffic between Canada and Pacific markets.”
Revenues in cargo declined, which “was primarily driven by lower revenues in the Pacific market as a result of temporarily converted passenger aircraft having been returned to passenger operations later in 2022. To a lesser extent, yield normalization in all markets also contributed to the year-over-year decline. The decline was partially offset by increased freighter operations to Central and South America and to Europe.” Air Canada Cargo continues its strategy to add more full-freighter capacity. By the end of March, it had six Boeing 767 freighters, of which four were in service.
Revised full-year guidance
“Our first quarter financial results exceeded both internal and external expectations and we expect demand to persist, supported by strong advance bookings for the remainder of the year. For this reason, as well as lower-than-expected fuel costs, we increased our 2023 adjusted EBITDA guidance last week,” Rousseau said in the earnings release. EBITDA is guided between CS$ 3.5 and CS$ 4.0 billion. Adjusted costs per available seat mile are guided to be 0.5 and 2.5 percentage points below 2022. Air Canada expects to recover its full-year capacity to ninety percent of 2019, or 23 up from 2022.
The airline ended the quarter with CS$ 6.5 billion in net debt, down from CS$ 7 .5 billion. The net debt to Adjusted EBITDA ratio improved from 5.1x to 3.2x. Total liquidity stood at CS$ 10.5 billion, including one billion in undrawn credit facilities.
Between December and late March, the fleet grew by four aircraft to 196, 42 at Air Canada Rouge, and 114 at Air Canada Express. New aircraft deliveries were low and consisted of a single Airbus A220-300 for the parent airline and three Airbus A320neo’s for Rouge. The widebody fleet grew by three aircraft that returned to the passenger fleet. Until December, Air Canada expects to take delivery of two Boeing 787-9s, add the 18th Airbus A330-300 and grow the 767-300F fleet to four aircraft. 2024 should see more changes, with the delivery of another A220-300 and 787-9 and the addition of two 767-300F and 777Fs.
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
In 2022, he has gone full-time freelance. Richard has been contributing to AirInsight since December 2018. He is also writing for Airliner World and Aviation News and until July 1 2023 in a part-time role with Dutch website and magazine Luchtvaartnieuws. Twitter: @rschuur_aero.