Air Canada beats revenue forecasts, plans 23% capacity boost

AIR Canada broke even in the first quarter, taking advantage of pent-up demand for travel and lower fuel costs as it edges closer to a full recovery from the pandemic.

The stock price rose as much as 4.7 per cent to C$22 on the Toronto Stock Exchange on Friday (May 12) morning before falling with the broader market.

Canada’s largest airline said operating revenue was C$4.9 billion (S$4.8 billion), nearly double last year’s first quarter when Canada still had some Covid restrictions in place. That easily beat analysts’ estimates for C$4.5 billion, according to data compiled by Bloomberg.

It was the airline’s second-highest quarterly revenue since Covid hit three years ago, surpassed only by last year’s peak summer travel season. Air Canada said it expects to increase capacity by 23 per cent this year, bringing its flight schedule to about 90 per cent of 2019 levels.

The Canadian airline is following the path of some of its US counterparts in reporting persistently strong demand from travellers. Last month, American Airlines Group and United Airlines Holdings both said second-quarter profit may exceed Wall Street projections because of robust bookings for overseas flights.

“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,” Air Canada chief executive officer Michael Rousseau said in a news release. Advanced ticket sales reached C$5.3 billion in the quarter, up C$1.2 billion since Dec 31, 2022.

Its planes are also very full: the airline reported a load factor – a measure of available seats filled by passengers – of almost 85 per cent in the quarter. That compares with 66 per cent a year earlier and is higher than pre-pandemic levels.

On the bottom line, Air Canada earned C$4 million; it posted a small operating loss of C$17 million. The airline’s share price is up 8 per cent this year but has lagged US peers since the beginning of 2020. Canada kept Covid restrictions in place longer than the US.

Ticket prices

Customers should not expect lower ticket fares as fuel prices drop. “There isn’t that pressure right now,” chief financial officer Amos Kazzaz told analysts on the earnings conference call. Customer demand is strong and “fundamentally, we need to recover our costs. And as that volatility remains in fuel, we don’t really see a long-term trend that sort of says fuel is down at US$50 a barrel”.

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“While it is our view that demand and pricing is expected to weaken post-summer, we are mindful of a potential structural shift in the nature of airline demand that may see travel hold up despite a weakening economy,” RBC Capital Markets analyst Walter Spracklin wrote in a note to clients.

“We are seeing a significant uptake in the business cabin recovery,” said Mark Galardo, the airline’s executive vice president of revenue and network planning. The improvement is being driven by leisure travel, with retail customers redeeming points from the company’s Aeroplan loyalty programme, he said.

“From a corporate perspective the recovery has plateaued a little bit, but we’re really encouraged to see that the non-contracted business traffic continues to recover significantly,” Galardo added. BLOOMBERG