The lights on the Air Canada dashboard point to a vigorous resumption of air travel. Soaring fuel prices and rising interest rates do not seem to be worrying management at this time.
Air Canada President and CEO Michael Rousseau said he was “very optimistic” about growth prospects for the next few quarters and the medium term, during a conference call to discuss results quarterly. “Air traffic is back, revenues are growing and our financial situation, including our cash flow, is very strong,” he summarizes.
Sign of the anticipated recovery, the liability for tickets sold in advance is now at a higher level than before the pandemic. This figure is 5% higher in the first quarter than in the same period in 2019. “This is the first time that this threshold has been crossed since the start of the pandemic”, underlines Tim James, of TD Securities.
Asked about the effect of rising fuel prices on demand, management did not seem to be worried about it for the moment. Mr. Rousseau mentioned that the price of fuel had not been so volatile since the financial crisis of 2008 and that it was difficult to predict the effect on demand. He pointed out, however, that demand still seemed to be in catch-up mode after two years of the pandemic that put many travelers’ plans on ice.
Fewer business trips
The head of commercial affairs, Lucie Guillemette, clarified that the Montreal company has several tools at its disposal to generate more revenue per passenger, such as the surcharge for fuel or revenue for additional services. “There is no doubt that for certain segments [de la clientèle] demand could be affected more, but there are still opportunities for us to generate more revenue than just using the base rate. »
The recovery is slower for business travel than tourism, but Mme Guillemette was also optimistic for this segment of activity. Business travel remains about 50% below pre-pandemic levels. It anticipates that the decline will be 40% in May and June. “I think we can reach the 30% to 20% threshold in North America around September or October. »
As with oil, management made relatively optimistic comments about the effect of interest rates on the company’s debt service. Raising interest rates by 1 percentage point would lead to about $45 million in higher debt service on that portion, chief financial officer Amos Kazzaz said. Floating rate receivables represent 27% of Air Canada’s debt, compared to 63% at fixed rate. “In an environment of rising interest rates, we are well protected,” comments Kazzaz.
Reduced loss
Air Canada pared its loss in the first quarter. The Omicron variant disrupted demand early in the year, but management says the rebound in March was strong.
The Montreal-based company’s net loss was $974 million, or $2.72 per diluted share this fiscal year, compared to $1.3 billion, or $3.90 per diluted share in the first quarter of fiscal 2021. Revenues, for their part, reached $2.57 billion in the first quarter of 2022, around three and a half times the result of the corresponding quarter of 2021.
The diluted adjusted loss per share was $2.51, compared to $3.74 at the same date last year.