Air Canada’s stock takes a nosedive as the airline’s losses are larger than expected on the back of higher operating costs.
The Montreal-based company unveiled a bigger adjusted loss than analysts expected, as Air Canada grapples with inflation, labor shortages and harsh weather conditions that disrupted flights during the period celebrations.
The air carrier has commented optimistically on demand and believes it will be able to regain pre-pandemic capacity in 2024. This recovery, however, comes with cost pressure, particularly due to labor scarcity. – of work.
Air Canada expects operating expenses per available seat mile (ASM) to be 13% to 15% higher in 2023 than in 2019 (pre-pandemic). The cost of labor, the cost of technology and the cost of food served on the plane have been hit by inflation, chief financial officer Amos Kazzaz said Friday during a conference call with analysts. He predicts that inflation will moderate in 2024 and 2025. “We believe that the pressure should fade for these three components. We see the price of raw materials decreasing and in some sectors labor is available again. »
Air Canada’s operations were also disrupted by winter surprises during the busy holiday season. Chief of Operations Craig Landry said the weather conditions were “more extreme” than normal. “In Vancouver, four-foot icicles formed on the devices, rendering our assets unusable. »
Air Canada’s financial results continue to be impacted by the pandemic, as demonstrated by the loss of 1.7 billion recorded for the entire fiscal year 2022. In 2021, the loss was 3.6 billion. In the fourth quarter, the company recorded a net profit of 168 million, compared to a loss of 493 million in the same period last year. Revenues, for their part, increased by 71%, to 4.68 billion.
The diluted adjusted loss per share, however, was greater than expected. At 61 cents per share, it beat analysts’ average forecast of 21 cents, according to financial data firm Refinitiv.
At Friday’s close, the stock lost $1.95, or 8.4%, to $21.20, on the Toronto Stock Exchange.
Optimistic for 2023
The outlook remains “solid” for the airline industry, believes President and CEO Michael Rousseau. “Booking trends remain strong, both in terms of volumes and prices, particularly for international routes. »
Management expects operational capacity expressed in available seat miles to increase by 24% in 2023 to 90% of the 2019 level. It believes it will be back to 100% capacity in 2024.
RBC Capital Markets analyst Walter Spracklin says strong demand and higher ticket prices have helped ease the impact of cost pressure. “However, we see a risk of an economic slowdown in 2023.” The forecasts suggest that management believes it will benefit from a favorable context for ticket prices, the analyst said. “We believe that sales are the most risky element in the forecast. »
Mr. Rousseau acknowledged that the performance of the airline industry is strongly linked to the health of the economy. With travelers rediscovering the taste for travel after the health restriction measures, the leader “is no longer certain” whether the correlation will hold during this cycle. “We’re taking advantage of the high demand while she’s there. […] Time will tell if this relationship will resume, but at the moment we are not watching. [le ralentissement lié à l’économie]. »