(Montreal) Lights on Air Canada’s dashboard point to a vigorous resumption of air travel. High fuel prices and rising interest rates do not appear to be worrying management at the moment.
Air Canada Chairman and CEO Michael Rousseau said he was “very optimistic” about growth prospects for the coming quarters and the medium term, during a conference call to discuss quarterly results. “Air traffic is back, revenue is growing and our financial situation, including our cash flow, is very strong,” he summarized.
A sign of early recovery, liability for tickets sold in advance, that is, tickets sold in anticipation of travel that has not yet taken place, is now at a higher level than it was before the pandemic. This figure is 5% higher in the first quarter than in the same period of 2019. “This is the first time this threshold has been crossed since the start of the pandemic,” underlines Tim James of TD Securities.
When asked about the effect of rising fuel prices on demand, management did not seem concerned at the moment. Rousseau said fuel prices had not been this volatile since the 2008 financial crisis and the effect on demand was difficult to predict. He noted, however, that demand still seemed to be in recovery mode after two years of the pandemic that put many travelers’ plans on hold.
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 fuel surcharge or revenue from additional services. “There is no doubt that for certain segments [de la clientèle], demand could be more affected, but there are still opportunities for us to generate more revenue than just using the base rate. »
Recovery is slower for business travel than tourism, but MI Guillemette was also optimistic for this segment of activity. Business travel remains about 50% below pre-pandemic levels. He anticipates that the drop will be 40% in May and June. “I think we may hit 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 generate about $45 million in higher debt service on that part, Chief Financial Officer Amos Kazzaz said.
Variable-rate accounts receivable account for 27% of Air Canada’s debt, compared to 63% at a fixed rate. “In an environment of rising interest rates, we are well protected,” Kazzaz said.
Losses higher than expected
Air Canada reduced its loss in the first quarter, but it remains higher than expected. The Omicron variant disrupted demand earlier in the year, but management says the uptick in March was strong.
The Montreal-based company’s net loss was $974 million, or $2.72 per diluted share, this fiscal year, compared with $1.304 billion, or $3.90 per diluted share, in the first quarter. of fiscal year 2021. .
Revenue, for its part, reached 2,573 million in the first quarter of 2022, about three and a half times the result of the corresponding quarter of 2021.
Adjusted diluted loss per share was $2.51, compared to $3.74 at the same time last year.
Before the earnings release, analysts had expected a net loss of $1.49 and revenue of $2.64 billion, according to Refinitiv.
Mr. James acknowledges that profitability is below expectations. “The cash flow, the tickets sold in advance and the fact that the forecasts for 2022 remain unchanged offset the results to the forecasts”, judges the financial analyst.
At the close of trading on the Toronto Stock Exchange, the stock lost $1.76, or 7.3%, to $22.46.