Air Canada Says Travel Demand “Very Stable” As Airline Reports Net Income Surge In Q3 2023

Air Canada (TSX: AC) has reported gains in its latest quarter amidst the economic challenges posed by inflation and higher interest rates. The company witnessed its net income for the third quarter surge to $1.25 billion, a stark contrast to the half-billion-dollar loss experienced in the same period a year earlier.

CEO Michael Rousseau shared his optimism, stating demand remains “very stable.” This was reinforced by a substantial 22% year-over-year increase in passenger revenues for the quarter ending on September 30.

“We see relatively strong demand for (the fourth quarter) in almost every single geography that we operate in, in almost every single segment that we operate in,” said Mark Galardo, Air Canada’s executive vice-president of network planning and revenue management, in the earnings call. “We’re not seeing any major slowdown at this point in time.”

Operating revenue came in at $6.34 billion, up from last year’s $5.32 billion, driven by higher passenger revenues. Operating margin also jumped to 22.3% from 12.1% in the previous year.

Adjusted earnings exceeded pre-pandemic levels of 2019, showcasing the airline’s resilience in the face of the travel industry’s turbulent times. In the quarter, the Montreal-based airline posted an adjusted profit of $1.28 billion, equivalent to $3.41 per diluted share, an increase from the prior year when it recorded an adjusted net income of $438 million, translating to $1.07 per diluted share. This result exceeded analyst predictions, with the market expecting an adjusted profit of $2.15 per share for the quarter,.

Notably, Air Canada achieved these robust earnings despite operating with a smaller flight capacity than four years ago. Furthermore, corporate customers have yet to return fully, with business still lagging 25% to 30% below pre-pandemic levels, according to Mark Galardo, Head of Network Planning.

While these results are commendable, the reduced fleet size may have contributed to Air Canada’s relatively weaker on-time performance, as the airline ranked ninth out of the top 10 major North American carriers, according to data from aviation firm Cirium. Only 68% of the airline’s 32,000-plus flights in September arrived on time, contrasting with figures ranging between 76% and 86% for the top seven airlines, including WestJet.

Rousseau pointed out that the nearly 90% load factor, a critical metric measuring the percentage of available seats filled by passengers, contributed to the delays. He explained, “While this signals that we use our assets very effectively, one consequence is it puts extra pressure on the operations. That said, our on-time performance progressively improved throughout the quarter,” during a conference call with analysts.

Executives at Air Canada also acknowledged the intensifying competition in domestic, cross-border, and sun destination markets, with airlines like Porter Airlines, Lynx Air, and Flair Airlines rapidly expanding their presence. Galardo noted, “Competition will continue to evolve, with some carriers making strategic moves into seasonal markets,” particularly sun-splashed getaways.

Rousseau emphasized the airline’s commitment to remaining competitive and attracting and retaining customers, stating, “We know we must continue to invest in our business and continuously improve to maintain their loyalty.”

Looking ahead, Air Canada acknowledges the challenges ahead, with the company expecting its adjusted cost per available seat mile (CASM) for 2023 to be approximately 1.5% to 2.25% higher than 2022 levels. This contrasts with earlier expectations of a rise of 0.5% to 1.5% in adjusted CASM, reflecting the ever-changing landscape of the airline industry.

Earlier this month, Brink’s was revealed to reportedly be suing Air Canada for nearly $20 million over an alleged theft of gold bars and cash. The theft took place at Toronto’s Pearson airport, where the airline is alleged to have allowed an unidentified individual to abscond with the cargo.

Information for this story was found via Bloomberg, Yahoo, and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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